Lack of Wage Growth Means Keeping a Closer Eye on Your Money

June 5, 2019

It’s been well documented in the financial media that average “real” (meaning inflation-adjusted) wage growth has been anemic over the past couple decades (if not longer) except for higher-tier wage earners.  This stagnation in real purchasing power over the years is starting to become a significant problem for many Americans and it can be argued that the lack of real wage growth for the average worker has been partly the fuel that’s lead to the partisanship and social divisions we see in our society today.

It’s also a significant contributor to the worrisome debt issues we see today, particularly in the credit card and education loan sectors, not to mention the struggles many households have in meeting medical expenses.  Medical costs and college tuition expenses have both outpaced CPI inflation (and theoretically cost-of-living increases in wages) for over a decade.  Since both are fairly important expenditures for nearly all households, it may not take much analysis to realize why households seem to be unable to save for the future and are falling further behind in debt and building their net worth.
All of this continues to point to the need for every family/individual to strive for “financial efficiency” with their money matters.  By efficiency, we mean more mindful approaches to how a family’s money is earned, saved, sheltered from taxes and grown for future objectives. While it may not be necessary to count every penny, adjusting money habits like; avoiding impulse purchases, delayed gratification, disciplined (automated) saving and avoiding consumer debt, may be even more crucial than ever before.

As financial planners, we of course advocate for each household to have even a simple financial plan that addresses near-term and longer-term goals and objectives.  But it may also benefit each family to have a more detailed ‘internal-household’ financial system (a.k.a. that dreaded “budget”!)  where spending areas such as grocery-shopping, family entertainment, household maintenance, etc. have their own budgetary boundaries that help the larger-scope financial plan to stay on-track.  It may not be that pleasant for everyone to micro-manage their money in this way, but we’ve seen where households that do, even with modest incomes, can achieve stunning results in their savings and toward reaching their goals, all seemingly without much sacrifice along the way.  In short, it’s much about stretching every dollar earned a bit further over time.  Even small steps in this direction can be beneficial to everyone.