Are We Financially Worse Off Than Our Parents?
By Pinyo • Jun 30th, 2008 • Category: Personal FinanceI often hear the notion that we are financially worse off than our parents. It seems that they were doing just fine on one income, while we struggle with our two. There are articles that explore this issue and compare things like mortgage, car, inflation, day care, etc. — but I think these articles didn’t get to the real reasons why many of us are worse off than the past generations.
Financial Distractions
I believe the answer to the question is financial distractions. Today, we have more financial distractions than ever before. For someone that has lived through many transitions, I can share a few examples:
Car Leasing
I don’t remember the exact time that auto leasing became popular, but I believe it was during the late 90’s. In the old days, people would buy a car and keep it for a long long time. Nowadays, it’s not uncommon for families to be indefinitely spending $300-400 a month to lease a car — double that if the family has two. Aryn has a good buy versus lease comparison if you’re interested.
Cell Phone
I bought my first cell phone in 1997. It was big, bulky, and expensive — overall, not a very good decision. Nowadays, it’s common for teenagers (and even younger children) to have a cell phone with Internet access and unlimited text messaging. For a family of four, a typical monthly cell phone bill is about $100-200 a month. If you are not careful, $1,000+ bills are only a few buttons away.
Internet Access
I recall dialing into the Internet for the first time in early 90’s using a modem from my computer lab. There was neither World Wide Web, nor graphical web interface back then. Nowadays, nearly 75% of U.S. households have Internet access and 45% of that has high-speed access (via Web Site Optimization). High-speed Internet access costs around $20-50 a month.
Cable and Satellite Television
My first television experience was 5 channels on a Sony color television. There was no cost to get reception. All you have to do is attach your TV to an antenna. Nowadays, it’s almost impossible to get satisfactory reception without subscribing to a cable or satellite service. The cost varies widely by region, but for the sake of this article we can assume $30 a month for basic service and $100+ for premium channels with all the add-ons.
Gadgets
When I was really young my dad had a television, and a stereo system with a record player. I also remember when he bought our first VCR. Nowadays, we are bombarded with electronic gadgets — e.g., digital cameras, digital camcorders, cell phones, PDAs, computers, laptops, wireless network, MP3 players, GPS systems, satellite radios, video game console, etc. These gadgets do not last very long and are regularly replaced in 2-3 years. A typical family could easily spend $100-200 a month on these gadgets and the accompanying services.
Conclusion
Adding up just these few financial distractions and a typical family are spending $550 to $950 or more a month. Throw credit cards and online shopping into the mix and we can see why it’s so easy to burn through that second income and then some.
Can you think of other financial distractions that are working against you, but not your parents?
Photo by manahr via flickr
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I whole heartedly agree. There are SO many potential distractions. I also think our generation isn’t used to having to choose between things. We want it all right now. (”Here we are now entertain us” - kind of mentality.)
There’s alot more to the “American Dream” now than just a car, a house and a couple kids. We have to have cable TV, a gaming system, a computer or two, etc. (And I’m guilty of having a few of those owing to the fact that my hubby and I are technophiles. But not on credit!)
I have two - healthcare and pensions.
When my parents were my age, employer-provided health insurance was much more common than now. I remember when I was a kid, we didn’t even have a co-pay when my mom took us to the doctor and medication was free as well. Try finding that now.
Besides that, a generation ago pensions were also common. Something like 40% of people had one. Now it’s like 15% and most of those are public employees. Saving for retirement is an expenditure category my parents just didn’t have.
I think a lot of it is perception. Many of our parents were stretched pretty thin in their early adult years even if they came out great in the end. It’s easy to think we’re worse off when they’re comfortable in their later years and we’re just starting out. They’re also facing a downhill economy as they head into retirement. That’s a pretty crappy hand to be dealt, too.
I think you nailed a great point with the label “financial distractions.” They’re not necessities, and if we want the same opportunities our parents had, we should avoid a few (probably not all) of them.
