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Living on Less is the New Reality for Millions of Americans

I read a story in Yahoo Finance that stated Americans should get used to living on less permanently.  The author’s contention was that government deficits and mismanagement could lower our standard of living for a long time to come.  Inflation is quickly starting to undermine our budgets just as our wages have stagnated.  Good paying jobs that were lost in the recession have been replaced by low paying jobs in retail and restaurants.

Who is Paying for Poor Governance?

Technology Workers

Image by Jurvetson

The Working Class: My contention is the standard of living dropped a long time ago.  Not for the rich and upper-middle class, but for the working class.  While CEOs and other executives watched their paychecks skyrocket in the past decade, the working class is struggling with a minimum wage that was flat for 10 years.

College Grads: A decade ago, college grads had hopes of making six figure incomes after getting established in their careers.  Now, they are facing six figure student loans, while trying to find a job that doesn’t involve serving coffee.  College grads will definitely have it better than those without a diploma.  But, a college degree no longer guarantees a prosperous income.

Retirees: The elderly are struggling with Social Security payments that haven’t kept pace with the cost of living for years.  Medical costs are rising rapidly, while benefits are being cut.  To add to these problems, people are living longer, pensions are underfunded and workers aren’t saving enough for retirement.  The recent market crash and recession has decimated many retirees’ portfolios.  Artificially low interest rates make it difficult to live on income from investments.

Public Sector: Public employees are starting to suffer from the government’s missteps.  The government is broke and they have no practical means for dealing with their budget shortfalls.  Their inaction is only compounding the problem, as their deficits grow bigger daily.  Heavy cuts in public payroll and benefits are going to be necessary to maintain public services.

Who is Living the Dream?

Entrepreneurs: In my opinion, the American Dream is alive and well, in the hearts and minds of entrepreneurs.  Technology has significantly leveled the playing field where a couple of bright college students can create the next Microsoft, Dell, Google or Facebook.  As opportunities disappear in older static companies, new opportunities are born in the minds of people who refuse to settle on a paycheck and a cubicle.

Specialists: The highest paying starting salaries by college degree are for engineering, sciences and medical professionals.  While employees with commodity skills will continue to struggle in the new economy, technical specialists will continue to prosper.  It’s simple supply and demand that keeps these salaries high.  When someone needs to hire a doctor, an engineer or a chemist, they’re not looking at candidates with an anthropology degree.

Athletes & Entertainers: Just when I think the salaries couldn’t possibly get any more ridiculous for athletes and entertainers, some new disclosure boggles my mind.  For instance, I just read on LenPenzo.com that Judge Judy makes $45 million per year.  It can’t be that difficult to find a sarcastic judge or a left-handed pitcher.  I don’t understand how it keeps going up, but it does.

Bankers & Executives: When most people think of arrogance and greed, they think of bankers and executives.  How else could you explain people flying to Washington in private jets to ask congress for a bailout?  Yet, it doesn’t seem like the salaries are going to come down for the upper class.  The glass ceiling will keep rising, because no company can afford to hire ineffective executives.  And, proven leaders are in short supply.

The Bottom Line

The bottom line is that a living wage is no longer an inalienable right enjoyed by every American.  Earning a respectable income is going to take a lot more courage, effort and creativity in the future.

“In the new economy, information, education, and motivation are everything.”

Bill Clinton – 42nd President of the United States

Recommended Reading

Personal Dividends – 5 Qualities Shared by Successful Entreprenuers
Studenomics – Challenging Conventional Wisdom on Education
Money Reasons – … Creating Income Streams for my Kids

This post was featured on the Carnival of Personal Finance over at Blogging for Change.  This is the Greatest Carnival on the Net.  Check it out.

17 comments to Living on Less is the New Reality for Millions of Americans

  • Bret, followed you over from the link on Penzo’s blog…

    Thoughtful post but I am wondering what your recommendations would be?

    Social Security payments are already tied to inflation-they were even bumped up last year with stimulus legislation above inflation…

    The rising public sector costs and college education costs are directly related to the growth in government and the lack of accountability/tenure.

    Do you think our tax dollars should be paying professors to teach all the way-out classes that are available now-that don’t help our children become better able to earn a living. And your state is leading the way in huge pensions and even salaries for public sector employees. Love to be Mayor of Concord….(though sounds like he is getting his just desserts…)

    That money is sucked out of the private sector…

    And higher minimum wages just prices our teens and non-college educated workers out of a entry level job-where they could learn valuable skills and grow a career. I saw the CEO of McDonalds and their US division head both started as burger flippers…

    I know there is greed in corporate America, just as there is in the state and federal legislature. People are people.

