Five Huge Money Pitfalls
This is my favorite time of the year. Not only has summer arrived, but it’s graduation season. It’s my chance to impart some nuggets of wisdom onto impressionable graduates. To those who seem genuinely interested, I usually provide a brief run-down of the five most important things to avoid.
1. Divorce
According to DivorceRate.org, it is estimated that around 50% of marriages will end in divorce. On average, first marriages that ended in divorce lasted about eight years. The divorce rate is highest for men and women who marry between the ages of 20 and 24 years. Waiting just a few years can almost double your chances of a successful marriage.
Divorce is called a destroyer of wealth and that’s an accurate description. When a divorce occurs, each person loses much more than 50% of their combined wealth. Between the lawyers, the court costs and the losses from costs of liquidating property, there isn’t much left over from years of work.
I have witnessed a number of divorces which led to foreclosure and bankruptcy. In almost all of these cases, the individuals had to basically start over from scratch. When you are in your thirties, forties or even fifties, moving back into a dingy apartment or moving back in with your parents can be pretty depressing.
2. Jail Time
According to the Bureau of Justice Statistics (BJS) in 2008 about 2.3 Million people were incarcerated and another 5 million were under correctional supervision (parole or probation). The United States incarcerates the highest percentage of the population of any industrialized nation.
People who do time not only lose their income while incarcerated; they lose future potential income because they now have a record. Also, they may have to pay fines or restitution and attend expensive programs. And, you don’t have to be a violent criminal in order to get yourself locked up. A couple too many drinks, a high-speed joyride or a scuffle at a bar can land you in jail. That mistake could cost you dearly for years to come.
I have a friend who recently wound up in the brig (military jail) and it was devastating for his family. They lost their apartment and had to move in with family. They had no money for food, clothing or daily expenses. If not for family and friends they may have wound up living in their car. He is out now and they have a new place, but I’m sure they are months behind financially and will struggle for quite a while to catch up.
3. Accidents & Injury
According to the National Center for Health Statistics (NCHS), the number of emergency department visits for unintentional injuries in 2006 was about 27.7 million. The average cost for an emergency room visit was $1,038 in 2007. Uninsured people under age 65 averaged $986 in expenses, of which they paid about 45% out of pocket. Medical bills are the number one cause of personal bankruptcy in the U.S.
It’s a lot of fun to drive fast or to go extreme with sports, but the risks usually outweigh the reward. I have a friend who became a quadriplegic after a horrific motorcycle crash. His name is Chris and he is often given a shout out on the X-Games from his fellow freestyle motocrossers. This is a very steep price to pay for a young person just starting out in life. Keep it real, wear all the safety gear and never drink and drive / ride.
4. Drug & Alcohol Addiction
According to the Substance Abuse and Mental Health Services Administration (SAMHSA) in 2006, 23.6 million persons aged 12 or older needed treatment for an illicit drug or alcohol abuse problem (9.6 percent of the persons aged 12 or older). The average cost of inpatient rehabilitation in the United States is around $7,000 per month.
At my last job, we had a lot of employees who were recovering from addictions. The company used them as telemarketers because they lasted much longer than regular employees. The reason they lasted longer, was because they were captive. Keeping a job was often a condition of parole and if they quit, they could be locked up. Very few companies would hire them with their records, so they didn’t have the option to quit, like I did.
These were mostly good people who made the mistake of trying drugs and it cost them dearly. Not only are some drugs more addictive than others, some people are more prone to addiction than others. So, experimenting with drugs or trying something at a party for some people can turn into a lifelong nightmare of poverty, legal hassles and health problems.
5. Teenage Pregnancy
According to the Centers for Disease Control (CDC), birth rates for mothers aged 15-19 years in 2007, were 42.5 per 1,000 women (4.25%) in this group. The Hispanic and non-Hispanic black teen pregnancy rates are three times higher than the non-Hispanic white teen pregnancy rate.
Teenage pregnancy is a poverty trap for young people. Girls now have an expensive new mouth to feed and child-care costs. Their shot at college and a high paying career will become extremely difficult. This is especially devastating to the minority population, who are often themselves from single-parent homes.
