We’re Going Broke Chasing the American Dream

Provided by MarketWatch

The parlous financial state of many Americans is well-known: My MarketWatch colleagues Quentin Fottrell and Catey Hill had good pieces about it recently.

I’ve written that many Americans take Social Security early or don’t invest in stocks because they just don’t have the money.

But it often takes a personal story to bring it all home, and that’s what writer and critic Neal Gabler did in the May issue of the Atlantic, where he revealed that he’s one of the 47% of Americans who couldn’t come up with $400 in an emergency.

With honesty and courage, Gabler describes how he — who according to Wikipedia turns 66 this year — got into such desperate straits after a writing career he modestly calls “passably good,” but is surely far better.

Gabler has written acclaimed biographies of Walt Disney and Walter Winchell (the model for the smarmy gossip columnist played by Burt Lancaster in the classic movie, “Sweet Smell of Success”). “An Empire of Their Own,” about the pioneering producers of Hollywood, is in my opinion one of the best books ever written about the American Jewish experience.

Unfortunately, Gabler was, as he freely admits, “a financial illiterate, or worse — an ignoramus.”

“I don’t ask for or expect any sympathy,” he writes. “I am responsible for my quagmire — no one else.”

His situation is the product of some bad luck and many poor choices. For the details, you should read the article yourself, or better yet buy the magazine on the newsstand (consider it a non-tax-deductible contribution to good journalism). But in brief, here they are:

1. He chose to be a writer, not the most stable profession.

2. He chose to write books, which don’t produce income for years.

3. He chose to live in high-cost New York City.

4. He chose to have two children, whom he sent to private school early on and then to Stanford and Emory for college.

5. His wife quit her job as a film executive to spend more time with the kids when they moved to eastern Long Island.

By making this public, Gabler opens himself up to scrutiny and criticism, and he didn’t respond to my request for an interview. But how many of us can say we haven’t, with the best of intentions, made big financial mistakes?

Gabler touches on what may be one of our biggest problems, yet one that’s almost taboo to mention: Too many of us are chasing the American Dream without having anywhere near the means to pay for it.

“In retrospect, of course, my problem was simple: too little income, too many expenses,” Gabler writes, speaking for many baby boomers and the shrinking professional middle class.

Convinced their lives would be better than their parents’ (who, in the case of early boomers like Gabler, lived through the Depression and World War II) and that their children’s lives would be better than their own, people did whatever it took to maintain at least the appearance of success, if not affluence.

It wasn’t only “keeping up with the Joneses,” as Gabler points out. “People want to feel, need to feel, that they are advancing in the world. It’s what sustains them,” he writes.

Ambition and aiming high are good things. But the American Dream is much more expensive than it used to be. In 2014, I estimated it costs a family of four$130,000 a year to live it, while incomes are stagnating because ofglobalization, technology, trade, immigration, what have you. That’s putting the Dream out of reach of more and more people.

Too many have filled that gap with easy credit card debt, cash-out refinancings and home equity lines of credit (which exceeded $1 trillion from 2002 to 2005 alone), or by emptying their 401(k) accounts. It may have felt good, but it bankrupted their future. What an apt metaphor for a country that’s living way beyond its means!

It’s really, really hard to tell your daughter you can’t afford to send her to Stanford and instead she’ll have to go to Stony Brook (an excellent state university in eastern Long Island, where Gabler now teaches). It’s hard to say “no” to so many things and still think you’re living the Dream.

So maybe we need to redefine the American Dream beyond the purely material goals of the postwar years, when our growth seemed unstoppable. Maybe it should be more about the freedom to succeed or fail on our own terms. It could also encompass pride in achievement, family and friends, community service and leaving a legacy of which we can be proud.

Because we’re chasing a dream that’s becoming more and more unattainable for more and more people, and too many of us, like Neal Gabler, wind up with nothing to show for it.

Written by Howard Gold of MarketWatch 

(Source: MarketWatch)

Why I Believe the American Dream Just Died

New Beginnings
(Photo by Edwin Levick/Getty Images)

Opinion: When the rich won’t acknowledge their own success, what hope is there for anyone else?