My husband and I were talking about something similar on Friday. He recently started a new job as a foreman at a landscaping company and has 3 workers below him. Nearly every day he mentions how much disposable income they seem to have in comparison to us, even when they make a considerably smaller wage, and all have kids (while we don’t). While at first it was easy to say, “well they aren’t saving anything, and don’t have health insurance”, once we started adding up the “extras” we have that they don’t; like cell phones, car payments, cable, high speed internet, netflix, gym memberships… not to mention the credit card debt we are paying off, it became very clear that without all the distractions we would have much more disposable income as well. About $1600 a month worth. Quite a wakeup call.
For a young couple such as ourselves, this could make quite a difference, but between the two of us it is hard to let go of any one of those things right now… they have become so much a standard part of our day to daily lives that going back would be very difficult. It is because of this that we have resisted some things all together. Our cell phones have no data package, and while we both have mp3 players, we don’t have iPods and don’t regularly download music. It is much harder to cut back on something once you have had it than it is to turn down something new.
Financial distractions are the key to answering this question. The other main item here is what I have heard it be called “the 50 year housing bubble.” An interesting point…
Housing always goes up. That’s what I learned growing up and it has been that way ever since after WWII. Because of this, people lived by the notion that you buy as much house as you can at the moment. The house price (and your equity) will continue to appreciate and when you sell, you will be better off.
Back in 20’s and 30’s, people were buying houses that cost about 2x their earnings. Nowadays, it is has moved all the way to 7-9x earnings in some parts of the country. It very well could be that we are now caught in a deflation of a housing bubble that is of epic proportions. Put the gas prices on top of that, and if we truly are going back to the days of a realistic 2-3x house values of our earnings, then we will be MUCH worse off financially than our parents.
Obviously, depends on how far back your parents’ generation is
For me, the first thought that came to mind is, indeed, housing. Not that housing costs have skyrocketed, but that expectations from a home has skyrocketed. My first home as a child was REALLY small, and it was a dramatic event when we moved into a larger home. They had saved for years to afford the down payment and to purchase furniture. Credit cards didn’t enter the mix at all. They waited until they could afford it.
Cars are another issue. As a child, my mom didn’t have a car. She carted the three of us toddlers around on public transportation UNTIL they could buy an old beater out of pocket.
Health care? There was no insurance, for years. My mom developed good relationships with our doctors, and it became yet another monthly bill with the ongoing expenses of children with asthma and allergies. They just did it. No railing against the world. It was just what had to be done.
My mom was a SAHM, and she squeezed every penny until it screamed: we had meals of beans, home grown foods, and glorified leftovers. Nothing was wasted. She made clothes for us, she reused everything -three or four times. She truly lived by the envelope system: when the envelope was empty, that was it, period.
Her big luxury, when it was affordable, was someone to clean our house. That was a huge deal, too, never taken for granted.
My parents were children of the Depression, and they never forgot the lessons, AND lifestyle. When my Dad passed away, he was a millionaire, but he still lived in the ranch home they had paid off twenty years earlier, when we were in college.
Pinyo, you are absolutely right, the financial distractions of today confuse us; we are confused between wants and needs. Perhaps the current financial upheaval will finally clarify the issue for some of us.
This is a great point, and is one I’ve been making for a while myself.
You could also argue that people got married earlier, and shared more costs in earlier generations. Think about the difference of buying all your own furniture, dishes, etc. when you move out of the house, as opposed to earlier generations where many people got this stuff at weddings. (Whereas nowadays, people choose alternate wedding gifts like cash or trips, or only receive their “fine china” instead of their usable items and so-forth.)
Not to mention the fact that people’s salaries were comparatively higher in consideration of inflation, than our own are today. And this is while gas prices are much higher, we often live further from work, and have higher associated housing costs.
Quite a mess, really!
It also depends on where you live. If you live in NYC, DC, San Fran, Southern Cal, etc. you are definitely not as well off as your parents. No way a few gadgets make up the over priced housing in those cities. Yes, it is still overpriced…more pain is on the way.
Also, poor to no health insurance and absolutely no pensions really places a heavy strain on workers. It’s not like everyone got big raises when these perks were taken away.
We might not be worse off, but we aren’t better off.
It’s all about choice. You can choose to keep up with “the Jones” or not.
