Americans are “hoarding money,” reported the Wall Street Journal January 13. “Worried about their health, their jobs and the prospect of a deep recession,” they socked away money and “amassed record savings levels.” I’m not certain what Americans the Journal was describing, but it certainly was not the average person.
Meet Joe. Joe couldn’t be more average. He and Joan, his wife, are 38 years old and earn the median $51,383.18 a year net in salaries. Also right at the average, they spend $61, 224 a year. Trouble is, with expenses exceeding their incomes every month, they go farther in the hole, scrimping and running up their credit card debt. They would love to save money, but can’t figure out how. They hope a big tax refund will help pull them out of debt. Forget about saving anything. They just want to get somewhere approaching debt-free.
During COVID, they got the opportunity to spend less with Joe working from home a lot, not having to buy so much gas, and eating lunch at home. Beginning February 2020, Americans’ savings rate jumped over 30 percent. COVID was to blame, as people curbed spending and stockpiled cash but left Joe out of the equation. Some of the savings went to retirement funds which now have an average balance of $255,200, not enough to retire on but a good start if you’re 40. Joe just wishes he could save into his retirement fund more than his company pays.
Average Joe has company in his lack of savings. Statista reports that 81 percent of people have less than $5,000 in savings. Mostly that 30 percent increase in savings was from people earning more than the average person. From people with higher than average incomes or lower expenses in 1990, gross private savings in the US went over $1 trillion for the first time reaching $1.14 trillion. It reached $4.72 trillion in 2019, far more than the rate of inflation which would have amounted to $2.13 trillion.
Joe lands smack dab in the middle of average of 48.5 percent with a high school diploma and a couple of years of college. He dropped out to earn money. During his short college career, he accumulated student loan debt amounting to almost $39,000, just about average and that he still pays on. He has more student loan debt than credit card debt, also just about average. No wonder Joe can’t save a dime.
The savings aren’t spread evenly. The average American household has saved $41,700, a misleading number. A more accurate and telling measure, the median savings are only $5,300 which means half of the people have $5,300 or less in savings. Joe joins the 55 percent of the population that couldn’t survive more than four months without income if he lost his job. He’d have to deplete his minuscule retirement fund to survive then find a way to pay the taxes on it.
One place Joe isn’t average is his credit score. The average FICO score, reports Experian, is 711. What with having to skip payments occasionally and worry that his car might be repossessed because of missed payments, declined credit cards because of missed credit card payments and that he might be evicted because of late rent payments, Joe’s credit score is 625. He teeters on the edge of insolvency every month. The stress and credit score are killing him.
Joe rents a house but the rent keeps going up and he has been late with the rent six times in the past year. With the eviction moratorium over, he is afraid to open his mail from the property management company. It gets worse. Rents are increasing more than 30 percent in some cities making living too expensive for even ordinary people like Joe who have stable jobs and questionable credit. With the lack of available housing, landlords can be just about as restrictive as they want in their rental requirements. Joe needs to move and might be forced to get “creative” in the information he puts on his rental applications and the documents he presents.
He’s not alone. Snappt reports that 12.2 percent of rental applications contain fraudulent information. Joe will have to resort to document fraud to even get a landlord to consider him. With his credit score at 625, he is competing with applicants with average or better scores. The house where Joe and his family live is a place he can be proud to live in. He won’t be so proud of where he ends up after he is forced to move. Worse yet, if the landlord discovers his fabrications, he’ll have to move again immediately for lying on his rental application.
Then there’s Joe’s job. He’s worked there for five years and his present home is a ten-minute drive to work. When he has to move, chances are the drive will be much farther and thus harder on his car. If the car breaks, Joe might not have the money to fix it considering that 44 percent of people find themselves unable to come up with even $400 in an emergency, reports debt.org.
Those who should know keep talking about how people are doing better than ever with savings growing and wages increasing. They talk about the pent-up demand for spending and the inflation that results partly from increased spending. Rarely mentioned are the “average” people stuck in the middle, just trying to get by and hoping nothing so much as an unexpected $400 bill shows up.