Rarely a day goes by where I don’t hear some politician or pundit claim that the American Dream has become unattainable for too many. It’s also a common theme in my Facebook feed.

Sometimes the culprit is student debt. Sometimes it’s static wages, or the disappearance of pensions and manufacturing jobs. Sometimes it’s how predatory lenders have the disproportionate capacity to financially maim so many.

And I have responded by despairing for their desperation, for their newfound conviction that America is no longer the land of opportunity–that the prospect of upward mobility has become a cruel mirage. My only solace was my equally strong conviction that I not only have achieved at least some version of the American dream (yes, via a combination of privilege, hard-work and luck), but that my daughter will have a chance to do the same.

But, for the first time, I’m no longer so sure my daughter will get there. Not because she’ll lack for intelligence or dedication or good fortune, but because she will be raised in an era of unprecedented entitlement. If it takes a village to raise a child, then her father’s voice will be drowned out by millions of naysayers.

So, What Changed?

My breaking point came yesterday, upon reading a Legg Mason survey of affluent investors, which Legg Mason defined as individuals with more than $200,000 in investment assets. It found that just 55% of those surveyed believe that the American Dream remains within reach, with only 23% “strongly agreeing” that they are living proof of its existence.

Remember, these people are prosperous, by almost any relative measure of global or American life in 2016. Their $200,000 isn’t an annual salary. It’s the amount of cash sitting in bank accounts or investments that are designed to appreciate in value. It doesn’t even include the value of their home, or even their second or third. (Legg Mason excluded vacation properties.) It’s income after tax, mortgage payments, and literally every other past expense. There should be little worry about where the next meal, or next lifetime of meals, is coming from. If the car dies, these survey respondents can afford to immediately buy another one without the help of a financing plan (save for the event of an unexpected medical disaster or macro economic meltdown).

But they don’t feel rich. And before you tell me that $200,000 doesn’t go as far as it used to, particularly in certain cities, please realize that only 36% of those with at least $1 million in investible assets “strongly agreed” that they had attained the American Dream.

A few more stats from the Legg Mason survey:

— 64% of those with annual household incomes of at least $250,000 believe the American Dream is now out of reach.

— 62% of those between 55 and 64 years-old believe the American Dream is unattainable.

— Women are 14% more likely than are men to believe the American dream is unattainable.

To be sure, the “American Dream” has no official definition, making it largely in the eye of the beholder. But when asked to give their top characteristics of someone who has achieved the American Dream, Legg Mason survey respondents said the following (in order):

  1. Feeling financially secure
  2. Having the freedom to live the way you want to
  3. Being able to retire at 65 and live comfortably in old age
  4. Owning your own home
  5. Knowing that working hard pays off

We’ve already addressed and dismissed the first one, and the second is equally absurd. If you have $200,000 of investible assets–let alone $1 million–and you don’t have the “freedom to live the way you want to live,” perhaps that’s more reflective on your expectations than on your actual means. For example, I want to live with a private helicopter (with a dedicated pilot) sitting outside of my home so that I can avoid traffic when heading into the city. A private chef would also be nice, plus a heated indoor pool, and court-side season tickets to the Boston Celtics. Am I missing out on the American Dream until those luxuries materialize? Of course not.

Retiring at 65 (or maybe an extra couple of years, given average lifespan increases) should be possible for most of these survey respondents, again depending on their definition of living comfortably. And I’d assume that most people with this much cash either own their own home, or have intentionally decided that it’s too much of a hassle (helicopter pad maintenance and all). Finally, if you’ve achieved the first four, it’s hard to imagine that the fifth remains elusive.

But, again, none of this is about objective logic. It’s about sentiment, and a political and societal climate that can no longer distinguish between those who actually have been victimized and those who simply fuel their own narcissism with self-pity. How can the most Americans aspire to the American Dream when those who have achieved it refuse to acknowledge their own success?

They probably can’t, which means this cycle of pessimism will feed on itself and, in some cases, become self-fulfilling. I really hope my daughter doesn’t fall into that trap, that she will take advantage of opportunities and, if successful, that she will be grateful for it. Not ignorant of it.