(The Jones are probably up their eyeballs in debt anyway!)
You have to decide what is important to you; is it a new car, big house, expensive “things”- or is it being a stay-home parent or working less hours to spend more time with your family, or investing money in a retirement fund?
Its about choice and sacrifice-it’s what our parents practiced while we were growing up. Today people think they don’t have choices because they have purchased really BIG financial distractions and have to work, work, work to pay for them.
Thanks for the link. I totally agree with you. My parents stretched to buy their house, but then my mom was able to leave the workforce for 12 years. I doubt I’ll be able to do that. Aside from the extra monthly gadget cost, life just seems more expensive now. College and housing costs have certainly gone through the roof since my parents were young. On the other hand, they pay less taxes than they once did.
Call me crazy, but whenever this discussion comes up between me and the wife I can only think of a quote from Billy Joel:
“The good old days weren’t always good, and tomorrow ain’t as bad as it seems.”
I am 26 with my own home (albeit a condo!) 4 years of under grad done, 3 years of law school…but when the wife’s grandparents or my parents talk about “the good old days” they fail to mention that they lived with their parents/inlaws for YEARS trying to save up for that home which may only cost 2x or maybe they forgot to mention how many friends they lost in WWII - really was it worth it for the GI Bill….
I don’t know if this comment was anything more than a rant, but remember what I started with:
“The good old days weren’t always good, and tomorrow ain’t as bad as it seems.”
Hm. Lemme think. As a child of the Cretaceous Period, I have to agree that we didn’t have anything like all the expensive toys, conveniences, and necessities available today. But here are a few more or less defunct financial distractions from the Good Old Days:
Long-distance and toll call fees: It was mighty expensive to call friends and relatives across the country, and international calls were for the very wealthy.
Magazines, newspapers, and books. Most people enjoyed reading, and they read for fun. Everyone subscribed to two newspapers: a morning and an evening edition. And everybody took Life, Look, The Saturday Evening Post, Time, U.S. News & World Report, Cosmopolitan (not the oversexed women’s magazine but a fantastic general-interest monthly), Saturday Review, True (the Man’s Magazine), Argosy, Popular Mechanics, and National Geographic. Taken together, these probably cost as much as cable and cell phone service, combined.
Hot rods. Young men played with their cars. High-school kids took jobs so they could afford the gear to soup up their vehicles, and this often went on into young adulthood.
Automobiles that crapped out within three years of purchase. Planned obsolescence was a given. A car with 30,000 miles on it was a bucket of bolts. Every time you turned around, you were buying another car. And when Ralph Nader said the things were “unsafe at any speed,” he wasn’t kidding.
Kids. People married much younger than they do today, and they started having children shortly thereafter. Most families had three or four children. Raising a child was no cheaper then than it is today.
It’s probably a wash. If anything, life is better today than it was 50 years ago, in many ways. It’s certainly a lot more amazing!
@KMC — Good additions to the list.
@Sara — Imagine what you can do with extra $1,600 a month.
@Jadin — Good point about our inflated level of expectation. When I grew up, I lived in a really small apartment too.
@Funny about Money — Good counter-points, but I would argue that our parents are less prone to go into debt to acquire things that they can’t afford based on lower savings rate and higher debt per person levels.
Financial distractions… Anyone here ever heard of inflation. The dollar is incredibly weak to what it was in my parents day. I make more than my parents did but I can’t afford the things my parents have. Our current debtor economy also has a huge impact on the current situation. The debt bubble can only expand until the credit runs out then it retracts very quickly. The credit is running out. I consider myself fiscally responsible and did not buy a house that is 7x to 9x my income. The extremely flawed credit rating system sets the rates for the borrower and less than perfect credit will bite you in the wallet. Only one percent of credit reports are accurate (look it up) but lenders don’t care about accuracy when they are making huge profits off the interest rates. There are no doubt Financial Distractions, coupled to the psychology of a nation that is manipulated by a marketing engine that is impregnated in our POP culture. We got it you want it, and since the dollar has be devalued you’ll pay more for it. Our parents did not pay the 1000% markups on there goods that we do today. All Hail Profit