The Still-Secret Salary of a “Middle Class” American

I finally got around to reading the title Atlantic piece about broke Americans. You know, the one where the guy is holding a paper bag over his head. I thought I’d love this article, because I generally find it really cool when people take their own financial woes and talk about them as they fit in with patterns and our society.

It turns out the article does highlight a lot of terrible decisions (like lying to one’s spouse about money), but it’s really not clear how connected it is to macro-level problems. Helaine Olen claims that it’s so much privileged whining, and I ended up largely agreeing with her. I mean, c’mon, complaining about costs like buying a house in the Hamptons and sending two kids to fancy schmanzy schools is a bit, well, rich.

Still, there was one point that bothered me even more than the humble-brags and the strings of horrible decisions. Where, exactly, are the dollar signs? Financial decisions are categorized as bad, even ruinous, for reasons it’s very difficult to understand.

Now, having read a lot of personal finance articles and blogs, I can see why Gabler was hesitant to include these. Someone who writes about struggling to find affordable housing in San Francisco, for example, inevitably provokes a string of “I do just fine paying a $99/month mortgage for a huge farmhouse in Somewhere, NE” comments. And those comments are not particularly helpful, because they miss the point.

Still, I just can’t let him off the hook. It is a money article, after all, and it’s about the middle class. A class of which Gabler is, apparently, a member. It’s impossible to test the strength of his connection with a larger American narrative on the basis of vague mutterings about his aching wallet. Take his claim that he expected his income to rise. Did he make $40,000/yr two decades ago, and watch the value of that income fall? Or was he making twice that all along, keeping his actual income well above average? Did he spend a 401k worth half a million dollars on his daughter’s wedding, or did he blow a relatively insignificant sum? Neither is a good idea, obviously, but I know someone with high-earner neighbors ($300K/yr?) who went into debt for a daughter’s lavish wedding. That’s a far cry from someone pulling together $500 that she doesn’t really have in order to get the kid a wedding cake from somewhere other than Baskin Robbins.

Gabler falls well behind popular personal finance bloggers. Most bloggers include a lot of dollars and cents (sometimes with almost too much detail), though many of us are less than perfect. I’m not really cool with pf bloggers who claim to save a large percentage of their income, but won’t reveal what that income is. Are we supposed to extrapolate it from the spending? I like those who keep the income and the spending in nice, colorful charts. Mr. RB40 does a great job of this. It gives lots of detail and makes all of these goals seem more achievable. My position is that if you don’t want your income splayed out messily over a webpage, you can still blog.

Just don’t write about personal finance.

And, in the spirit of full disclosure, I should reveal my own income. This year, it’s been 20,369.97, plus dividends (about $300 so far, automatically reinvested). 17K has gone into my TSP (401k). My nice, fat tax refunds (~3K) have gone into my Roth, so my take-home pay has been in the double digits. I actually think it’s less than $50. That’ll change, as I’m living off savings now, and I need to save up some more money before I quit my job. Spending has averaged about $1000/month, most of that going toward rent, food, and car insurance.

I’ll add more details on that in the future, because funemployment is great fodder for finance blogging! Stay tuned.

The Still-Secret Salary of a “Middle Class” American

Car Loans Blow

I just read something on Credit Karma about auto loans. Ish. Things are not looking good.

The article talks about how subprime auto loans are terrible, and how many people quickly get into personally overwhelming levels of debt after taking on those loans. Bad news, to be sure.

But the subject on my mind was something that applies even to those with great credit and more manageable loans. What if something dramatic happens, and the car is destroyed?

I grew up near the mighty Mississippi, so everyone knows that cars can be flooded easily. We should have warning systems with gates that block off major roads when there’s a flash flood warning, but we don’t. Once you get down on those roads by the river, it’s easy to decide to drive through shallow-looking water on the road, only to find yourself stuck. This hasn’t happened to me, mainly because I biked that road much more than I drove it, but it happens all the time.

ChainOfRocksBridge_StLouisMO.jpg

The river is a formidable foe.

Anyway, say your car gets flooded, but you get out of it ok—thank goodness. Luckily, the lender made you get “full coverage” on your car, so you should be fine. Because they did that to protect you, right? It’s gonna cover everything, right?

Hardly.

What will likely happen is the insurance payout will go first toward any outstanding debt on the car, and then (possibly) to you, minus the deductible. Ouch.

So here’s the situation: $20K Hyundai Elantra, 24 month loan at 3.11%. That means the monthly payment is about $861, and let’s say five payments have been made for a total of about $4300. And now the car is destroyed.

