Facts About How People Handle Money

I recently ran into an old magazine article that lists several facts on how people handle money, quoting Dave Ramsey's The Total Money Makeover as the source. I found many of these interesting and wanted to share them with you:

• 90% buy things they can't afford.
• 80% of graduating college seniors have credit card debt.
• 49% can't cover one month's living expenses if they lose their income.
• 75% of airline miles "rewarded" are never redeemed.
• Most people carry a car loan, paying $378 a month. That sum invested from 25 to 65 would yield $4 million at retirement.
• 60% don't pay off their credit cards every month.
• 80% mistakenly believe their standard of living will go up at retirement.
• 19% of those filing for bankruptcy in 2002 were college students.

Here are my thoughts on these:

1. Not surprising. I thought back personally and I can't remember when the last time I was that I bought something I couldn't afford. Something I paid too much for or something I didn't need -- of course, those would be easy to name. But not something I couldn't afford.

2. College loan debt is ok by me as long as it's not so massive. Why? Because it will more than pay off in extra income in the long run. That said, credit card debt is not acceptable to me for anyone in any stage of life.

3. Yikes! So almost half the population is one month's salary away from financial meltdown?

4. All the more reason to go for a cash rewards card.

5. I save for a car and pay cash -- haven't had a car payment in 15 years.

6. See #4. I use my two credit cards quite regularly (most of the use is on my Blue Cash from American Express card), but pay them both off every month.

7. Ha! Yes, I think people are deluded when it comes to their expectations of retirement.

8. Wow, that's a shocker. I've never seen anything like this quoted before. Who would have guessed?

Overall, I thought this was some really compelling information -- much of it almost unbelievable even for a jaded guy like me.

Comments

[Colin]

1. Does this figure include taking out a mortgage to buy a home? If that's the case, then this is a misleading statistic.

5. This stat which involves trading off one use for the money (paying a car note) for another use (investing the money for retirement) is nonsense unless the person in question compares buying a car vs. not buying a car. Assuming the person will be buying a car and decides to pay cash instead of financing it, then its a matter of saving the $378 a month beforehand (or slightly less, since no interest will be paid to a financing company) vs. paying a monthly car payment of $378 after the purchase. The $378/month is not available for investing. Instead, let's see how much the person could have at retirement if the interest that was going to be paid to the financing company was invested instead. Not millions of dollars, but a tidy sum nonetheless.

[FMF]

1. I don't believe it does. If you borrow for a home that you can (reasonably) afford, why would it?

5. Or consider saving $378 a month for seven years or so and what that money is earning while you're saving it. Again, not millions, but a good amount. It all adds up to a chunk of change.

[Chris]

I've seen Dave Ramsey's car buying plan. It's not bad. You basically save up money every month, then buy a car for much less than you've saved, to keep that principle accumulating while you buy cheap cars. Eventually you'll have enough to just buy a decent car from the 5 years of interest that the principle generates for you.

I always pay my credit cards off every month (except this month as I wrote in my blog, I accidentally paid $7 less than I owed!) but I had read elsewhere several times that only 35% or so didn't pay their cc bills in full every month. I'm curious to see where the stats came from.

[Lazy Man and Money]

Define standard of living in retirement? If you count not working every day, then put me in the group that agree that my standard of living will go up.

At my current pace (which is hard to project since I'm 31 with no children) of putting 19K for me (my fiancee doing the same) in Roth and 401K combined we should do okay. She's military too, so she's on track to get a reliable pension (as opposed to the other kinds) and nicely priced health care.

Add it up and if Dave Ramsey asked me about my retirement, I'd be in that 80%, but I don't think I'd be mistaken about it.

[Moneymonk]

I am not in any category above. But I can say 70% of Americans, handle money that way.

For as a car, I had financied one for 2 1/2 yrs. I just paid extra to get rid of the debt quicker.

The answer to fix all of that is to avoid consumer debt and live below your wage.

[sJ]

Those are quite shocking numbers. Last one was definitely something new for me..19% !!