Skip to content
Home Blog Opinion

Bad Behavior and the Self-Destruction of the Middle Class

Scott Trench
8 min read
Bad Behavior and the Self-Destruction of the Middle Class
In my previous article, I argue that a lack of education is a primary cause for income inequality in the United States. Today, I thought I’d point out the other primary reason for income inequality:
Bad Behavior.
I thought that I’d use one of my friends as an example and show how his choices demonstrate the severity of financial misbehavior in this country and the negative impact this behavior might have on the quality of his life. I want to show him just how easy it is to behave appropriately, and to see if we can’t convince my friend that he needs to shape up before it is too late.
Let me introduce you to this gentleman, his current financial state, and his financial “plan.”

My Friend’s Current Situation

This fellow is 37 years old, 5’10” tall, and is getting a little fat, with his BMI of 29 (almost medically obese). He’s got a family consisting of his lovely wife and 0.54 children, and he drives his 2.28 cars an average of 10 miles per day to and from his white collar job. You might describe him as very solidly “Middle Class.”

His current financial state is as follows:

He brings in about $52,250 per year and has accumulated a net worth of about $56,000 over his 15 year career — most of that net worth is in the value of his $189,800 family home. This averages to a little over $300 in wealth accumulation per month so far in his working career. The little wealth he does have outside of his home is in savings accounts or high load mutual funds that at best keep up with inflation.
My friend is quite fortunate to know the exact age that he is going to live to: he’ll pass on at the ripe age of  77.1 years. To give himself the maximum possible time to enjoy his non-working life, he has developed the following financial plan (astutely recognizing that social security will not be around in its present form when he turns 65 in 28 years).

Related: 6 Lessons My Work Life Has Taught Me About Managing Finances

Here’s his three point plan:

  • He will stick with his current job and hope that they continue to pay him until his retirement.
  • He will continue to save at a rate of about $300 per month and invest those savings in funds that struggle to keep up with inflation. Quite by accident, he might actually accumulate net worth at a slightly higher rate as he gets older, but this will only be because of the intricacies of mortgage amortization, which he doesn’t fully understand.
  • He will attain a maximum net worth of about $185,000 by the age of 72, after a 50 year career, and then enjoy a 4-5 year retirement in which he spends virtually everything he has left.
 My friend’s plan doesn’t seem so great, does it? We might even call it a “mean” fate…

What Does This Have to Do With Behavior?

The first thing that jumped to my head was that this guy must be lazy! As a result of his laziness, perhaps he actually deserves this nightmarish financial fortune. But having taken a closer look, I decided that couldn’t be right. See, my friend here is a great employee. In fact, he’s an almost unbelievably hard worker. He is quite literally going to work his tush off for a lifetime total of approximately 50 years, all in a row, and he will average 47 hours per week for the duration of that career.
Somebody is going to get very rich off his dedicated work ethic!
Interestingly enough, my friend is and will be compensated extremely well for that extraordinary service! He currently earns a ridiculous amount of money: $52,250 per year, or about $3,483 per month after taxes. In fact, for the duration of his working years, he will be in the top 1% of global earners!
Nope, he’s definitely not lazy. And definitely not underpaid.
Here’s the real reason that he will forever struggle with debt, curse the millionaires and billionaires of the world, and be a slave to money for best part of his days and the best years of his life:
He lacks self-control and has thus far failed to intelligently design his life.
This behavior is harshly punished in today’s economy and society, as evidenced by my friend’s regrettable fate. An inability to control expenses and intelligently invest his accumulated assets will inevitably result in a lifetime of servitude to another individual or corporation.

A Lack of Financial & Lifestyle Planning

Here are what I conceive to be the two most egregious examples of my friend’s lack of thoughtful financial and lifestyle planning:

His Housing

My friend owns a property that is valued at almost 4 times his income and net worth. This liability costs him dearly, as he must make a mortgage payment, insurance payment, and perform or pay for any maintenance out of his own pocket each month. This largest single purchase of his life will provide very little financial utility to him.
While he is at least smart enough to own his own house and not remain a tenant, he lacked the foresight to buy a property that would cash flow as a standalone investment property or pay for itself by being partially rented to a tenant. His house will forever be a liability, not an asset. That’s part of the reason why he spent $13,500 last year on housing instead of little to none.

His Commute

My friend’s house is in a lovely location with excellent schools. However, he somehow ignored the most important part of the decision on where to live (utility to himself!), and he lives very far from his workplace, resulting in a devastating monthly commuting cost of almost $600 per month. He drives over 10 miles and 25 minutes (on a good day) to and from work, and for some unknown reason, feels the need to own those 2.28 cars, despite the 1.8 eligible drivers in his household!
He justifies this borderline insane dollar expense (and even worse, loss of time) with the argument that “the schools are better” near his home, and blinds himself to the realization that he is actually not in the rare position where there are zero acceptable schools within 5 miles of his workplace. The punishment for this egregious behavior is about $7,200 per year. Plus, he forgoes walking or biking to work, which might be a start in improving his physique.
I won’t even begin to go into how much time and money he spends on cable TV, or how he is sucker-punched by his $900 iPhone and corresponding monthly data plan.  Not to mention silly and non-beneficial spend on clothing, fast food, and other things that have no material positive impact on his lifestyle.
That’s really bad behavior.
I think that my friend here has plenty of room to change his ways to save just $1,000 more per month. And it looks to me like he can do so without negatively impacting his day too much — wouldn’t you agree?