The insurance probably will pay the ACV, or Actual Cash Value. Meaning they’ll pay for a lovely Hyundai Elantra that is no longer new, and worth maybe $15500. After all, the car you had would have technically been a used car.

Then, knock out the deductible. Let’s say it’s $1000 to make the math easy.

Oh, and also the fee for having the junked skeleton of the car towed away. Let’s say it was about $200.

So there’s gonna be a settlement of about $14500, and it will go to pay off the car. Meaning that instead of money in your pocket, you now have nothing left that you can spend on a car. In fact, you probably owe $1500 for a car that is now scrap.

Personal-finance wise, this just means that avoiding car loans if at all possible is probably a good idea. It’s not an option for everyone, but my co-worker’s advisor always gives her a sidelong glance and tallies up how many paychecks she needs to save before buying a car with cash. His attitude is that a loan is a last resort, which makes sense. As the example shows, even “full coverage” insurance is not necessarily going to rescue an unlucky borrower.

But there’s a sexism issue here, too. Auto lenders have shown a pattern of discrimination when it comes to setting rates for loans. They’re more likely to charge a higher rate to someone who is non-white and/or non-male. And a lot of Dems are ok with this (boo). There was a high-profile settlement against some fiends doing this, including Honda (really?) and Ally Bank (darnit, I bank with them). But Congress is cool with letting these things slide.

So it’s a lose-lose. Oh well. The most any of us can do about it is to try and avoid these loans, then chew out our elected officials whenever we get the chance.

Oh, and if there’s a flash flood warning? Stay home.

Car Loans Blow

Don’t Call Me Missus

I always have trouble feeling like an adult in my dealings with financial institutions. Last time I biked to the bank, I wore a suit. I also wore a suit to all of my recent DMV trips. It works wonders in situations when I feel somewhat intimidated.

It’s hard for me to complain in these interactions, because I’m so worried about offending people. Sometimes I feel like if I make a minor complaint, the whole system will come crashing down. But I’ve resolved to start complaining about a recent phenomenon.

People have started calling me “Mrs. Jones”, which is most definitely not my name.

First of all, I’m not married. I think that folks probably assume that I’m married because I sound older than I actually am. That’s not a terrible thing.

But I am annoyed by the idea of calling every married woman “Mrs.” Lastname. Even if I were married, I don’t think I’d be cool with a stranger saying “Mrs. Jones” to me. Why jump directly to “Mrs.” if you think your conversation partner is married? Do you have any clue whether that’s how she wants to be addressed? We fought for “Ms.”, dangit!

Actually, I wasn’t part of the group that introduced “Ms.” to the lexicon. That happened before I was born. So I can’t believe it’s not a moot point by now. I remember as a child being told that a woman used “Ms.” only if “she didn’t want other people to know she was divorced.” Yes. Someone (a woman!) actually said that to me. It wasn’t my mom, though! Thanks mom.

On top of all that, I recently had to fill out an order form for a JR (Japan Rail) pass, and the only options were “Miss” and “Mrs.” I didn’t use “Mrs.” because I didn’t want to lie, but I found the form ridiculous.

It’s no use kvetching about this all day, so I’ll list my possible solutions:

1) Please call me Jay. Just have the person use your first name.

2) Mrs. Jones is my mother’s name. A bit snarky, but it does the trick.

3) I’m sorry, is my name listed as Mrs. Jones? If so, I’d like to find out how to change the way it’s written in the (computer) system. This could come off as passive aggressive, and I’ve never actually said it to anyone. But it’s a surefire way to get the person’s attention.

4) Please call me Dr./Professor/Rabbi Jones. None of these apply to me, but I think that if someone knows your title then they should use it.

I do know that systems aren’t perfect. I once had a lady tell me off over the phone for calling her “Ms.” Lastname. Guess what? She goes by “Mrs.” Lastname. I was kind of surprised that she would be bothered by this, but she did have the right to complain, so I tried to go with her preference.

The other issue is the “Ma’am” thing. This debate is often centered on geography, and I’ve had a lot of folks sincerely try to explain to me that “Ma’am” is just an attempt at politeness.

Be that as it may, I’ve heard it used rudely plenty of times, and I’ve definitely started to dislike it. There’s one context in which I feel it is appropriate. If I’ve started a conversation with someone, but they don’t yet know my name. In that case, they can’t call me “Ms. Jones”, so “Ma’am” is perfectly fine.