Written by Dan Primack of Fortune

(Source: Fortune)

The Role of Highways in American Poverty

Library of Congress

Little Rock is a fascinating city. With its river and renovated warehouses and bustling River Market district, it reminds me a little bit of Pittsburgh, where I lived a decade ago when I was starting my journalism career. At that time, Pittsburgh was still the butt of many jokes, though determined city planners were starting to drive the transformation that’s made it so popular. Today, there’s a growing population downtown and tech companies are locating in the city once known for steel.

It’s a funny thing about cities: They’re all unique, but they sometimes experience busts and booms in the same way. Just look at all the cities across the country that are experiencing a craft-beer renaissance and have condos in renovated warehouses downtown.

Perhaps that’s why policymakers in the 1940s and 1950s thought of cities as human bodies, bodies that had sicknesses and required cures. Bodies that got sick from the same diseases and would improve from the same medicine.

The postwar years were a time of unprecedented prosperity, when Americans were buying refrigerators and televisions and homes, and wanted to leave the crowded heart of city centers for space to put all their new belongings. The rise of the automobile helped them do this. In 1940, 60 percent of Americans owned cars. In 1960, 80 percent did. Today, 95 percent of Americans own cars.

This increase of people heading to the suburbs in their cars caused something else new: lots and lots of traffic. And to city planners, this was making communities unhealthy. By the 1950s, highways were being recommended as “the greatest single element in the cure of city ills,” according to Joseph DiMento, an Irvine professor who has studied highway construction during that era. To keep cities healthy, planners said, regions needed unclogged arteries for a working circulatory system. In short, cities needed highways to carry people out of the heart and to the rest of the body.

Luckily for city planners who wanted to keep their cities healthy, there was federal money available to anyone who wanted to put in modern highways. While the 1944 Federal Highway Act only offered to cover 50 percent of construction costs for highways, by 1956, the federal government had upped that share to 90 percent. So if you’re a city planner in the 1950s, you can put in roads from your city to the fast-growing suburbs for almost no cost at all.

The completion of I-81 had the same effect it has had in almost all cities that put interstates through their hearts. It decimated a close-knit African American community.

Of course, there were people who couldn’t move to the suburbs. African Americans were denied home loans by the federal government in certain areas, a practice called redlining. Restrictive covenants prevented homeowners from selling to certain types of people, often including African Americans. And they were also denied jobs and other opportunities that would have allowed them to afford to buy a home in the first place. When I was in Syracuse, I met a man named Manny Breland, who received a scholarship to play basketball at Syracuse, graduated with a teaching degree, and was denied job after job because he was black.

In many cities, these restrictions left African Americans crowded into small neighborhoods. They essentially weren’t allowed to move anywhere else.

City planners had a solution for this, too. They saw the crowded African American areas as unhealthy organs that needed to be removed. To keep cities healthy, planners said, these areas needed to be cleared and redeveloped, the clogged hearts replaced with something newer and spiffier. But open-heart surgery on a city is expensive. Highway construction could be federally funded. Why not use those federal highway dollars to also tear down blight and rebuild city centers?

The urban planner Robert Moses was one of the first to propose the idea of using highways to “redeem” urban areas. In 1949, the commissioner of the Bureau of Public Roads, Thomas MacDonald, even tried to include the idea of highway construction as a technique for urban renewal in a national housing bill. (He was rebuffed.) But in cities across America, especially those that didn’t want to—or couldn’t—spend their own money for so-called urban renewal, the idea began to take hold. They could have their highways and they could get rid of their slums. With just one surgery, they could put in more arteries, and they could remove the city’s heart.

Why not use federal highway dollars to also tear down blight and “redeem” urban areas?

This is exactly what happened in Syracuse, New York. The city had big dreams of becoming an East Coast hub, since it was close to New York City, Pittsburgh, Cleveland, and Boston. (In the early days of the car, close was relative.) Use federal funds to build a series of highways, planners thought, and residents could easily get to the suburbs and to other cities in the region. After all, who wouldn’t want to live in a Syracuse that you could easily leave by car? And, if they put the highway in just the right place, it would allow the city to use federal funds to eradicate what they called a slum area in the center city.

