Your Client’s Financial Well-Being
November 20, 2014 § 4 Comments
In family law, we see the intimate details of people’s financial pictures every day. So I’m always interested in how developments in the national economy affect people we see in our courts.
Looking at the Federal Reserve Board’s triennial 2013 Survey of Consumer Finances, I found these conclusions revealing:
- Mean family income rose 4% between 2010 and 2013, after adjustment for inflation, but median income fell 5%. In my experience, incomes around here have been flat, except in high-paying jobs, which have increased in pay. Since the mean is usually skewed by outlying figures, and the median tends not to be, I would trust the median in this case to be closer to accurate. Also, that adjustment for inflation is misleading. The experts use prices of certain commodities to gauge inflation, and inflation has been fairly non-existent (ask anyone who lived through the 80’s). There is a hidden price creep, though. For instance, the price of a bag of coffee has remained fairly constant over the past several years, but the bag has shrunk from 16 oz to 12 oz, a reduction of 25%. You need to spend 25% more to buy same amount of coffee beans, but the shelf price for a bag has not gone up. An 18 oz box of cereal is now 14 oz, but at the same price it was when it was 18 oz. So you need to spend 22% more to buy the same amount of Froot Loops you did a while ago. I could go on and on, but you get the picture. When I pointed this phenomenon out to a grocer not too long ago, he said he had done his own calculations and concluded that shrinkage is averaging closer to 30%. So your paycheck is buying 30% or so less, but the government happily tells us that inflation is near zero.
- Debt obligations fell during the three-year period. Many people retrenched during the recession, shedding debt as best they could, but the 8.05’s I see still have breathtaking amounts of debt, particularly consumer debt.
- Fewer families had debt secured by a primary residence, and those who did have home-secured debt owed less. I would be absolutely surprised if that held true in our little corner of the republic. From what I see, many middle-income folks refinanced when rates were low, and used the refi to tap into equity, increasing debt.
- Education debt increased, both in terms of the numbers of people with such debt, as well as the average value of the debt. College education has increased by a stunning amount. We all know about how professional school expenses have escalated. Some people who think they can not afford or can not get into a legitimate academic institution turn to commercial operations that hold themselves out as “colleges” or “universities” but have no more valid academic credentials than a pool hall. In one case in my court, a young lady had spent $17,000 toward a “degree” as a lab tech from one of those diploma mills, only to learn that they had changed the requirements for that degree so that she would have to spend another $10,000 to complete it. She dropped out because she could not afford it, but she still has to pay the $17,000 in student loan debt. I pointed out to her that the “university” is bound by the catalog when she was admitted, and she should see a lawyer. That drew a blank stare. I wonder whether any laboratory worth its salt would consider a graduate of one of those places to be even minimally qualified.
From where I sit, I see life in the middle class as tough and getting tougher, from a financial standpoint. The financial statements I see show people with not a lot of income, but expanding expenses.
It’s important to be aware of how the changing financial environment is affecting your clients. What made sense to demand 10 years ago simply will not work today.