But after that? When you know my name? No way. Please say “Ms. Jones” or say nothing.

I guess this really doesn’t have a ton to do with finance, but I do think we must demand our financial institutions treat us well. Getting a person’s name right is fairly basic. And if someone refuses to call you the name you’ve chosen, well, it might be worth taking your business elsewhere.

Don’t Call Me Missus

(Older) Women Don’t Sue

I just read a fantastic but horrifying article on age discrimination against (older) women. Read it on PBS. It’s fantastic because I am thrilled that people are out there actually studying this phenomenon. It’s horrifying because it confirms that it’s more difficult for women over 50 to get jobs than it is for men. And apparently, they are less likely to sue employers for age discrimination.

This other article (also on PBS) takes on a little bit of what women may be able to do to improve their chances at getting a job. Apparently, it’s a little bit of a black art. The AARP used to recommend “I’m willing to embrace change” as a nice little phrase for job applications. According to the article, using this phrase actually hurts older workers. Oops.

How does one overcome these age discrimination hurdles in a job quest? I’m not really sure. Here are some things I hope would work:

1) Show that your work has value. As my roommate once told me, the primary caregiver in a family is usually the person who deals frequently with healthcare, government, and education. So if that’s your role, don’t sell yourself short. If you’ve held a bunch of different jobs over the years, think about what skills you took away.

2) Keep the age thing vague. Perhaps a more cynical tip, but it’s not like they can ask you at the interview, right? An ideal hiring process would keep ages and dates away until absolutely necessary, but that’s probably not realistic.

3). Believe in yourself. This is a serious tip. I know lots of people in their 20s who are “digital natives” in the smartphone addict sense, but most of them aren’t great with applications like Excel and Adobe Paint. There’s no reason that they shouldn’t be surpassed by a smart woman in her 60s who’s made herself into an expert.

The third tip comes from one of the PBS articles, where they suggested actually getting specific skills rather than trying to talk about how you’re a quick learner or a flexible worker. It seemed like pretty good advice to me, but at best it’s a band aid, as it doesn’t change the fact that employers may still get hung up on the age thing.

The articles really resonated with me because I know that age discrimination doesn’t start at 50, or even at 36. It starts at, oh, roughly age 24. Why? Check out this email I got from NPR, when I asked whether I could apply to their internship program:

Unfortunately you are not eligible to apply since you graduated more than 12 months prior to the internship start date.

That was it, by the way. One sentence. And understandably, the writer didn’t want to sign their name. Thanks a lot, internships@npr.org.

Now, technically, one can argue that graduation date does not equal age, and that NPR would be happy to welcome a 53-year-old intern (provided she had graduated from college at age 52). But that’s a pretty weak argument. By limiting their pool to very recent grads, NPR is practicing age discrimination. And apparently, those of us under 40 years of age can’t even sue them for it.

But rather than ending on that note, I’d like to add a few more empowering tips:

1) Next time you see an ad for “recent grads” or “youthful” applicants, call the organization out on it. So far, I’ve called out NPR, the Cato Institute (they send mail to my house for some totally random reason), and a random non-profit that popped up on a listserv I use. None of these organizations were very responsive, but at least I said something.

2) Support the organizations in your area that help protect workers from illegal discrimination.

3) If you’re in the position of being able to hire someone, consider as many applications as you can. Be aware of your own possible biases. If you do toss out the application of an older worker, make sure you have a good reason for doing so.

(Older) Women Don’t Sue

Office Finance Guru

It’s a good problem to have.

Several months ago, I found out that a couple of my friends at work didn’t understand how our 401k matching works. Even worse, our automatic contribution is at 3%, so those who had never messed with that were missing out on about $520 in matching (plus earnings) per year.

I sent my friend a breakdown of the system, and he passed it around. Oddly enough, a very sweet coworker (whom I barely knew) decided this made me some kind of guru.

Now, I do love personal finance, so I feel that I can offer certain nuggets of wisdom. But my co-worker (let’s call her Anna) wanted more. She offered me the opportunity to manage her money. What’s more, she offered me the opportunity to manage her spouse’s money. She promised that it would be a great opportunity for me, and that I could get a cut of the earnings.

This was a very flattering moment. I knew that there was no way on earth I was going to touch that money. I’d love to do it for free, but I just don’t have the training (or legal standing) to shoulder that risk. Though I tried to explain to my coworker that she could easily pay someone with 30+ years of experience to manage her money, she said that she trusted me.