    Just trying to have a thoughtful discussion. I didn’t know any Californians still hunted and fished???

    Again, enjoyed the post!
    Dr Dean recently posted..Help Fight Young Adult CancerMy Profile

    • Dr. Dean,

      Thanks for stopping by. I love your blog and am honored.

      When I posted about these groups losing out in the new economy, I wasn’t making a judgement that it was right or wrong, I was just pointing it out. There is a large percentage of the population who has no idea what economic changes are coming. And, many aren’t going to be prepared to deal with them. Assigning fault doesn’t really help anyone, but awareness might.

      I have written extensively about the deficit problems caused by the explosion of public workers and the unsustainable nature of their pensions. The bottom line there is that reform is necessary ASAP. My recommendations were to stop double-dipping, cap pensions below $100K and transition from defined benefit pensions to 401k/403b plans.

      Social Security is an obvious ponzi scheme and the way the government is dealing with it is to rig the CPI to reduce COLAs. What really needs to be done is to raise the retirement age and re-secure the trust. I’m not sure if anyone in government has the honesty or the politcal will to enact real reform. I’d like to receive my Social Security benefits when I retire.

      College costs are way out of control and the for-profit student loan system is saddling our children with unreasonable amounts of debt. There are many recommendations I could make, but I suspect this problem will work itself out.

      Neglecting the minimum wage for an entire decade was just plain wrong. If a company can pay their CEO millions and buy them jets, they can pay their workers another buck an hour. I don’t buy the argument the jobs will disappear because of this. Who is going to flip the burgers, the CEO? Plus, a growing percentage of jobs are now indexed on minimum wage. It’s not just affecting the kids anymore. Walmart is now this nation’s largest employer.

      I’ve never been short on solutions or opinions. 🙂

      Bret

      • Hey Bret,
        Thanks for the thoughtful response.

        I agree completely with your thoughts on public pensions and social security. The minimum wage issue-not so much.

        Look forward to hearing more and have added you to my blogroll!
        Dr Dean recently posted..Help Fight Young Adult CancerMy Profile

  • Definitely a thoughtful post. Call me an optimist if you must, but I think that things will get better for most of us as time goes on. I’ll be honest when I say that too many of us have lived beyond our means for a long time, buying houses we couldn’t afford, car’s we shouldn’t drive, and vacations we didn’t pay for in cash. Wealth became synonymous with flashy consumer purchases.

    Changing that mindset is the first step in fixing the problem on a personal level. I think more personal accountability is the first step. The question is whether people will sacrifice the standard of living that they are used to to be able to build wealth. Unfortunately, I think the answer is no.

    • Pat,

      Deep down, I’m an optimist too. These economic posts always come out sounding like doom and gloom, but I’m trying to be as acurate as posible. I predict the wealth disparity will continue to grow and I don’t have any practical solution for that, except to be on the growing side.

      As for personal accountability and fiscal discipline, I am all for them. I wish these would return to America in a big way. But, millions of people would rather watch celebrities in rehab than to balance their checkbook. I don’t have a grand solution for this. But, I’m trying to do my part, one post at a time.

      Bret

  • Another great post, Bret. You speak the truth, but it breaks my heart.

    You know, I expect the current crop of American kids (mine included) will be the first generation in the history of the US to experience a lower standard of living than their parents did. And we have no one to blame but ourselves.

    This country has been slowly transforming itself over the last 80 years as a platform for individual liberty and equal opportunity for all, in exchange for bigger government and ever increasing government cradle-to-grave “security” in the form of utopian entitlement programs. Now the chickens are finally coming home to roost.

    The sad thing is you , me, and countless other responsible Americans have diligently saved our money, sacrificed and lived within our means while the government (and just as many less-responsible citizens) have lived like kings off borrowed money. Unfortunately, the coming high inflation that will soon result from these huge deficits is going to ruin all us responsible folk by making our hard-earned savings utterly worthless.

    If our government doesn’t turn it’s reckless free-spending ways around soon, there will be so many people eventually ruined by its wasteful spending addiction that I guarantee you another American revolution won’t be outside the realm of the improbable.

    All the best,

    Len
    Len Penzo dot Com

    • Len,

      I agree with you about our country’s transformation into a Nanny State. You would think Americans would be aware of what is happening in Europe and they would want to avoid those type of financial problems. But, a lot of people believe the utopian promise of socialism, without understanding the cost in productivity and innovation.

      As for the governemnt’s reckless spending, I wonder how long it will go on? Most of the voters and politicians are ignoring the problem or they just don’t think it’s that bad. But, there is a growing movement towards fiscal responsibility and it’s a much stronger and more comitted group of people.

