I just finished reading America, Welcome to the Poorhouse: What You Must Do to Protect Your Financial Future and the Reform We Need. And I have to tell you, I’m a little freaked out. All you have to do is read the Introduction to get freaked out.
What’s the book about?
Well, it’s about a lot of things, but the heart of the book covers our four biggest financial stresses: empty nest eggs, unaffordable homes, overpriced colleges, and credit card debt.
Yeah, it’s a lot to chew on. And I know it sounds as if the kind of book you wouldn’t want to read. After all, these can be grim topics. And who needs more grim these days?
But America, Welcome to the Poorhouse succeeds because the author, Jane White, doesn’t just moan and groan about how bad things are. She opens ours eyes to the problems we’re facing fiscally, and then offers some great solutions on what we can do to protect ourselves.
Every major financial stressor has its own section. And at the end of each of these sections, the author offers us a chapter called “The Fix”, which is full of clear strategies on what we can do to overcome the problem, and the reform we need in government to make sure these problems don’t keep cropping up. So, we’re not left hopeless at all the bad news-we’ve got tools and strategies to move forward.
There were a number of incredibly shocking sections in this book. And I wish I could cover everything, because I was really impressed with how the author handled each topic, and the with the amount of new information I learned.
But, I’ll stick with a few that really struck home.
Lesson 1: Countdown to 2011
Many of you already know that our country’s retirement policy is a bit, well, broken.
But, did you know that the United States has the second-lowest contribution rate in the world? The contribution rate is how much money your company is required to “match” when you contribute to your 401(k) account.
Many companies get away with no matching at all. The ones who do match only have to pay 50 cents for every dollar you put in, or 3% of your pay.
Again, this matching policy is the second lowest in the world. Even Mexico has a better contribution rate, at 6%. Australians get 9%.
The author makes the point that because of this, and several other factors, over 80% of Baby Boomers won’t be able to retire when their time comes. And starting in 2011, more Boomers will be staying “on the job” simply because they can’t afford to leave.
Want to know what else will happen starting in 2011? The first wave of Gen Y kids, one of the largest generations in history, will be graduating from college. They’ll be entering the workforce to look for jobs that aren’t being vacated by the Boomers. And, they’ll have student loans that need paying back.
It will be an employment nightmare.
This is an issue that I’ve truly never thought about. But it doesn’t take a rocket scientist to see how very bad this could be, both for Boomers and for Gen Y kids.
Lesson 2: Our Love Affair With Credit
The section on our credit card debt starts off with a good note. Obama and Congress has done the right thing: in May of 2009 a law was passed that bans interest rate hikes until a consumer is more than 60 days late, it requires that credit card “promotional rates” last for at least six months, and it requires that credit card companies disclose exactly how much it’s costing us when we pay only the minimum balance.
But, we’re not out of the woods. The author points out that right now, 35 million Americans are only making the minimum payment on their debt each month. Which means they’re paying the maximum in interest payments.
The author gives us a really illuminating graph in this section that shows just how much this is really costing us.
For instance, if you put a $1,000 computer on your credit card and only make the minimum balance to pay it off, that computer (at 18% interest) is going to cost you $2,899. You could have bought three computers for that much.
So, what’s the solution to overspending and watching our money?
Well, the author gives us some great advice in this chapter.
- Don’t let your kids boss you around when it comes to money. Overpriced cereals, birthday parties, and toys aren’t necessary. And those $800 strollers that you’ll only use for a year or two? Not worth the money. Buy used!
- Reconsider allowances. Are you doling out cash to your kids every week? Do they do chores for that money? Make them work for it. They’ll feel more responsible about that money because they earned it, and you’ll get some cleaning done.
- Don’t buy brand new cars. Buying a used car over a new one can save you up to $15,000 or more.
So, what’s my last word on “America, Welcome to the Poorhouse”?
I thought it was great. The author did a very thorough job highlighting the four financial problems that most of us are facing and she gives us intelligent, useful strategies for overcoming them. And at the end of the book, she offers up an entire section that covers the kind of reform we need in our government to make sure these problems aren’t passed on to our children.
While I think this book would be useful for anyone facing financial challenges in their life, I think it was the sections on retirement that had the most useful information and strategies. The author did a fantastic job talking about the reform we need, called the “401(k) Security Act”, and she did it in plain English.
Considering that 80% of Americans really can’t afford to retire, this section might be worth its weight in gold. And, I really learned a lot about our country’s retirement policies, and how very sucky they are compared to the rest of the world.