I finally know what distinguishes man from the other beasts: financial worry.
—Jules Renard
Let’s start this part of our story by talking about men and women perhaps a bit older than most of you readers. Let’s assume we’re talking about your parents or grandparents.
They have serious fears, largely because they did not understand what free market, democratic capitalism is.
It’s a little more graphic than that. A nightmare is haunting America: the fear of personal financial disaster. The fear is that although the middle-class American is sitting in front of his TV watching three hundred channels about zombies and dope addict Hollywood stars, or planning her next trip to the Bahamas, or wondering where his son might get into college, some horrible day down the road, he or she will simply run out of money. This can happen, and it does. Every year, roughly one million Americans go into bankruptcy, and many more than that are seriously delinquent on payments on credit cards or other loans.
Throughout the land—and perhaps even within your own family—there is the fear that although today we are the ones driving down Sunset Boulevard or Main Street in our air-conditioned Lexuses and listening to music on stereos that billionaires would have envied ten years ago, someday we will be one of those guys dumpster diving right next to us at the stoplight.
This fear takes on a concrete aspect when we see so many homeless Americans. We are afraid of terrorism, of course, and we should be. But we don’t see victims of terrorism all around us every day as if we were in Baghdad or Fallujah. We’re afraid of nuclear war, but we’ve become numb to that. The Cuban missile crisis was a long time ago, and the Iranian bomb is still in the future. The North Koreans are awakening us, but not enough. The day Seattle goes up in flames, it won’t be a sanctuary city any longer. But that’s in the future.
Yet almost every one of us, if we are alive and alert, sees the homeless frequently, and once in a while, we might even recognize the facial features of someone we know. Even if we do not come up against actual homelessness, almost every one of us knows someone who once had comfortable middle-class or upper-middle-class or even upper-class status and is now in dire straits, living on tiny social security checks and cadging loans from us that will never be repaid. We all know people who used to throw the bums a dime in their prime or toss ten-dollar bills to valets and bell boys and who now consider it a luxury to get Domino’s pizza. (In fact, Domino’s really is awfully good, but that’s sort of beside the point.) We all know people who look at statements from their brokers or from their banks and look at their most recent cancelled bank checks and can count the months until they run out of money.
It happened to many of my best friends; people who once lived with confidence, in authentic luxury, are now reduced to actual terror or prolonged despair. In any given week, I hear from several of them. They almost always want money, and if the requestor is genuinely a lifelong friend, I usually give it. (This, by the way, is only one of my many stupid and self-destructive habits. I pray it does not kill me.) Or they want a financial miracle from me in the form of advice that can turn their lives around on a dime. But they are in their sixties or seventies. I am not a miracle worker, and if a man with several dependents is really close to broke, I simply lack the wherewithal to pull him and those of his like out of the ditch. I wish these people had come to me thirty years ago and asked the same questions. I wish I had asked myself the same questions forty years ago.
And again, to go back to the grimmest example, although few of the homeless were once solidly middle class, just seeing human beings with two arms and two legs like most of us living in rags and shuffling down alleys is terrifying: It happened to them. Who’s to say it won’t happen to us?
And yet again (and it’s worth scaring you with this a few times), in fact, in real life, people’s financial lives do collapse. We usually see this as something less than homelessness. But we see a drastic change in lifestyle—from suburban four-bedroom manse in Hancock Park to studio apartment in Van Nuys—all too often. And we as sentient human beings worry about it. We would be mistaken not to worry about it. And we don’t just worry about it; we’re in serious fear about it. Not all of us, but enough of us to want to do something.
We don’t have to do anything really wrong for this kind of catastrophe to happen. We don’t have to be caught in a scandal or a crime. No need for an accident or an illness. No need even for a divorce. It’s just part of the progression of life for incomes to go up and then down. This is not a disgrace. It isn’t a mark of shame. It’s life. It is so much a part of life that Milton Friedman, the megagenius economist whom I often cite, wrote about it as a basic tenet of life.
We will tend to (“will tend to,” not “are required to”) spend all of what we earn. We will tend not to have enough for a comfortable retirement. Again, this will not happen to everyone, but it will happen to tens of millions of us.
Incomes rise and fall, and jobs are found and lost, and if we do not make provisions for this virtual inevitability, we will suffer. We don’t want it to happen to us. It’s not pretty.