That neighborhood, called the 15th Ward, was located between Syracuse University and the city’s downtown. It was predominantly African American. One man who lived there at the time, Junie Dunham, told me that although the 15th Ward was poor, it was the type of community that you often picture in 1950s America: fathers going off to jobs in the morning; kids playing in the streets; families gathering in the park on the weekends or going on Sunday strolls. He remembers collecting scraps from the streets and bringing them to the junkyard for pennies, which he would use to buy comics.

To outsiders, though, the 15th Ward was the scene of abject poverty close to two of Syracuse’s biggest draws—the university and downtown. They worried about race riots because so many people were crowded into the neighborhood and prevented from going anywhere else. They decided that the best plan would be to tear down the 15th Ward and replace it with an elevated freeway.

The completion of the highway, I-81, which ran through the urban center, had the same effect it has had in almost all cities that put interstates through their hearts. It decimated a close-knit African American community. And when the displaced residents from the 15th Ward moved to other city neighborhoods, the white residents fled. It was easy to move. There was a beautiful new highway that helped their escape.

But this dynamic hurt the city’s finances, too. As suburbs grew, they broke off from cities, taking with them tax revenues, even though their residents still used city services. Although the Syracuse region was relatively healthy, the city started to get very sick.

Between 1940 and 2000, the population of the city of Syracuse shrank 30 percent, from about 205,000 to 147,000. The population of Onondaga County, where Syracuse is located, grew 55 percent, from 295,000 to 458,000.

Even today, the region is continuing to sprawl. The population of Onondaga County peaked in 1970 and has stayed even since then. But residents are moving farther and farther out. The county has added 7,000 housing units, 147 subdivisions, and 61 miles of new roads since 2000. Developers build 160 units a year in areas that were once rural. That’s costing the county money and resources as it adds sewer systems, water pipes, and stormwater drainage to far-flung subdivisions. As the county spends money, the city is struggling to come up with enough revenue for essential things like mass transit and schools.

What’s more, as the suburbs grow, they’re continuing to make sure that only wealthy people can live there. They pass zoning laws that restrict multifamily units. They require minimum lot sizes so that their only residents are people who can afford to live in big houses. It’s a different kind of discrimination than half a century ago, but discrimination nonetheless.

Today, the city of Syracuse has the highest concentration of poverty in America. What that means is that large proportions of its population live below the federal poverty line, and that they’re surrounded by other poor people, too. Nearly two-thirds of the black poor live in high-poverty neighborhoods in Syracuse. Around 62 percent of the Hispanic poor live in high-poverty neighborhoods.

Of course, the highway isn’t the only reason there’s so much concentrated poverty in Syracuse. The economy has changed, and big employers such as the Carrier Corporation and other manufacturing companies have left for overseas. Wages in Syracuse and across America have remained stagnant, so even those people who are employed are finding it is much harder to make ends meet than it used to be.

Ironically, the people who are left in Syracuse now live in more concentrated poverty than the people of the 15th Ward, which city leaders saw as so blighted decades ago.

This is bad for the health of the region. We know that people who live in concentrated poverty have a much harder time succeeding because they’re surrounded by other poor people. The economist Raj Chetty made this very clear in a series of papers he’s published in the last two years through theEquality of Opportunity project. He found that neighborhoods matter, and that a low-income child who is born in certain low-income neighborhoods has a much smaller shot of achieving upward mobility than a low-income child born in a better neighborhood.

Now, there are programs that move poor families from areas of concentrated poverty to wealthy suburbs. I’ve written about some of them. Children thrive when they’re taken out of housing projects and moved to condos where there are trees, parks, places to ride their bikes, and good schools nearby. But it’s not realistic to move every family to a different neighborhood, and besides, many people don’t want to move.

What does work, though, is bringing cities together so that poverty isn’t so concentrated, so that the rich can’t just leave or wall themselves off from the poor, so that the poor aren’t trapped in areas of concentrated poverty—what people used to call slums.

