by Bruce Dunlavy
(An index to my other posts is available from the pull-down menus at the top of this page, and my blog home page and index of other posts may be found here.)

As I prepared to write a post about the current government shutdown, I had thought it would be about the origins, mechanics, and general foolishness of it all. As it turned out, a chance comment I made on another platform ensures that I will devote this space to the effects of the shutdown on Federal workers and those who depend on them.

Here is the aforementioned social media comment:
“It pains me to see/hear unpaid Federal government workers saying that, since they are about to miss their first paycheck since the shutdown, they will have to sell their car or miss a mortgage payment or have to go to a free-food pantry in order to eat. As disgraceful as this shutdown is, it is not wise money management to live that close to the edge. You should not be borrowing money for a house or (especially) a car until you have some savings you can tap in case of emergency.”

I did not expect that comment to provoke the protests that followed. People in their twenties and thirties let me know that my age was showing and that I did not understand the unique economic circumstances in which today’s young adults must navigate their lives. Low wages, overpriced housing, burdensome student loan repayments, and dim prospects for advancement seem to make things more difficult for them than for those who came before.

The first thing that comes to mind, of course, is Ralph Waldo Emerson’s classic rhetorical question, “Can anybody remember when times were not hard and money not scarce?” Most generations have depicted themselves in an economic struggle not felt by their predecessors. I, for example, was born at the middle of the last century, at the height of the Baby Boom, that cohort which has been passing through American demographics like a watermelon through a boa constrictor.

We looked with envy on those who were ten or fifteen years older. They were too young for Korea and too old for Vietnam. They were fewer in number, but were sought after to serve the demands placed on the economy by …. well, by us – the boomers. It seemed jobs were easy to come by for them. College was comparatively inexpensive, and they graduated with a diploma in one hand and a fistful of job offers in the other. We, however, came of age just in time to see our massive group of new adults fuel a spike in inflation while the declining birth rate cut into the need for workers.

Most of us had parents who had lived through the Great Depression, and who imbued us with a sense of thrift and a fear of coming hard times. The group of young, government-employed professionals I began my career with included many who rented apartments with one or more roommates until they got married. There were also some profligates whose first paychecks went towards the down payment on a Corvette. Some put money aside from the beginning and were glad they did when a change in political parties at the top produced a 20 percent layoff of staff only two years later.

“The hell this ain’t the most important hole in the world. I’m in it.”

Image credit: Bill Mauldin
, Up Front

And if any were offended by my comment, I sincerely apologize. Neither insult nor patronizing were my intent. I do not mean to denigrate the financial habits of today’s 20- and 30-somethings; my comments were not meant to generalize, nor did I aim my comments at any particular demographic group. They apply to whomever they apply to, no matter their age.

Indeed, it is a difficult time. Part of that is the culture we live in. One of the reasons it is hard to save money today is that there are so many more things available to buy than there used to be, and many of them become outdated sooner due to the rapid pace of technological advancements. And back in the day, it took two years for new devices and new fashions to get from the coasts to the nation’s interior, which made the market more uncertain. Availability and pressure drive acquisitions.

Millennials and those who have come after are subject to economic fluctuations, but that is not new. The 1970s and 1980s saw inflation that peaked in April of 1980 at nearly 14 percent. With the national economy in a slump as well, everyone’s purchasing power declined month by agonizing month. Thirty-year mortgage rates topped out at 18.63 percent in 1981.

And, of course, there are always some who are going to be living on the edge of financial danger. Those who are disabled or otherwise unable to work, those dealing with burdensome debt not of their own making (the most common cause of bankruptcy in the USA is unpaid medical bills), and those tied to their location while local wealth declines are prime examples. Certain occupations find most of their practitioners beset by money problems. The “starving artist” is proverbial. Genius, as they say, does what it must, and if you are an artist – such as a painter or musician – you can be in the 97th percentile of talent and effort yet still be fighting to stay afloat. If you are, for example, an actor or a jazz musician, there are only two or three places in America where you can get paid to do it, and those places are very expensive to live in. But many, many artists make those sacrifices to feed their passion, and God bless ’em.

