

I was at a Labor Day barbecue last Monday at a friend’s house. There was an interesting mix of people. My best conversation was with a woman who had immigrated from the Philippines as a teenager in 1976 and had grown up in poverty. She, like me, had a real appreciation of her adopted country. She had immediately noticed the higher standard of living here. How could she not? But she was surprised to learn that when I immigrated to the United States from Canada on a student visa in 1972, I immediately noticed the higher standard of living also; I estimated it as being 15 to 20 percent higher.
Later, she and I were in a discussion with a woman (I’ll call her L since I don’t have her permission to quote her) who gets much of her news from MSNBC and likes both Robert Reich and Jared Bernstein, who is the chairman of President Biden’s Council of Economic Advisers. The discussion was quite amicable. (L seemed impressed by the fact that I had debated both Reich and Bernstein, the former on KQED-FM and the latter at a Mercatus event in Annapolis in the 1990s.)
L commented matter-of-factly that the vast majority of Americans couldn’t save money. Both J (the woman from the Philippines) and I disagreed strongly. I think it was for the same reason. We both had come from places that were poorer than the United States, extremely poorer in J’s case, and it was easy to see how people could save if they cut back on their luxuries that they have come to regard as necessities. For example, my wife and I often order take out food on Saturday for lunch and the bill is usually over $40. But we could make sandwiches at home for a cost of a a few bucks and do it in less time than it takes me to go pick up the food. Or we could get takeout from Carl’s Jr. for a total of about $15.
One of the best parts of Dwight Lee’s and Richard McKenzie’s book Getting Rich in American: 8 Simple Rules for Building a Fortune and a Satisfying Life is the chapter on resisting temptation. I have found that easy to do in my life. I think a big part of the reason was that I got an allowance of 10 cents a week when I was in single digits, 25 cents a week when I was a tweener, and one dollar a week when I was a teenager in the mid-1960s. To do things that cost money, I needed to figure out ways to make money. Because I had to work hard for that money, I learned not to waste it.
Most people I run into have more trouble than I had in saving money. It’s not easy for many of them. But that doesn’t mean they can’t do it.
Relatedly, I was watching Laura Ingraham earlier this week and she quoted, the way people on the right, left, and middle often do, a study that said that most people who had an unexpected expense of $400 couldn’t pay it. The study didn’t say that at all, as I discussed here. That then led to her saying that most people live paycheck to paycheck. That last one may be true, but what it leaves out is that they are making choices and could make different choices. Easy? Not necessarily. But doable? Absolutely.
READER COMMENTS
Jon Murphy
Sep 8 2023 at 9:25am
Good stuff here. I learned the very hard way the lesson you’re discussing. When I was younger, I got up to my eyeballs in credit card debt and ended up defaulting. I was forced into making very difficult choices about how to pay back that debt. I had to cut back on a lot of things, but I also found less onerous ways to save: getting a roommate, store-brand versus brand-name items. Mending clothes that weren’t too bad rather than buying new ones (my Mom taught me to sew when I was younger). Etc. It took a while, but I had a mindset change, which is really helping me now in my 30s.
Many of these studies are kind of silly. Some seem designed to come to the conclusion that people cannot afford to save. One i saw tried to argue you need at least $250k to live the middle class life and save money, but the budget they presented as “the middle class life” was absurd: $6,000/mo mortgage, 4 2-week vacations per year (2 of which were over seas), $1k a week in goceries. It was absurd.
David Henderson
Sep 8 2023 at 9:36am
Thanks, Jon. Great stories.
$1k a week in groceries? Wow! The reality, if we’re talking just groceries and not things like booze, Starbuck’s, etc., is $1k a month. And even that could be pared somewhat for a family of 4.
When we were dissatisfied with the government school our daughter was in, we decided to send her to Robert L. Stevenson school when she started 5th grade. I told my wife: you realize that this means we won’t be able to go to Europe or Asia until sometime next century, right? My wife agreed and we didn’t, except for my trip to Mont Pelerin in Cannes in 1994, a trip for which I found a think tank to pay my airfare on condition that I write a report on it.
In retrospect, of course, we could have gone to Europe. I didn’t plan on 3 things: (1) what I call the Obama/Trump stock market boom, (2) the appreciation of our house, and (3) how well I would be able to do on free-lancing after I retired in 2017: on this latter, if there’s ageism, I sure haven’t seen it.
steve
Sep 8 2023 at 11:06am
Most people can save. The percentage that cant is small and hard to determine I think, but probably in the 15%-20% range. It’s not clear how much they can save. So I think most people are fine at equilibrium but unexpected expenses are problematic depending upon their size. I think the people who probably have it worst are people with a chronic illness with significant costs or those that take on family responsibilities. Taking in grandma after grandpa dies can add continuing costs that you cant cover by delaying paying a bill or two.
