A significant part of my job as a father is to help prepare my children for life in the great, wide world. It’s challenging enough with the constant societal change and the impact of their peers, but how do I help raise them for the future if that future is fundamentally different from the past and present with which I have experience? This is the situation faced by millions of American parents who grew up in a world-class economic powerhouse and are now suddenly experiencing the tectonic shifts that are afflicting and winnowing the middle class.
This was noted in a Bloomberg article chronicling the economic stresses faced by Wall Streeters who’ve lost the significant bonuses that helped them maintain a certain lifestyle. The money quote is from Andrew Schiff, a fund spokesman who comments I wouldn’t want to whine. All I want is the stuff that I always thought, growing up, that successful parents had. Mr. Schiff is bringing home around $200k annually but to be fair, is stuck living in New York City, an exceptionally high cost of living area; note that his 1200 square foot abode is about $1.5 Million and that’s close to eight times the cost of something equivalent in my area. Leaving aside the political and economic angst about fairness and the 1%, there are some points to be made here.
The first point is the simple mismatch of expectations with economic reality. Thirty years ago, almost two-thirds of American workers could depend upon defined benefit pension plans to aid them in their retirement. Less than one fifth of American workers can factor that into their planning today. My late father was one who was assured of a pension and my mother still receives a monthly pension check from his employer. If you think that kids don’t pay attention to what fathers say, I can recall mine telling me – when I was in my teens – that I probably wouldn’t be assured of having a pension and once the 401k plans were introduced, I was certain that the old man was right again. You can’t teach your kids about the world if you aren’t paying attention to what’s happening around you and evaluating – and re-evaluating – it. With college upcoming, we explained to our kids that the college options were limited by the absence of a pension and our need to help assure that we don’t wind up living in their basement.
The second point is the consumerist mentality of many Boomers and Gen-Xers. Starting in the post-World War 2 period, American Business – and Government – ramped up the consumer spending mantra as an offset to government and business investment spending; it was to serve as an economic driver in lieu of those and clearly, that paid off as now our personal savings rate is minimal and everyone looks to the US consumer to carry the global economy. That a teenager looked at the material niceties of other parents thirty years ago and evaluated that as worthy isn’t surprising – it’s a testament to the effectiveness of advertising and manipulation. But we’re now at the logical endpoint of consumerism, in which we must now make conscious decisions about what’s affordable under our income and what isn’t because we no longer have the income to satisfy the desires ginned up by the advertising machine.
This leads to the third point, which is to evaluate how the parents of our generation – those that Schiff watched – did in their own financial planning. Remember that thirty years ago, about two-thirds of American workers were set up in a pension plan and the understanding was that while it wouldn’t be Easy Street, the basic income was covered. Fast forward to today – actually 2008, for which data is available – and the following is known about our parents’ financial health.
- The non-pension median income from saved assets amounted to $1542 annually, or about $128.50 each month.
- Now only 40% of Americans over aged 65 have a pension plan.
- Fully 55% of older Americans rely on Social Security for more than half of their retirement income.
We – Schiff, all of us – watched the great and powerful Oz and didn’t pay attention to the man behind the curtain as he pushed a consumerist mentality. What we saw was existing in an intellectual vacuum with no other information to provide an adequate context for understanding.
This leads to the fourth point, that kids – mine included – like the niceties and can be budding little curmudgeons when they don’t get what they want. But pay attention to kids who’ve seen their families wrecked financially and the wish is that they had their family life again, where there was less parental stress and discord caused by financial issues. The kids want a home, not a house when push comes to shove.
What stays with me more than anything else from Mr. Schiff’s embarrassment – and the guy’s become a poster-child for the Occupy Wall Street crowd – is that it’s my responsibility to teach my children about the world. The schools will take care of the reading and math, with some help and buttkicking from my wife and I, but parents have to take the time to teach them about the world; if we don’t, then those in the corporate world and media will and it won’t be to the ultimate benefit of our children.