Love, Money + Real Estate #31
Financial literacy month, housing affordability, and hot reads
Greetings!
Welcome to Financial Literacy Month - something near and dear to my heart, and the reason I started Best Money Moves over eight years ago.
According to the latest findings from the 2024 Q1 Quarterly Market Perceptions Study* by Allianz Life Insurance Company of North America, ongoing inflation has significantly hindered Americans' ability to save for retirement and manage their finances effectively.
Key Insights from the Allianz Life Study:
Savings Constraints: A staggering 69% of respondents report being unable to contribute to their savings as much due to ongoing inflation. Millennials are particularly affected, with 74% citing reduced savings contributions, compared to 69% of Gen Xers and 63% of boomers.
Debt Accumulation: More than half of Americans (51%) have taken on additional debt due to inflation, with millennials bearing the highest burden at 65%, followed by Gen Xers at 49% and boomers at 31%. Furthermore, Hispanic and Black/African American respondents are disproportionately impacted by this trend.
Immediate Financial Concerns: The study highlights a concerning trend where 67% of Americans express greater concern about paying bills than about their long-term financial future. Millennials exhibit the highest level of concern in this regard.
Retirement Savings Depletion: Alarmingly, 42% of respondents have resorted to withdrawing from their retirement savings due to inflation, jeopardizing their financial security in retirement. Hispanic respondents are particularly vulnerable, with 59% having dipped into retirement accounts.
And yet - personal income increased in Feb 2024 (latest available) and the savings rate was 3.6%, according to the Bureau of Economic Analysis. Not bad. The problem is consumer spending increased $145.5 billion (0.8%) in February. So, we’re definitely spending a lot more.
I’ve been talking to HR professionals at a bunch of larger companies (ranging from 5,000 to 15,000 employees) over the past month. They’re telling me that more people are asking for 401k hardship withdrawals or are just taking money from their 401ks to pay bills. They’re complaining about higher costs due to inflation.
What do you think?
Renter Envy: 28% of Homeowners Have Considered Going Back to Renting
Some Americans spend years dreaming of homeownership — only to regret that decision once they realize the drawbacks of reaching their goal. More than 1 in 4 homeowners (28%) say the high cost of owning a home makes them want to go back to renting. Nearly half of homeowners (49%) spend more money owning a home than they did when renting.
Homeowners say:
They spend more owning a home than when renting (49%)
They think it’s easier to be a renter than a homeowner (42%)
Renting is generally less expensive than owning a home (41%)
They envy renters who don’t have to pay for maintenance/upkeep (34%)
The cost of owning a home has made them want to go back to renting (28%)
My take
I think people think renting is less expensive than owning a home. It’s a common sentiment. But over time, you’ll be far wealthier as a homeowner than a renter. Rents are high now, and going higher. Particularly in bigger cities or around university and college campuses. If you buy a home, you lock in the mortgage. Your property taxes and insurance will go up, but there’s a long-term calculus that generally favors buyers.
When our son was thinking about renting after college, we asked him to do the math. He realized that he might spend $20,000 to $25,000 per year renting. Over five years, that could total $125,000. At the time, interest rates were around 3%. (I get it - makes a huge difference compared to 7% today!) Even if the property didn’t appreciate in value (which it pretty much hasn’t, because he lives in Chicago), he quickly realized that if he got a roommate, he’d spend less than half (cash out of pocket) to live in a much nicer place. While building equity.
What do you think?
Declining Affordability: Tougher than ever to buy a home
And, on that note about how high interest rates are, buying is really tougher. Declining affordability and lack of housing is an issue this country needs to tackle - and soon.
It’s tough to be a home buyer these days, according to a number of new studies. Zillow says you need to earn 80% more than you did in 2020, or about $106,000 to afford a typical home for sale.
And, you now need a six-figure income to buy a typical home in 22 states, according to a new Bankrate survey:
The so-called mansion tax in Los Angeles raised $215 million in its first year. It’s now raising about $25 million per month, or about $300 million annually. Not even close to the $900 million that was projected, but not nothing.
In the last election, Chicago residents voted against a similar law.
So far, [Los Angeles] has spent around $28 million in aid to distressed tenants and landlords, $23 million on eviction protection and tenant outreach and $56.8 million on loans to accelerate the development of affordable multifamily housing projects, according to the Los Angeles Times.
Quote of the week - I’m still turning this over in my head
“I never thought what I was doing was illegal.”
- Sam Bankman-Fried
(And his parents teach law at Stanford Law School and were advisors paid and unpaid to FTX.)
Hot Reads from ThinkGlink and Best Money Moves
Financial Literacy Month: What Makes a Great Financial Literacy Strategy?
5 Key Insights About the Gig Economy in 2024
Trusts: How to Handle a Home in a Trust
Debt: How One Bad Move Can Wreck Your Financial Life
National Association of Realtors Settlement: Our Take
Meet Jonathan Miller
I met Jonathan Miller, acclaimed New York City-based appraiser, more years ago than I can count. But his advice about housing and how to think about it is even more relevant today. (Plus, he takes cool trips, like a cruise around Antartica!)
Each week, his newsletter lands in my inbox and I always find a tidbit worth thinking about. This week’s headline: Chocolate Costs Are Sort Of About To Eclipse The Housing Crisis.
If you’re geeky about real estate - or chocolate - you might want to take a peek.
That’s it for this week. Type to you again, soon.
Ilyce
Genius can be used for philanthropy or GREED! To be given the rarity of genius& to throw it away; incomprehensible 🥺
Buying vs. Renting - As a math teacher (retired in 2019), I figured out an understood the math in 1986. Rented two years and bought a condo. The ultimate issue is financial literacy. It needs to start at a young age. I was honored to be part of the Common Core Standards development (don't moan and groan...politics took over...and for the most part didn't work as well as hoped...another whole story.) In the worldwide research of what other countries do, Australia has a national requirement that all seconday school students must take a one semester course in financial literacy in order to graduate. They study personal budget making, the amortization of a loan, various investments and their returns (lots of compare/contrast), super planning (super is their word for 'retirement'), and more. I got to peak at the curriculum for about 20 minutes. I found myself saying...."if only I had known in high school."
We are still a country teaching our kids based on Horace Mann's model from 1837. An attempt was made in mathematics K-12 (common core standards), but too many parents and politicians complained "that's not how I learned." They were correct, but we know SO much more about the brain and how it works now than we did in the 1960's (left brain vs. right brain). We SHOULD be changing how and what students are learning.
Until then, it's up to the parents to teach their kids finances, and if the parents are financially illiterate...(you can figure out the rest).