On the other hand, most people are not artists, and their skills can land them a job providing a more or less comfortable life. How they respond to that varies.
Gen X, Gen Y, Millennials, I get it. I really do. Deprivation hurts, and some of you are in that situation. But I also believe there is always room to economize, at least until you have a firm financial foundation. My first job after college paid the equivalent (all the following figures are expressed in 2019 dollars) of $23,000 a year. I could walk to work, so I didn’t buy a car until my next job, which paid the equivalent of $34,000 a year. I had to commute 30 miles to that job, so I acquired a six-year-old Volkswagen (something like a 12-year-old Honda Civic today). I lived in a small efficiency apartment that cost $620 (in 2019 dollars) a month with all utilities included.

Yes, it was a modest lifestyle, but all the while I was both paying off my own student loans and saving money for emergencies (and my next car). Am I saving and investing today, in retirement, with only my pension and savings for income? You bet I am. I am not only hedging against inflation and the prospect of outliving my money, I am preparing for cuts to those sources of income. As a public service retiree, I am well aware that one of the easiest ways governments can reduce expenditures is to cut pension benefits. I’ve already been through three such cuts.

But enough of the didactic “when I was your age….” lecturing. Let’s look at the situation I described in my provocative social media paragraph. Naturally, news media focus on those suffering hardship. Somebody who says, “I have been financially prudent and thus have enough set aside to keep me going for two or three months” will not be featured in a segment about the effects of the shutdown. Nevertheless, there are certainly enough who are suffering to fill the air time.

One telling report came yesterday on ABC News when a furloughed government worker said, “We started saving when we heard the shutdown might be coming, but we only have enough for the next ten days or so.” Loath as I am to disparage the financial practices of others, I would suggest that if one can start saving now, one could have been saving all along, even if that meant a reduction in lifestyle.

When I taught personal finance, I started the course with a question that illuminated the attitudes toward money of the individuals in my classes. “If you found two hundred dollars, what would you do with it?” Usually, a large chunk said they would spend it on something they wanted but didn’t have the money for. Others replied that they would invest it. That tells you something about differing attitudes.

When I asked what students hoped to get out of the class, the most common response was, “I’d like to know how to balance my checkbook.” In my mind, that is perhaps number 15 on my list of important money-handling skills. At the top is learning how to gain control of your wealth.

The two most important things in that area are planning/budgeting and learning about credit/debt. Foremost are, respectively,
• Zero-based budgeting – instead of starting with the amount of money you have and figuring out what it allows you to buy, start with your needs and justify every dollar by asking “What can I live with?” and not “How much money do I have for spending?”
• Debt is a useful servant but a harsh master – it is imprudent to borrow money for anything except a capital investment that will provide a return. A car is not an investment because it is a depreciating asset, yet many Americans act as if they believe it is against the law to pay cash for a car (or, for some, to buy a used car).

Unfortunately there are people who don’t get that, and they don’t prepare for unforeseen circumstances. They work from a basis of spending, not of managing, and they poison the economic atmosphere for others. One of my earliest posts (and well worth reading right now) on this blog site explored that notion, and discovered that most people feel comfortable living at the level of people around them.

In this context, what often results from this is a community settling at the lowest-common-denominator level of financial prudence and stability. If most of the people around you – neighbors, co-workers, friends from high school or college – are living a certain lifestyle, you would like to live that lifestyle, too. Unfortunately, a lot of people live at the “max-out” level: credit cards maxed out (with the only worry being how much the borrowing limit and the minimum monthly payment are), house payment and car payment at the maximum level possible, phone/cable/internet streaming/wi-fi access at the upper limit of ability to pay, etc.

I know this does not apply to all young adults (or any other demographic) today. I know also that our culture expects everyone to spend as much as possible, and the tension between wants and needs is real and powerful. I recommend trying to put aside ten percent from each paycheck to savings, and doing what the birds do – they don’t lay eggs until they have built a nest, which is to say they do not take on added burdens until their foundation is secure.

I have gone much beyond my preferred length for blog posts, and yet barely scratched the surface of this problem. In sum, I would say that there is nearly always room to economize, and there are thousands of books ready to tell you how to do it. I certainly don’t have all the answers, and I too am an imperfect money-manager. But I read that over half of people say they expect Social Security to go broke before they can collect anything, that their job provides no pension, and that they have no savings – yet they plan to retire early. You can’t sustain that.