* * *

In the last decade, Americans’ ideas of where they want to live have been changing. Young professionals and Baby Boomers are moving back to inner cities, fueled by the desire to live somewhere walkable, near restaurants, bars, and offices, where they don’t need to have cars. A freeway passing through the heart of a city does not jibe very well with an urban renaissance.

After all, walkable cities where people want to live probably don’t also have noisy highways that create physical and psychological rifts that are extremely difficult to bridge.

In some cities, planners have decided to help that urban renaissance and tear down the freeways that seemed like a good idea in the 1950s.

Boston tore down its Central Artery in its famous Big Dig, turning a waterfront area of the city that had long been clogged with traffic into a popular park and walking area. Milwaukee demolished the Park East freeway in 1999 and urban development has blossomed in the neighborhoods created by the highway’s removal. Manpower Corporation moved its headquarters to the area, and the average assessed land value there grew 45 percent. The economically depressed town of New Haven is in the midst of a project called Downtown Crossing, which has removed parts of Route 34 and is creating a business district in an area of town bisected by the freeways.

Even some people in Syracuse want to tear down I-81. Like many highways built by idealistic planners in the 1950s, I-81 is reaching the end of its useful life, according to engineers. It isn’t wide enough to meet current highway standards, and parts of it are literally falling apart. Some urban planners want to tear it down to create an urban boulevard. For more than half a century, the road has divided the city, they say, and it’s time to knit it together back again.

Some cities are taking the opposite approach. Alabama’s highway department is seeking to widen parts of a highway that bisect Birmingham, Alabama, though the proposal faces opposition from business leaders. Florida’s highway department declined to tear down a highway in Miami called the Overton Expressway.

In the 1950s, when so many highways were built, planners across the country wanted to help citizens access the prosperity that seemed accessible to everyone in the postwar years. But starting with the exodus to the suburbs around that time, and continuing to this day, prosperity has been out of reach for many Americans.

If part of a body is sick, the whole body can’t be healthy, and many cities across America have parts that aren’t doing very well. But there are regions that are trying to become healthier by coming together, rather than pulling apart. Tearing down a highway can be one way to do this. But it’s not the only way. My colleague Derek Thompson has written about the miracle of Minneapolis, where high-income communities share tax revenues and real estate with lower-income communities to spread prosperity. A year ago, I visited Louisville, where a court ordered the county and city to combine their school districts in order to integrate their schools. Today, Louisville is still trying to keep its county and city schools integrated, even after the Supreme Court told the city it no longer had to do so. In Chicago, a regional housing authority that covers eight counties, including Cook County, is working to move families from the inner city to higher-opportunity neighborhoods. Some cities use inclusive zoning, in which all new construction must include a certain percentage of housing for low-income residents, which means that the wealthy can’t separate themselves from the poor.

These cities have tried to tear down barriers that prevent all of their residents from reaching their full opportunity. Sometimes those barriers are highways. Sometimes they’re something else entirely. Tearing down a highway isn’t the only way to make a city healthy again. But building a new one—or expanding an existing one—seems a surefire way to make a city sick.

Written by Alana Semuels of The Atlantic

(Source: The Atlantic)

Retirement Replaces Homeownership in the American Dream

© TheStreet
© TheStreet

Most people still believe they can achieve the American dream, even after slow employment growth following a harsh recession, but many now define it as having a comfortable retirement rather than owning a home.

About 96% of people responding to a Wells Fargo/Gallup poll conducted at the end of May cited a financially secure retirement as their version of the American dream. That’s an increase from 92% a year ago, and higher than the 93% of people who identified success as buying a home. The poll surveyed a mix of retired (28%) and non-retired (72%) adults with at least $10,000 in savings and investments. Forty-one percent of respondents reported an annual income of $90,000 or more.

The exact definition of the American dream has changed somewhat since the term was popularized in James Truslow Adams’ 1931 book The Epic of America. In it, he wrote: “The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.”

Since then, social and economic mobility have generally been associated with such markers as owning a home, attaining higher education, and living as well as — if not better than — one’s parents. Specifying a comfortable retirement as part of that goal wasn’t necessary in previous years as many retirees were almost guaranteed one via their employer’s pension plans. As 401(k)s became more the more popular employer-sponsored retirement plan following the Revenue Act of 1978, workers increasingly found themselves on the hook for ensuring that they had enough money to last them through old age.