Having grown up intermittently poor (wife also) we are pretty compulsive savers. I think we both worry about being poor again. Just amazes me how many of my people, making well into 6 figures, are living paycheck to paycheck. (Was jealous of kids who actually got an allowance and we kids had lots of work around the house. Father loved 2 Thessalonians 3:10)
Steve
Mark Barbieri
Sep 8 2023 at 11:30am
I always thought the argument that many people are unable (as opposed to unwilling) to save was a very weak one. Given the distribution of incomes, for the vast majority of people living paycheck to paycheck, there is someone living in similar circumstances on less income. If you are in the 30th percentile of income, live like someone in the 20th percentile and you can save money.
David Henderson
Sep 8 2023 at 5:56pm
Good point, Mark.
Walter B
Sep 8 2023 at 12:01pm
For me, the greatest saving tool was automatic paycheck deductions into IRAs and 401Ks. If I could convince a young person to do just one thing, it would be that.
National Jester
Sep 8 2023 at 5:24pm
My first boss pushed me into setting up an IRA. My second boss told me that every time I got a raise I should put half of it into my 401. People don’t realize that if you skip the 4x a week Starbucks habit you can easily contribute $100 a month. The hard part is watching your account grow slowly at first. But the compounding effect of contributing and not withdrawing for 30 years is amazing.
David Henderson
Sep 8 2023 at 5:59pm
You just gave a beautifully succinct summary of a large part of the Lee/McKenzie book.
My own story: The downtown office I rented from the 1990s through February 2007 (when it burned down) was above a Starbuck’s. I saw people go in and wondered what the big deal was. So I tried their coffee and hated it: it was too bitter. Then I tried a tall mocha and loved it. But rather than have a mocha a day, I had one or at most 2 mochas a week.
I also formulated a rule for myself: Celebrate small accomplishments with tiny rewards, medium accomplishments with small rewards, and large accomplishments with medium rewards.
Jon Murphy
Sep 8 2023 at 6:19pm
I agree. But boy it’s exciting when it does start growing. I have a 401k from a previous job I left in 16. I just looked at it this past week. That was a pleasant surprise
Dylan
Sep 9 2023 at 6:33pm
@Jon. I’d highly recommend rolling over that old 401K into an IRA that you control. You will have lower fees and a much wider selection of investment options. The lower fees can really make a difference over the years.
Jon Murphy
Sep 9 2023 at 8:09pm
I did exactly that on Thursday
David Seltzer
Sep 8 2023 at 12:48pm
My penchant for saving came from watching my parents, both of whom grew up during the depression, reuse or repurpose almost everything they bought. My father worked in the steel mills in NW Indiana for twenty years. My mother used the same plastic bread wrapper repeatedly to pack his lunch. In 1952, he bought a small hardware store with money he saved. He hated debt. Both parents worked in the business. It became profitable enough such that they bought a small bungalow for eleven thousand dollars four years later. As the business grew during the 1960’s, my father expanded and with retained earnings bought stocks, bonds and insurance. When he passed away in 1989, he left my mother an estate of nearly four million dollars. Even as their wealth increased, they remained in the same house they purchased thirty-three years earlier. I was and am still influenced by their example. I SAVE! My daughter asked me why I drove a Volkswagen Passat with one-hundred and sixty thousand miles when I could be driving a Bentley or Mercedes. I told her I could certainly afford either of those fine automobiles because I drive a Volkswagen.
David Henderson
Sep 8 2023 at 6:00pm
Good story. Sometimes people tell me that with my wealth I could buy a luxury car. I reply that my 2015 Toy0ta Camry with just over 67k miles on it is a luxury car.
National Jester
Sep 8 2023 at 5:15pm
The way people get rich is by keeping their own money (or by taking it from others). My wife and I are in a better position financially than most people living at our “standard of living”. We eat quite well at home, so much so that we are often disappointed when we eat out, except for ethnic food that we are unable to prepare ourselves. Both of our cars are nearly ten years old but in good condition. The result is that we have substantially more assets than we did ten or twelve years ago when we retired. Oh, we replace computers and phones every four to six years, not every year or two.
Jon Murphy
Sep 8 2023 at 6:22pm
One of the things that does make saving difficult are some of the tradeoffs. For example (and I know many people of my generation face this): do I pay down student loan debt or do I save more? I’m making a conscious choice to save more rather than pay down student debt faster. Others make a different choice. But both are difficult choices.
