blog

Financial wellness eluding Americans: could mindfulness help?

Financial stress is rife in the western world, perhaps no more so anywhere than the United States.

In 2015 the American Psychological Association released research from interviews with 3,068 Americans showing 72 per cent of them “reported feeling stressed about money at least some of the time during the past month”. For a big majority (64 per cent) money was a “somewhat or very significant source of stress”.

APA CEO Norman Anderson said “Regardless of the economic climate, money and finances have remained the top stressor since our survey began in 2007.”
Many Americans do have the capacity to change this situation but do not. Why is that?

Consumer culture and bad spending decisions are often to blame for people who can afford to but fail to secure their future, according to the American Institute for Economic Research.

“In the key metrics of financial wellness, including short–term emergency savings, investment, and indebtedness, many Americans fall short,” wrote Max Gulker, senior research fellow with the AIER, in an article published in January 2017.

In the United States, 20 per cent of income is the widely accepted portion of income that should be set aside for meeting financial goals. These include paying credit card debt (the average American household credit card debt is US$16,061), repaying student loans (the average for graduating students in 2016 was US$37,172), saving for retirement and a separate pot to pay for emergency expenses.

Two months’ worth of income is the smallest accepted amount of income suggested for an ‘emergency fund’.

“Almost half of Americans can afford to invest and hold adequate liquid savings,” Gulker wrote. “[But that] does not appear to be the case. The median saver among those earning US$85,000 is still only holding 40 days of work income in savings, well short of commonly cited goals.”

Most Americans, Gulker found, either cannot meet these financial goals – or won’t.

His research showed that many people simply cannot afford to save much – if anything – once essentials (housing, food, transport, health care and miscellaneous – likely including clothing and footwear) and so–called “lifestyle” costs are paid for. Eating out and taking holidays were not included in his calculations. His research looked at what a 30 year on the median income of US$35,613 would have left for “lifestyle” after paying for essentials and putting aside that 20 per cent to achieve financial wellness. The answer was just $4 a month, meaning many people on average incomes are having to choose between lifestyle and financial wellness.

Gulker speculated some Americans on higher incomes, “who can afford to save and invest enough [would have] rational motives” for not doing so – like expectation their incomes might rise, or family wealth to turn to. But many personal behaviours that prioritise “immediate [over] delayed gratification, are rife with potential human biases and errors,” he wrote.

In other words, people who can afford to secure their future, but don’t because they don’t want to miss out on anything, are probably getting their priorities wrong.

Gulker doesn’t believe most people are reckless though. He sees pressure to spend in the consumer society of 2017 as an irresistible force for many people.

“In an age of microwaves and convenience stores, instant gratification is at our fingertips, and we end up consuming too much. From food to electronics and cars to homes, we’ve witnessed an explosion in the amount and variety of consumer products available. At the same time, shopping is faster and easier than ever before due to the internet and ease of transportation.

“Finally, our financial system has made borrowing and credit easier for consumers across the socioeconomic spectrum.”

Gulker’s made no endorsement of mindfulness – his brief was not to suggest solutions to these problems. But it’s highly likely that mindfulness – which has been proven to reduce stress – around our decision–making with money could make a big difference to our ability to meet our long–term and short–term needs.

Peter Vincent

Try
Financial Mindfulness
For Free

Download App today and start reducing your financial stress.