Even more inevitably, we are rightly in serious fear—actual terror—about what happens when we are past our prime. Again, what the devil happens to us when we are put out to pasture and no longer have a regular paycheck? What happens when we are locked into that hellish world where we have grown used to spending a certain amount on cars and mortgages and supporting our children and then suddenly the x factor necessary to support that lifestyle, that x factor that was coming in like clockwork for decades, becomes 10 percent of x? What happens when we become like Wile E. Coyote and run off a cliff, our legs still pedaling in midair, and suddenly look down to see there’s nothing supporting us and an anvil is about to fall on our heads just after we hit the ground?
(This, again, was a part of what Friedman won the Nobel Prize for—the lifetime consumption function.)
To illustrate, here in Hollywood, there’s a classic “joke” about TV writers and their employers: “They pay us $5,000 a week until we need $5,000 a week to live on, and then they fire us.” It’s called “The Velvet Alley,” and it’s all too real. Roughly 60 percent of boomers are seriously worried about this fate and believe they have not prepared adequately for it. I queried a number of financial planners who said that in their experience, the actual percentage is higher. I’ve been told almost everyone (except those who are delusional on one end of the scale or who live with the utmost rigor and good sense on the other) is in fear.
True, the majority of boomers have at least some financial plan. It’s a small majority, and it excludes tens of millions. It might be inadequate, but at least there’s a plan. That’s positive luxury compared with what awaits the ones without a plan—and that includes many millennials. (The millennials, to be sure, are young enough to do something about it, and I hope they will. But the cards are stacked against them in many ways, including home ownership and pensions, so they have to play a clever hand to turn the trick of retirement. Boomers often had the great cards of a rising real estate market, owning their own homes, which they bought when real estate was affordable to those starting out in their work lives, and the long-discarded defined benefit pension plan. Those cards are unlikely to be dealt out again. What’s in the cards for the boomers as yet without a plan and for the millennials—well, that’s what this slender book is about.)
Roughly 80 percent of millennials—some of whom are now in their late thirties by some definitions—have no plan at all. They are not saving any meaningful sums for retirement. In fact, they are not saving at all. They have no plan, and they have no planners. And they have no money. And they know very little about finance and money. This is not a formula for sleeping well at night.
Or look at it from another angle (a genuine vertiginous occlusion, to use one of the fabulous phrases of the great writer Joan Didion): more than half of American families could not come up with five hundred dollars on the spot for an emergency. Back it up from there and try to think how many have enough saved to cover their salaries if there is another Great Depression (a highly doubtful prospect), or when they leave the labor force, kicking and screaming (a virtual certainty), or when they get laid off because robots can do their jobs. And those robots are getting smarter every day.
But it’s not all about fear. There are people who do have plans and have yachts and tanned faces and confident smiles. They’re in the ads for investment planning firms. There are not many of them in real life. They’re actors or models in front of cameras, with makeup artists to make them look great. And often a dog or a horse—a sure sign of stability.
But let’s get back to reality. In this glorious America, there are simply not enough who actually do have a plan of any kind at all or even any meaningful idea of how the system works to get them to that TV commercial beach and that magazine and that sailboat or anything even a little like it.
Just to hit you over the head with this again in numbers, the average Americans nearing retirement say they need roughly $50,000 a year to live on. But they have savings sufficient to generate less than 20 percent of that. Yes, they will have some small sums from Social Security, which will make things better. Yes, some will have been able to serve in the public sector for long periods and accrue those gorgeous public sector pensions that they suck out of the jugulars of the taxpayers. (By the way, that won’t last. Taxpayers will not forever suffer being impoverished so that civil servants can retire in comfort.) But a huge number will experience a spectacular shortfall after they retire. Too many will simply run out of money except to live at a depressingly modest level. Buttered toast happens to be one of my wife’s and my favorite meals, but to eat it every day would be a bad feeling.
My goal is to help create a few million more of those confident, lusty, cheerful people, obviously enjoying themselves in the advertisements and commercials until the final curtain sets—not just to create them on TV or on a magazine page, but to create them in real life.
There is a way to do it. It involves having some contact with the reality of our system, the capitalist system, our frequently reviled but beautiful reality. And it involves having a plan.
The greatest genius about money since Adam Smith, Warren E. Buffett, has said, “An idiot with a plan can beat a genius without a plan.” My El Dorado, the gilded city of my dreams, is to give you that plan.
It’s a really basic plan. As I like to say, “No one is too stupid to get it, but some are too smart.”