David Henderson
Sep 8 2023 at 6:50pm
It can be a tough choice but paying down debt IS saving.
Dylan
Sep 9 2023 at 6:22pm
As David says, paying down debt is saving. But, there are both financial, emotional, and behavioral elements to the decision that make it not always obvious which is the right decision for an individual.
Lots of people focus on the financial part. Can you make more in interest on your savings than you are paying on your debt? And then say the obvious choice is to focus on savings and only paying minimally on your student debt.
However, you also have to know yourself a little bit. Are you the kind of person that will spend the money if you have it, and not put it into long term savings? Then paying down the debt is maybe a better idea for you.
And also, how comfortable are you with the level of safety net you have? In the spring, my accountant was encouraging me to put more money into a SEP IRA, but I was uncomfortable with that because my cash savings wasn’t where I wanted it to be, and I thought there was a good chance I’d be laid off (and I was right) and I wanted to make sure I had time to find the right job for me, and not feel like I had to take the first thing that came my way.
David Henderson
Sep 10 2023 at 10:49am
Good points, Dylan.
Also, re the comparison of interest on savings versus interest on paying student debt. It’s important to do the comparison right. That involves looking at taxes. Interest on student debt, as far as I know, is not a deduction. But interest on savings is taxed. So to do the comparison right, you need to take (1 minus the marginal tax rate, in decimal form) times the interest rate. In my case, living in California, my tax rate on interest is 33.3 percent (24% fed and 9.3% state.) So if I’m earning 5% before tax, I’m earning 3.3% after tax.
Herb
Sep 8 2023 at 9:57pm
My wife and I had depression era parents. We saved as much as possible, reused, refurbished, and I learned drywalling, electrical repair, painting, among other money saving chores. (Even our parents agreed we still had our “first dollar” and encouraged us to spend more.) At work I advised new hires out of college to save in a company-matched 401(k). Most stated it was more important to pay down the student loan, but they were missing a matching 50% return on their 401(k) investment, not even considering the compounding of tax deferred gains. Their lifestyles could have easily changed to accommodate the slight income reduction. You can lead a horse to water …
My wife and I were able to retire early and have thoroughly enjoyed our travels, hobbies, and life.
David Henderson
Sep 9 2023 at 6:19pm
Missing that automatic 50% return: crazy.
Dylan
Sep 9 2023 at 6:39pm
My last job had a particularly generous match, 100% on the first 6% of income. My last company stopped offering a 401K a couple of years after I started, and never had a match, so this was amazing to me. I put as much as I could into the 401K, not just the match but going up to the 16% I was allowed to contribute. When our group was shut down we were sharing info and I was amazed to see how many people (all of which would have been considered highly compensated employees) were not even putting enough in the 401K to get the full match!
David Henderson
Sep 11 2023 at 12:35am
And if it’s dollar for dollar match, it’s not a 50% rate of return: it’s a 100% rate of return.
Thomas Hutcheson
Sep 9 2023 at 8:01am
I certainly agree that people could and should save more, but I also think that it is appropriate for public policy to take account of the fact that they do not. That’s why I think the federal government should run very low deficits if not surpluses. Why SS/health insurance subsides, unemployment insurance (and other safety net expenditures like the CTC if we had one) are legitimate and ought to be financed with a VAT that more or less kept their fiscal effect at zero. Why the progressive income tax should have more elements that push it toward progressive consumption tax.
Don Boudreaux
Sep 10 2023 at 11:05am
I believe that the government should run very low deficits, or even surpluses to reduce the national debt, regardless of how much Americans as private citizens save.
Thomas L Hutcheson
Sep 10 2023 at 1:12pm
I agree, but the “fact” that people do not save “enough” makes the opportunity cost of the federal government using part of those “inadequate” savings all the higher. The exception would be if the government has access to some investment opportunities that the private sector did not (winning a war, for example).
Richard Fulmer
Sep 9 2023 at 10:52am
In 1904, Amadeo Gianni started the Bank of Italy in San Francisco. The reasoning behind the bank’s name was that Gianni knew that Italian immigrants, though paid far less than average Americans, found ways to save money out of their meager wages. Today, the bank is known as the Bank of America.
