How to Manage Personal Finances Made Easy & Avoiding the College Debt Trap (eBook)

CHAPTER 1

FINANCIAL MANAGEMENT: Statistics and Problems

Before we explore and explain the principles of successful personal finance management, it is important to understand the magnitude of America’s financial dilemma as it relates to managing personal finances.

The article by Sam Paul, “Americans are Clueless When it Comes to Personal Finance” (Paul,2018), states, “Many Americans are sorely lacking in knowledge when it comes to financial terms, according to new research. A study of 1,000 Americans over the age of 30 found less than half could confidently explain what a 401(K) is. Most have such poor financial knowledge; they do not know where to begin with personal financial management.” In 2016 a GOBankingRates survey found that 69% of Americans had less than 1,000 dollars in savings, and 34% had no savings at all. (GoBankingRates) The article went on to say that only 39% of Americans have enough savings to cover 1,000 dollars in emergency expenses, such as a defective water heater, medical expense, or car repair. Millions of Americans, in such cases, turn to using their credit cards, which only compounds the problem. Debt.org stated, “At the end of 2016, household debt (mortgage + home equity loans + student loans + credit cards + auto loans) in the United States reached 12.58 trillion dollars. The typical American household carries an average debt of 134,643 dollars.” (Debt.org)

According to an article in Something Finance, by G.E. Miller, “55% of Americans are living paycheck-to-paycheck. Actually, 36% are living paycheck-to-paycheck, and 19% are worse than that.” (Miller, 2019). The article went on to say, “6-in-10 people you pass on the street are saving absolutely nothing. And, only 35% of Americans could come up with 2,000 dollars to meet an emergency or unexpected need.” CNN Money reported that 40% of Americans would struggle to come up with 400 dollars to cover an unexpected expense. (Bahney,2017) Despite these data, 73% of Americans believe their personal financial situation is fine. (Financial Samuria)

According to Dani Pascarella in the article, 4 Stats That Reveal How Badly America is Failing at Financial Literacy: “People spend time, effort, and money to get a job but pay little attention to managing their money.” Pascarella continues by saying, “I’ve worked with professionals who are making six figures but are drowning in credit card debt.” (Pascarella,2018)

“Low income is not always to blame for financial hardships. Only one in five people in financial hardship fall below the poverty line. A 2017 survey by Career Builders found more than three-fourths of all US workers struggle to make financial ends meet. A snapshot of the American workforce shows one in ten persons earned 100,000 dollars or more annually and 28% earned 50,000-99,000 dollars annually.” (Debt.org)

According to Catey Hill, in her article, 5 Facts That Prove Americans are Horrendous at Managing Money, she lists the following: “Americans have built up a record debt, over 50% of Americans have less than 1,000 dollars in savings, Americans are more worried about saving for a vacation than their retirement; millions of individuals hide money from their spouse or partner, and finally she says Americans prioritize the wrong bills to pay.” (Hill, 2017)

In 2018 Americans had over 1 trillion dollars in credit card debt (1,023,000,000,000); over 2.8 trillion dollars in nonrevolving debt (loans) (2,842,400,000,000 dollars); over 1.22 trillion dollars in auto loan debt (1,221,000,000,000); and over 1.5 trillion dollars (1,500,000,000) in student loan debt. (Investopedia) The average credit card debt in the United States is 16,048 dollars, and the average credit card APR (annual percentage rate) is 16.47. (Pascarella, 2018)

Data indicate that 49% of Americans are concerned about their financial well-being, but only 19% have financial resources set aside to handle emergencies. Further, 33% of Americans have no financial savings for retirement, and over 56% of American adults have less than 10,000 dollars saved for retirement. Financial data also reveal that three out of every five Americans live paycheck to paycheck. (U.S. News) Over half of all Americans have less than 1,000 dollars in savings (Indeed), and only one-third of all Americans keep a personal budget. (Debt.org)

Additional financial data based on the American population reveals that (Debt.org; Irby, 2018):

• 62% of Americans have a credit card debt (157 million American adults) and, the total amount of US credit card debt is over 1 trillion dollars.
• The American homeowner has an average monthly mortgage payment of $1,494.
• CNBC reported that 1 million student loan borrowers defaulted on at least one student loan.
• Only 30% of adult Americans have savings or investment goals.
• 29% of American households age 55+ have no retirement savings or pension.
• The average American Social Security check is 1,300 dollars per month.
• The average net worth for American adults of ages 55–64 is 45 dollars. (Shen, 2016)

In the article, Facts on Foreclosure, FDIC, www.fdic.gov, “43% of American households spend more than they earn each year. 52% of American employees live paycheck to paycheck. 42% of American households do not have enough in liquid financial assets to support themselves for at least three months. 46% of American households have less than 5,000 dollars in liquid financial assets. Those facing foreclosure, 85% have already missed one payment, and 50% have missed two payments. And, for many facing foreclosure, they have no savings and no available credit.” The article continues by stating, “6 in 10 homeowners wish they understood their mortgage. 1 child in every classroom in America is at the risk of losing his/her home because parents are unable to pay the mortgage.”

Many foreclosures, bankruptcies, and repossessions can be linked to poor financial management. However, there are cases where the causes for such losses are the loss of a job, a health crisis, or other situation beyond personal control.

U.S. Census Bureau data, according to Debit.com reveals: (Debt.org)

• The 2018 population of the United States is 325,719,178 persons.
• 22% are under the age of 18.
• 251,455,205 are adults.

Spending within the American population can be broken down in the following percentages: (Debt.org; Debt.com)

• 32.9% housing: rent/mortgage
• 17% transportation: auto loan, auto repairs, gasoline
• 12.5% food: groceries, dining out
• 11.3% personal insurance
• 7.8% health care: insurance, medical services
• 5.1% entertainment
• 4.5% miscellaneous spending
• 3.3% clothing
• 3.2% cash contributions
• 2.3% education

According to a 2012 CBS News article, Why is Congress a Millionaires Club? by Stephanie Gordon, only 1% of all Americans are millionaires; yet, 66% of US senators and 41% of US house members are millionaires. (Gordon, 2012) Perhaps this imbalance in financial connectivity to most Americans is the reason why the US Congress does not address issues such as student loan debt, rising costs for health care, and other factors hindering the financial stability of millions of Americans. This fact alone dictates individuals must become successful managers of their personal financial resources. It is important that individuals realize how quickly the personal financial hole they are digging can become their financial grave.

Major problems leading to personal financial difficulties:

The most important problem is the mismanagement of personal finances and the lack of financial management knowledge.

1. Americans are infatuated by materialism. The financial problem of “keeping up with the Joneses” can be an expensive lifestyle. This problem is made easy by swiping a credit card, using a debit card, or indulging in online shopping. Advertising agencies spend billions on the science of how to persuade individuals to spend money, and millions of Americans fall into the trap.
2. American workers continue to face the reality of being “laid off.” In 2019 GM (General Motors) announced it was laying off thousands of workers. In 2018–2019 AT&T, a corporation with billions of dollars in profits, cut the jobs of thousands of employees. These are just two examples of the unstable employment situation of American workers. Many Americans released from employment are grappling with student loan debt, home mortgages, auto loans, and other personal expenses.

1. The United States is failing to control the runaway costs of the medical and pharmaceutical industries.
2. Sadly, there are Americans who do not want to be employed. This attitude of entitlement and laziness translates negatively into the American workforce. Below are examples in support of this statement:
   • A lady employed in management with Walmart stated, “I can’t hire anyone. No one wants to work. And when I do...