Guilty of Ignorance

My friend is also guilty of ignorance with respect to sound personal financial strategy. I’m not convinced that this is totally his fault, as he was never taught how to properly invest or shown the tools through which he should invest. But my friend is a 30-something grown man! He has been warned of his ignorance, knows the consequences, and still does not take the time to read up on basic personal financial strategy and investment practices. If he continues to fail to take the necessary action to inform himself on basic financial strategy, then he will be resigned to his fate.
Assuming that my friend is able to exercise some semblance of lifestyle control and sock away $1,000 per month, then I’d tell him that he really can learn the most important part about investing in less than 10 minutes! All he has to do is invest that money in an index fund.  This process took me less than 1 hour total to complete when I first started, and setting up the automatic contributions takes even less time.
At an inflation-adjusted 7% annual return on this index fund, my friend will see his net worth climb to over $1.5 million over the next 34 years with no further action required, although he will likely be able to retire and stop contributing income from his job long before then! Furthermore, by merely taking the time to study other forms of investment, he could surely take advantage of tax breaks, real estate, retirement accounts, and other powerful resources to climb far beyond that level of wealth.
In spite of having explained all of this to my friend, he somehow still fails to acknowledge that he lives in a time and place where it has never been easier to become wealthy in just a few decades, and instead, he consigns himself to a lifetime of dependence on income-producing labor. Yet he blames inequality on the government, the other political party, those who have already attained wealth, and “the economy” as the cause of his own failure to accumulate riches.
Perhaps instead of blaming others for his lot in life and complaining about inequality, he should heed the 7 “P”s — wisdom imparted by a former favorite football coach:
Proper Prior Preparation Prevents Piss Poor Performance.
Failure to do one’s homework is very bad behavior.

Conclusion

Can you fathom $52,250 per year? It’s an immense amount of money. In fact, it’s so much money that it would put you solidly in the top 1% of global earners, as stated previously. Life is simply not that expensive for 99% of the world. I challenge those who are at that level of income and yet still claim to have financial problems. I challenge them to question their lifestyles if they are unable to accumulate net worth at a rate of more than $1,000 per month. I challenge them to question basic assumptions about what makes them happy, where they live, how they commute, and what they do for fun.

Related: 10 Things Only Personal Finance Nerds Would Understand

It is true — my friend wasn’t shown the consequences of this bad behavior early enough in life. That’s a shame because I think he might have acted differently if he had learned the disastrous consequences of bad financial behavior early in his childhood development, perhaps in public school. But I’ve just shown him. He no longer has an excuse to continue acting like a buffoon and to continue complaining about increasing inequality. The answer is right before his eyes. He refuses to take responsibility for his own bank account and credit card statement, and he is blind to the power of investing and compounding returns.
My friend, open your eyes!
Are the wealthy 1% of Americans truly holding him back? Is he truly underpaid? Is the financial system truly unfair? Or does my friend just need to take a good long look at his behavior and figure it all out before its too late?
A few notes:
First of all, just in case I was too subtle, “my friend” is YOU! “My friend” is a statistical median (and in some cases average) representation of an American household.
Second, average data is much easier to find than median data, but I believe that median data is more applicable to the study of American wealth because averages for income and expense are heavily skewed by the wealthy. For example, average income per capita in the U.S. is $65,596, but median household income is just $52,250.
Where possible and relevant, I use median data. However, as I was unable to find reliable data on median household expenditures, I instead take average household expenditures (partially inflated by higher expenses from the wealthy) and adjust them to estimate for possible median expenditures.  It’s not exactly apples to apples, but I hope that it will be close enough for my message in this article to still be relevant.

Looking to set yourself up for life as early as possible and enjoy time on your terms? Scott Trench’s new book Set for Life, slated for release April 23, 2017, is now available for pre-sale! Whether you’d like to “retire” from wage-paying work, become less dependent on your demanding nine-to-five, or simply spend time doing what you love, Set for Life will give you a plan to get there. This isn’t about saving up a nest egg. It’s not about setting aside money for a “rainy day.” Set for Life is an actionable guide that helps readers build the accessible wealth they need to achieve early financial freedom.

sfl blog image

Now that you’ve seen the data, weigh in: Do you agree with my assessment? If not bad behavior, what do you think leads to the financial failings of the middle class?
Don’t forget to leave your opinions, in agreement or disagreement, below! 

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.