Males who father a child may lose up to a third of their paycheck for the next 18 years. Plus, they may be responsible for providing health insurance and other expenses. It’s no longer easy for men to avoid the costs of a pregnancy. Stricter child support laws and garnishments make it easy for the state to recover these costs. And, this leaves very little for the father to live on.
The Bottom Line
The bottom line is that a simple mistake or misfortune could change your finances dramatically. Failure to avoid the common pitfalls of life can cause you to become a poverty statistic.
“Did you ever observe to whom the accidents happen? Chance favors only the prepared mind.”
Louis Pasteur – French Microbiologist
Recommended Reading
This post was featured on the Carnival of Personal Finance. If you aren’t familiar with the Carnival of Personal Finance, it’s the premiere carnival of its kind. If you want to read informative articles from knowledgeable bloggers, this is the place.
And certainly don’t mix and match from more than one of the above…
… I googled around about divorce statistics. It’s surprising how quickly the divorce rate increases when you are talking about second and third marriages!
I was also surprised when I read this, but I chose to leave it out of the article. The divorce rates are 41% for a first marriage, 60% for a second and 73% for the third. These stats made me think of Elizabeth Taylor and Larry King. I guess people are just too optimistic when they fall in love.
Good stuff Bret 🙂 I like this post because it focuses on risk. You hit the big risks for people – especially younger ones. There are some things it’s difficult or impossible to bounce back from.
I never thought of the money lost from addiction but that makes perfect sense. I have some friends with professional degrees who don’t have the assets they should because they spent too much money on drugs and not enough time earning money.
Jennifer,
I was a teenager in the ’70s and a single guy in the ’80s, so I’ve seen my share of parties. And, I have seen a lot of people who were affected by drugs and alcohol. But, it wasn’t until I worked with so many recovering people that I understood what they went through. If I can help just one person avoid that lifestyle, all of my talks will be worth something.
Bret–good catch on jail! I’ve written about this possibility as well. I believe most people don’t think about it because they consider themselves too far removed from it, ie, “I’m too good a person, that doesn’t apply to me”.
When I was a kid, there were maybe four or five offenses that could land you in jail, today there are hundreds, maybe thousands. Transgressions that didn’t use to be offenses now are, and many, many misdomeanors have been converted to felonies. The chances of being jailed are hardly remote anymore.
People seem entirely oblivious to the fact that all of the public and political outcries for “getting tough on crime” mostly result in a battery of new laws and enhanced existing laws that come ever closer to sending the average joe to the pokey!
There’s a former prosecutor in our state who goes to the high schools and talks to both students and parents about just how close most kids come to criminal behavior. I agree with his contention that most people are completely unaware of just how restrictive the law has become. The stuff we did when we were teenagers has now largely been crimilized.
I’m not at all sure we’re heading in the right direction on this, but it’s something everyone needs to be fully aware of. Even if you’re financially prosperous and feeling a bit insulated!
“I’m too good a person, that doesn’t apply to me”.
You must be watching the Lindsy Lohan trial on Youtube. 🙂
Note to readers: If you appear in front of a judge, don’t paint FU on your fingernails. Or, as my cousin likes to say, “The police never think it’s as funny as you do.”
On a more serious note, I grew up in a pretty tough ‘hood and a lot of my friends went to jail. They mostly got tagged for drugs, assault, DUIs and other stupid stuff, but a couple went down for bank robbery. When I grew up and moved away, my whole attitude changed.
The incarceration rate is way too high and that’s an obvious indicator of failure in our system. However, the crime rate is the lowest in recorded history, which is a huge success for victims. I definitely don’t like the explosion of new laws that make virtually everyone into a criminal. However, I do like things like 3 Strikes laws that put repeat offenders away. I also like Marijuana legalization, even though I’m not a smoker. The legal system should concentrate on crimes with victims and stop trying to enforce morality.
Thought you would like to know I featured this post on my blog as part of the 7 Link Challenge. 🙂 http://liverichly.com/?p=714
Thanks Jennifer,
I am really proud that you picked my post. I have a 7 link challenge half written. But, I have to finish my post on the Financial Regulation Reform before I can finish it.