      When I wrote the post on pension reform last summer, I had no idea it would already be happening by now in a number of states. It will be interesting to see what happens with this Congressional budget showdown. The GOP has come up with very aggressive budget cuts, while the Dems are hoping for business as usual. Will this be a turning point on deficit spending? Or, will the government shut down?

      These are interseting times, my friend.

      Bret

  • Bret,

    I find myself working harder, and constantly learning in order to set myself apart from the rest of the field. I don’t have a technical background or a degree in a specialist field. My work ethic and dedication to my job has helped me get to where I am today, but I feel the pressure to have a specialization in one particular area to raise my overall value. I definitely see the trends you stated in your post about college degree no longer guaranteeing well paying jobs.

    • Matt,

      I was very lucky (aka smart) to have chosen a technical field very early in my career. Basically, I loved the programming classes in college, so I quit my union job and went into the computer field. I was unlucky (aka foolish) because I thought I could hard work my way up the corporate ladder without a college degree. I did finally claw my way into middle-management without a degree, but I worked for low wages for almost a decade.

      Now that I’m a little older and wiser, I know firsthand the futility of fighting against the tide. It’s a much better plan to recognize the opportunites and take the shortest path that leads to them.

      I think you are on the right path with developing alternate streams of income. No matter how hard someone works or how well educated they are, it doesn’t guarantee an income from a job. When you make your own paycheck, a boss can’t take it away from you.

      Bret

  • Bret,

    Another great post, good work!

    Thought you’d like this public school class, it’s very relevant to your post: http://rhetoric.berkeley.edu/undergrad_coursesf2008.html search ‘Judge Judy’.

    Yes, Berkeley has a rhetoric department.

    -Paul
    PKamp3 recently posted..Price at the PumpMy Profile

    • Paul,

      Wow, a college course to study lame excuses on TV court shows. I guess that might come in handy if one of their students are busted for smoking hippy lettuce. 🙂

      Instead, Berkley should be teaching a course on how to become a TV judge for court shows and reality shows, like American Idol. Those jobs seem to pay a lot more than becoming a real judge.

  • Bret, as the others stated you made some very good observations in this article.

    In the specialist category, I would include programmers and other IT jobs. There are lots of these jobs that are open despite the high unemployment rate.

    Like Len, I worry about the future of my kids.
    Kay Lynn @ Bucksome Boomer recently posted..Epsilon Data Breach- Is This the New NormalMy Profile

    • Kay Lynn,

      I agree that IT and other computer-related jobs are going to see solid demand well into the future. I am so happy to be working in this field.

      I also worry about my kids, especially their ability to buy a house in the O.C. Right now, they don’t seem nearly as motivated as I would like. But, they are still young and I hope they step it up. The good news is they have a lot of positive role models in our family. So, they aren’t headed into life without a financial clue.

  • Hi Bret, I totally agree with you. I believe the bankers and other elites have been systematically looting the wealth of the majority through financial engineering. This includes things like skimming money from stocks through high frequency trading, and inflating serial bubbles and then profiting from the bust.

    A college degree guarantees you nothing, even if you are a lawyer. If you don’t make your own luck through entrepreneurship, you’d better make sure you acquire and keep the skills that are in demand.

    As far as retirees go, they are already seeing little to no increases in cost of living adjustments as food prices go berzerk. I am concerned for family members who depend on Social Security which is already in trouble.
    Jennifer Barry recently posted..A House of Cards- An interview with Nye LavalleMy Profile

    • Hi Jennifer,

      The rapid change in the wealth disparity is alarming to me. But, I don’t think we can counter-act these changes with policy and regulation alone. I think we need wholesale changes to the tax law, to ensure people and entities pay their fair share. And, I think we need serious campaign finance reform to make sure wealthy entities don’t have undue influnce over our elected officials.

      As for dark pools, ultra-rapid trading platforms, unregulated derivitives and commodity price manipulation, you know exactly where I stand on these. Real reform is necessary now. There have been some big strides in the past year, but much more needs to be done to ensure fair markets.

      There are a lot of people with law degrees who are crying the blues right now. Either they are making a small fortune and working 80 hours per week or they are facing six-digit student loans and making a fraction of what they had hoped.

      My personal opinion is that civil law is the next profession to face intense scrutiny. The public has already figured out that lawyers add little value to the economy and yet they add a lot of unnecessary cost. I suspect we will start to see real reforms in tort litigation and hard caps on pain and suffering awards.

  • […] a good read by Bret over at Hope to Prosper titled Living on Less is the New Reality for Millions of Americans. The glass ceiling will keep rising, because no company can afford to hire ineffective […]

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