MarkW
Sep 9 2023 at 11:06am
I’ve generally found it pretty easy to save, but I’ve always suspected it was more due to personality traits than anything else. I’m not an impulsive or status-conscious person (nor is my wife). I’m delighted to find high quality (if not high status) goods at low prices. I feel smarter when I find such bargains and feel dumber when I buy the expensive brand because I don’t know any better and haven’t bothered to find out. I like DIY projects. This is really the golden age of DIY with YouTube videos that will walk you through almost any project. The savings from not hiring expensive service people are considerable. The extra marginal utility of high end wine and liquor is so small, we don’t bother. Luxury hotels and resorts seem insufferably fussy. We don’t shop at Walmart when at home, but it’s a standard stop after picking up the rental car when on one of our hiking/camping/backpacking vacations. It feels like Americana, and is a great source for groceries and inexpensive camping gear that we couldn’t bring on the plane (and that we enjoy giving away at the end of the trip). But maybe it’s easier to disdain status and luxury goods when you could afford to buy them.
steve
Sep 9 2023 at 11:51am
How can anyone not like WalMart? Where else can I go to buy pellets for my pellet gun, good underwear, camping stuff, food and housewares all on the same trip. Also fun just watching the people who go there. They usually have lots of lines open so you dont have to wait too long. They are huge now so Im not doing everyday shopping there but we have pretty regular trips.
Steve
David Henderson
Sep 9 2023 at 6:15pm
Walmart IS great.
Now when I fly into Winnipeg to go to my cottage, I have an extensive shopping list and go to Walmart, buying about C$300 worth of food for my 2 weeks there.
David Henderson
Sep 9 2023 at 6:18pm
Re wine, my favorite red wine is Menage a Trois, which I buy for between $6 and $8 a bottle at Costco.
Andrea Mays
Sep 10 2023 at 1:34pm
Lots of great comments on this thread!
”. Because I had to work hard for that money, I learned not to waste it.”. Hits the nail on the head. Making your kids earn something teaches them about the trade off. It makes them think like economists at an early age!
PS I want to recommend another red wine to you— recommended to me by our mutual ex- Canadian friend in Maine. At TJs see if you can find Loudenotte for around $8US— an excellent Pinot Noir for everyday consumption.
David Henderson
Sep 10 2023 at 1:51pm
Thanks, Andrea. Will try it.
James
Sep 9 2023 at 1:24pm
It’s so exasperating when people say this, because it’s really easy to see it’s not true. If there is *anyone* in your neck of the woods making less money than you, what excuse do you have for not being able to live as if you make that same amount and pocketing the rest? Or at least some happy medium. It’s true that medical conditions and other factors can affect how much different individuals need relative to others, but this holds true more often than not.
I will say though that the cost of housing makes it harder than it should be. I make good money and live in a very modest house, *well* below the median price in my state, but if I were single the total expenses would still amount to 40%+ of my after-tax income.
Richard W Fulmer
Sep 9 2023 at 3:48pm
In 1904, Amadeo Giannini founded the Bank of Italy in San Francisco. The name was chosen because Giannini knew that Italian immigrants, though far less wealthy than other Americans, found ways to regularly save money from their meager wages. The bank is now known as the Bank of America.
Joseph Smith
Sep 10 2023 at 3:31pm
Wonderful post David that brings back memories of money discussions my wife and I have had with our three children in the 1980s.
We are now both 80 and our children are in their 50s. When they were in high school, I gave each of them a copy of “The Wealthy Barber” and made sure they read it and understood its lessons. Over the years we revisited various financial management issues. I still recall my youngest daughter doing the math and understanding the results of saving 10% or more from her first adult paycheck (age 21) and every subsequent paycheck. The amount put aside was a factor, but starting in her 20s and not waiting until her 30s or 40s really made the biggest difference. All three have differing political views, but all three are on the same page when it comes to personal finance 101.
David Henderson
Sep 11 2023 at 12:35am
Nice.
Matthias
Sep 12 2023 at 7:15am
I want to agree, but the whole argument feels very similar to someone explaining why no one should be obese.
Yes, in principle most people can save, and almost everyone can eat less. (Excluding those with eg thyroid problems.)
But I don’t feel blaming obesity only on the victim is necessarily the right frame of mind, or necessarily always a useful perspective.
I haven’t made up my mind about whether to blame a lack of savings only on the victim is fine, yet.
But the similarity in structure of argument is striking.
David Henderson
Sep 12 2023 at 6:15pm
You write:
I think the problem is with the word “should.” I don’t say people shouldn’t be obese. This would be a hard case for me to make because a calculation last week showed that my BMI is 30.8, which puts me in the lower range of obese. Rather, I’m explaining that people can save. That would be similar to saying that people can avoid obesity, something that I think is true for the vast majority of people, including me. I found really good reasons to save starting in my early 30s (the triggering event being marriageable.) I haven’t found really good reasons not to be marginally obese. But if people want to blame me for being obese, they’re free to do so.