Earning

Two-thirds of Americans don't feel better off, and these are the main reasons why

Twenty/20

Despite steady job growth and stocks rallying to record highs in recent years, only about a third of Americans say they feel better off financially since the last presidential election, according to a recent poll of 1,005 likely voters by the Financial Times and the Peter G. Peterson Foundation.

The online poll, which was conducted by Global Strategy Group, a Democratic polling firm, and North Star Opinion Research, a Republican group, found that 31% of Americans say they're worse off financially, while 33% reported no change in their financial position since January 2017.

Among those who reported feeling worse off, the two most important reasons for the change in status were income and wages (36%) and the burden of debt (19%). For Americans who reported feeling better off, the No. 1 reason was income and wages (39%) followed by the amount of personal savings and investment (24%).

How debt can make us feel worse off

Total consumer debt carried by Americans topped $4 trillion in 2019, and outstanding student loan debt climbed to $1.41 trillion.

While debt has increased, wage growth has remained relatively flat. Though the target for nominal wage growth is 3.5%-4% annually, year-over-year wage growth for private employees has fallen below that rate, at 3%, according to the Economic Policy Institute.

And though there's been a push to raise the minimum wage in certain places to $15 or $16 per hour, the federal minimum wage, $7.25 per hour, hasn't been changed since 2009.

The combination of stagnant wages and increased debt can amplify the feeling of being worse off. Debt, in particular, is a factor, because of our distorted beliefs around it, explains Brad Klontz, a psychologist, certified financial planner, and the coauthor of the book "Mind Over Money: Overcoming the Money Disorders That Threaten Our Financial Health."

A lot of people "think that because they have some debt, they're doing terrible," says Klontz. "They [can] have literally a million dollars [in] net worth, and they can't go to sleep at night because they're worried about this debt that they have. That's an extreme example, but it's not an uncommon one."

Debt can cause what's known in psychological terms as learned helplessness, or the feeling that escape is impossible, no matter how much you chip away at what you owe. "When I say the word 'debt,' I sink internally," says Klontz. "It's a stressor." Debt can be so "scary," he says, that "it can feel life-threatening."

The stress of carrying debt can make us feel more worse off than we actually are, says Ed Coambs, licensed marriage and family therapist at Carolinas Couples Counseling in Matthews, North Carolina. Coambs says there are certain social norms around debt similar to the ones around body image. For many people, "if we stray from those norms, it creates psychological distress," he says.

When I say the word 'debt,' I sink internally. It's a stressor.
Brad Klontz
author of 'Mind Over Money'

Our belief in our capacity to pay off debt, though, can make the process more manageable. And visualizing your success helps. Klontz, who was the lead researcher on a 2019 study on savings in the Journal of Financial Planning, found that people significantly increased their savings behavior when they had a clear and exciting vision about what they wanted when they got out of debt.

"It's a huge ask of your subconscious to climb this huge debt mountain, right?" says Klontz. "What I think is most important is that you have a really exciting vision of what's on the other side of that mountain."

Whether it's a family vacation to South America in 2020 or the ability to buy a home, Klontz says that "really getting in touch with your values and what you're most passionate about" can help keep you on track.

"The clearer you can make that picture of how incredible it's going to be on the other side, then it becomes a lot easier to make those minor sacrifices around things you don't care about, because you've already established what you actually care about," he adds.

VIDEO1:2301:23
What's the Difference Between a Debt Avalanche and a Debt Snowball

Video by David Fang

Having a clear vision about a future goal helps real people successfully pay off their debt — and pursue their passions.

Adopting a cash-only spending strategy helped 23-year-old Kristy Epperson pay off $20,000 in one year. She had a clear vision of sprucing up her yard, and it worked: "Looking out the window and imagining the yard I wanted motivated me to stick to the budget."

To pay off $300,00 worth of mortgage and loan debt, Bernadette Joy Maulion and her husband AJ adopted a one-income, minimalist lifestyle. Keeping her eye on her ultimate goal of starting her own financial consulting business helped Bernadette stay on track.

After eliminating their debt, Bernadette had a "sense of freedom" and the confidence to do things that previously felt unattainable, she says, like starting "yet another career and [to] make travel plans in cash."

VIDEO3:0903:09
How "stillness" can bring financial success

Video by Jason Armesto

Your net worth is a better measure of your financial health

Debt, income, and savings are all part of what makes you better or worse off. But to get a full and accurate sense of your financial picture, calculate your net worth, experts say.

"A lot of people start by looking at their budget, and saying, 'Am I better or worse off there?' But reorienting and saying, 'How is my net worth changing over time?' is a much better metric," says Coambs.

To calculate your net worth, add up your total assets, including your savings, investments, and anything of value that you own, such as property or a car. Then subtract your liabilities from your total assets. Liabilities include anything you owe, such as a revolving credit card balance, student loan debt, a mortgage, or medical bills.

Not only does your net worth provide a snapshot of your financial health, it can also help you determine which loans to pay down first, like high-interest credit card debt, or where to spend less and save more. Experts suggest you check your net worth quarterly.

Though it sounds simple, the first step in assessing whether you're better off is to recognize your own point of view. Once you do, you're better equipped to recognize when emotions like anger, fear, anxiety, or sadness are preventing you from taking a clear-eyed look at your finances, adds Coambs.

Ultimately, says Coambs, understanding how you think and feel about money can help you learn to make a "positive appraisal" about your wealth, even when something negative happens. Ask yourself, "Where's the silver lining, and how can I recover from this?"

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