Last week, Neal Gabler wrote The Atlantic cover story entitled: The Secret Shame of Middle-Class Americans. Gabler's piece is heartfelt and very personal. Such honesty is most rare in discussions of personal finance.
Gabler, and others like him, have a cloud of financial shame in their lives. He has lived well, he has accomplished many creative and occupational goals, and he has made positive decisions for his family. Neal Gabler is also a confirmed member of the 47% of Americans who have no recourse for an unexpected $400 expense.
He attributes his condition to the slow trickle of rising costs vs. stagnant income. And yes, he is well aware of decisions he made that affected costs: NYC/Long Island housing, private schools for his daughters, occupation as a writer, etc.
His choices have made him who he is today. But what will the average financial look like in today's estimation?
The Old Normal
From Zero To One:
The old normal is that stuff American dreams are made of. Born in the definitely optimistic period. You work hard, naturally your wages will outpace your expenses, and you'll retire a wealthier version of yourself.
My paternal grandfather exemplified this optimistic American life. He never suffered a weak year in his life. Just a regular guy who worked decades with the same corporation, three kids, and a house in the suburbs. He retired and eventually passed away a moderately wealthy person.
The period of indefinite optimism begins at 1982. Gabler was likely well into his working years at this point (born in 1950), but it underscores the shift from savings to debt that Gabler outlines in the Atlantic piece. US consumers employed debt to fill the optimism gap, and savings went out the window.
Credit card, primary residence, and student debt are all consumptive forms of debt. People try to sugar coat it and say "It's an investment in my future." Investments earn a return, good investments beat out the alternative options available. Most of these debt-fueled "investments" never passed the smell test.
Meanwhile savings came to be viewed as some kind of parachute: A pile of change ready to deployed, single-use.
The New Normal
Stagnant wages, low interest rates, slowing global growth. You've heard the list.
Many in the personal finance community are quick to suggest that this is all just a matter of the right savings/minimalism/downsize strategies. While I do agree that the wisdom and practice is helpful, Gabler is getting at something a bit different here.
Almost every decision he ever made in his life was not financially motivated, but instead motivated his own desires, dreams, and personality. Neal Gabler chose to be the person he really wanted to be.
He does not look like our media/popular perception of a financially impotent person. Successful writer, two daughters at great universities, a home in East Hampton. That's just the point, he did everything "right" and still came up short.
Plan for Normal
If you're still young, and have the opportunity to be forward thinking, you are lucky.
The only thing you can be certain of: costs and financial obligations will rise as your family grows. The big gap where the blue line is higher than the orange line is your key period to build up investments and passive income. It's a time when you can dedicate to productivity (late nights at the office, two incomes, one bedroom apartment).
If you want to keep up with the treadmill, it will become a necessity for people to plan for a retirement before retirement. This pre-retirement is just a catchy way of saying that you will require some passive income to cover their later working & family years.