By Sarah Bennett-Astesano
As American families have seen their real wages decrease and their disposable income shrink, risk – and the need to save money to protect themselves from it – has grown.
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The New Money Rules
At the same time, security for workers’ retirement has decreased. “Over the past 20 to 30 years, the burden of paying for retirement has been shifted from the employer – in the form of traditional pensions – to the employee – in the form of 401(k)s, 403(b)s, etc.,” says Robert Brokamp, editor of Rule Your Retirement newsletter, a product of The Motley Fool financial education firm.
Anyone who pays even occasional attention to the news knows that Social Security is less and less of a good bet. “And traditional pensions are being offered by fewer and fewer companies, which means families have to choose to save, and learn how to invest that money,” Brokamp says. “Now, employees have to choose an amount, choose investments, and they have no idea how long the money will last. And, of course, with longer life expectancies, that money has to last much longer.”
This generation of retirees and near-retirees has already felt the squeeze – a squeeze that has had a direct effect on this generation of young parents.
“Ever since the stock market recession in the early 1990s, our parents have had less retirement money of their own,” says Amy Bebergal, the mother of a 3-year-old. “And, hence, they have not been able to help us. When they were starting out, my parents were supported and helped with cash. We have been helped with credit that we must pay back. This means our future is not ours, and we live paycheck to paycheck.”
Brokamp offers another example of how one generation’s financial struggles become the burden of the next.
“College is becoming less and less affordable,” he says. “Tuition has far outpaced overall inflation for many years now. So most families have to think way in advance if they want to cover the full costs of a college education. Of course, many can’t, which is why students are graduating now with historically high amounts of debt. This then moves the problem onto the next generation, since these students will have a harder time covering their own costs: buying cars and homes, and starting families.”
“One of the biggest changes [over the last generation] is the need for families to really, really save,” says Brokamp. “And the inability of most families to do so.”
Sarah Bennett-Astesano is the national associate editor for United Parenting Publications.