It was a great illustration of why people, both men and women, get ripped off when it comes to financial services. There’s just so much information out there that it feels easiest to trust your money to a friendly person, even if said person doesn’t necessarily have your best interests at heart. It was also an illustration of why our workplace is not doing enough in terms of financial literacy. Sure, we have a great 401k, but what use is it if nobody from HR bothers to explain the darn thing?

I thought up some responses:

1) Go see a financial planner. Feel free to share their work with me. If I feel like they’re ripping you off, I’ll tell you.*

2) Are you planning on investing more than the limit for our 401k? No? Ok, well, you don’t need me.

3) Please buy me a yacht. It’s a good investment.

#1 didn’t work, though I do think it’s the best answer, so I ended up going with #2. Our 401k has target date funds that are going to do way better than anything I could come up with. If my coworker wants to do anything besides sock money away there, she really does need the assistance of someone more experienced than I.

*Yes, the singular “they” is going to be a thing on this blog. Sorry mom.

Office Finance Guru

401k Inequality

Since entering the workforce, I have done my best to become intimately familiar with 401ks. I have the advantage of having access to one of the best, the TSP. Not only does this government employee savings vehicle have super low fees, it’s also the subject of a huge number of articles and Bogleheads postings. Most of my questions are just a quick Google search away. It’s a personal finance junkie’s dream.

There are lots of 401ks (and similar savings vehicles) out there, so I’m not going to go into too much depth with those. Some are certainly way better than others, and I wouldn’t be happy being stuck with a dumb one. Many have written about what to do in this situation. Contribute nothing, contribute just enough to get the full employer match, contribute the limit but move your money later. There are many options, none of them ideal.

But I want to go even farther down the ladder of disenfranchisement. Many Americans do not have access to any of these plans. If you’re not self-employed but your boss offers nothing, you’re pretty much out of luck.

Non-working spouses also get the short end of the stick. A married couple where one person (with a 401k) makes $50000 and the other $0 might be allowed to save a max of $29000 in tax-advantaged accounts. If each partner had a 401k and made $25000 they’d be allowed to save $47000 in tax-advantaged accounts, nearly their entire combined incomes! And heaven forbid that one-earner couple doesn’t have access to a 401k. That bumps their amount they can save down to just $11000 in tax-advantaged accounts.

This is a gender equality issue because women are still more likely to be the non-working partner in a relationship. And in many cases, the partner without access to a 401k is the one who can get ripped off by these policies. Different 401ks have different policies regarding spousal consent. While writing this article, I learned that the (government) TSP has two opposite policies for its two classes of retirees. One class needs spousal consent to take an early distribution or loan. For the other class, the owner of the 401k essentially has complete control.

Curious, eh?

There are a few different proposals to address this.

1) Expand Social Security: Debate the whys and wherefores all day, but overall, 401ks aren’t working so well. Maybe the best alternative would be to expand a program that already does a lot more than these weird little accounts.

2) Government 401ks: When it comes to Social Security, hatas gonna hate. Some propose turning Social Security itself into a more 401kish entity, but I don’t think this is wise. President Obama has proposed a “MyRA” system, which is better than nothing, but way tinier than a good employee 401k. It’s pretty similar to Roths, but great for folks who have a hard time getting the financial system interested in the small amounts that they are able to invest.

3) Private 401ks: Private companies like Vanguard and Fidelity make it pretty dang easy to set up an IRA for yourself. Why is it that you can set up a Roth IRA in a matter of minutes, which you can fund with $$ you get from your employer, but you can’t set up a 401k for yourself in a similar fashion (unless you’re self-employed)?

Now, I’m sure there are actual answers to this, but none of them would really satisfy me. I think this would also be a good political compromise. You can sell it as individuals boosting the economy by putting their money in the stock market through private companies. Doesn’t seem like it should be terribly controversial. Then again, I say that about a lot of things.

So, this system ain’t perfect. But here are a few options.

1) Use the tax-advantaged savings strategies that are available to you. Don’t put off saving for retirement until the day you have a sweet 401k with low fees and a high match. Do what you can now.

2) Sometimes taxable accounts might make sense. These will be especially attractive if your tax-advantaged savings are limited. Heck, even relatively wimpy savings methods (cash under mattress, savings account, piggy bank) beat the heck out of spending all your money.

3) Think of savings methods that your employer provides as an important part of compensation. Ask questions before you’re hired. And if your employer doesn’t offer anything good, complain.

We can also take our complaints higher. Whatever your opinion on 401ks, be sure to share it with your elected officials.

401k Inequality