“There has been a rapid, systemic shift in risk and responsibility from the government to the individual in managing retirement,” said Andrew Eschtruth, an associate director at Boston College’s Center for Retirement Research. “Most individuals don’t yet fully grasp this change.”

In fact, data from the center pinpoints when that shift occurred. In 1983, of workers surveyed who had access to an employer-sponsored retirement plan, 62% were relying solely on a pension plan, 12% were relying on a 401(k) plan, and 26% were relying on a mix of the two. Less than ten years later, in 1992, workers were almost split in how they received their retirement benefits, with 44% citing a pension, 40% using a 401(k), and 16% relying on a mix. Today, 72% of employees rely on a 401(k), and only 17% rely on a pension.

While an encouraging 84% of respondents to Wells Fargo’s poll said they believe they can achieve the American Dream, only 69% of non-retired respondents said they have a specific plan to reach their retirement goals. And, of the respondents with a plan, only half of them have it in writing.

Of course, a plan is only good if followed, but having one in writing suggests that risks and other contingencies have at least been considered. Those who do not have a written plan say they haven’t had the time to create one (35%) or they haven’t given it much thought (26%). Even so, written plans are hardly foolproof. Only 37% of those with a written financial plan are highly confident that it will ensure they reach their goals.

“While the number of people with written plans is slowly trending higher, it’s still less than half of investors. It is critical to have a financial plan in place that spans life’s major milestones in order to reach your financial goals,” said Mary Mack, President of Wells Fargo Advisors.

Despite the seeming optimism Wells Fargo survey participants reported about achieving the American Dream, there are reasons to be less sanguine. The 401(k) generation is just starting to retire and data from the Boston College center suggests that they may not have saved enough. Of workers aged 55-64 with 401(k) accounts, the combined balance is just over $100,000, which only offers about $400 a month, according to Eschtruth. For most people, $400 a month combined with social security may still not be enough to support them through retirement.

Workers need to save more to meet the demands of increasing life expectancy and rising healthcare costs before retiring, Eschtruth said. Unfortunately, workers who are near retirement age have had to do the last years of their retirement saving in a low interest-rate environment in which yields on traditionally safer investments lagged normal inflation rates. Workers have had to save more or invest in traditionally riskier assets to make up for the shortfall.

“The problem with retirement is twofold,” Eschtruth said in an interview. “People need more and they expect less.”

Written by Carleton English of The Street

(Source: The Street)

Investor Confidence Holds Steady at 7-Year High

© TheStreet
© TheStreet
© TheStreet

NEW YORK (TheStreet) — Retail investors are feeling optimistic about their financial futures, according to a new poll.

The Wells Fargo/Gallup Investor and Retirement Optimism Index showed that U.S. investor confidence held steady in the second quarter at a seven-year high.

“They have confidence in the economy, they have confidence in the job market, the housing market seems to be inviting more first time homebuyers, so the American Dream, in their minds, seems to be alive and well,” said Mary Mack, President of Wells Fargo Advisors.

Optimism however, trumps planning.

Less than half of those surveyed have a written financial plan, according to Mack.

“I think it’s scary for some people,” she said. “So our financial advisors work with them, break it down, talk about goals and dreams and risks, and what worries you,” added Mack.

The poll found that investors also said access to online or digital investing tools is nearly equally as important as having a strong relationship with a personal financial advisors.

Additionally, a majority of investors said they do not  feel confident about investing in the market on their own and prefer consulting with a professional.

The survey also asked investors about their financial worries.

The majority of respondents, 57%, said their number one worry is personal identity theft.

That was followed by cyber-attacks on their savings or investment accounts, stock market volatility and elder financial abuse.

In a press release, Mack stated “over the past three years, we’ve seen reports of such abuse coming in from our advisors, and unfortunately, we expect to see that growth continue as the population ages.”

The poll of 1005 investors was conducted in late May. Of those surveyed, 59% reported annual income of less than $90,000, while 41% had income above that level.

Written by Rhonda Schaffler of The Street

(Source: The Street)