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In April, LIMRA, a think-tank for the financial industry, completed a survey intended to focus on the savings and investment preferences of those living and working in the United States. After receiving responses from 2,697 Americans, a representative sample of the country, LIMRA was able to determine that 49 percent of the country is not saving for retirement. Additionally, more than half of Americans between the ages of 18 and 34, at 56 percent, are not saving for retirement.

Saving for retirement — and receiving the associated tax benefits through typical investment types like 401(k) plans and IRAs — requires a public trust in the financial industry. On one side, financial planners, investment salespeople and brokers, columnists, and bloggers are encouraging the use of financial products that, through both apparent and hidden fees, enriches the industry, while on the other side, investment firms are the beneficiaries of massive taxpayer bailouts and frequently in the news for using taxpayer money for paying their executives bonuses that defy the laws of gravity.

Wall StreetIt may be true that the reason many Americans do not save for retirement is ignorance. There are typical excuses for not saving for retirement, such as the lack of good, seemingly trustworthy information about the options that are available, the lack of knowledge about the benefits of investing in 401(k) plans and IRAs, or the belief that during tight personal economic times, not a cent is available to save for the future. After the recession, however, many people just see the financial industry as unworthy of trust. Organizations like LIMRA, working for the industry and promoting financial products, are unlikely to bring this attitude to the public attention.

The industry is more interested in shaming people unwilling to get on the boats rather than analyzing the leadership capabilities and trustworthiness of the boats’ captains.

I’m saving for retirement with 401(k) plans and IRAs. When possible, I choose plans that have low fees, but the choice is not always up to me. Employees may be able to choose from a selection of investments inside their 401(k) plan, employees can’t choose their company’s 401(k) administrator and broker without a coordinated effort among a large portion of employees. That would be nearly impossible in a large company. Unions are intended to solve some of these issues, but it can often reach the point where being a member of a large union is much like working for a large employer. The power of any individual is limited.

The 401(k) is ingenious for the financial industry, particularly now that it’s automatic. In a perfect world, every single employee is enrolled in a 401(k) plan on their first day on their first job. The investments may not perform well over time, but that’s not particularly relevant for the financial industry. As long as every American is investing a portion of their paycheck every week, two weeks, month, or other period, 401(k) administrators and brokers will continue to thrive. The employee probably benefits when retirement approaches, but that is by no means guaranteed. All you need to do is look at the portion of Americans who planned to retire in recent years but saw their nest eggs trampled on during the recession.

Investors bear the responsibility for changing their risk profile as they near their planned retirement, but there is a mixed message. The financial industry says you need to stay invested in stocks (highly volatile, highly risky) as you approach retirement because most people need their funds to last several decades throughout retirement while at the same time warning people to risk only what they can afford to lose. When people receive conflicting information, making decisions becomes more difficult. And when the conflicting information is coming from the same source — that is, the financial industry — the default reaction is the lack of trust.

Does the financial industry wants to do American citizens a favor by providing options for saving for retirement? No. The financial industry wants its companies to not only stay in business but to profit as much as possible. And to that end, it sells products — investment opportunities — designed to enrich the companies and their shareholders. There’s nothing wrong with this, because consumers will only buy products they need or desire enough. Companies will sell towards that need. And when only half of Americans have discovered retirement savings vehicles like 401(k) plans and IRAs, the industry will resign itself to doing a better job in explaining to the country why their products are needs, not wants.

Saving for retirement is important. For most people, stocks are the only investment type that can grow wealth quickly enough to provide the dream retirement so impressed upon Americans through media. It’s risky, as recent would-be retirees have seen. Thanks to the cognitive dissonance resulting in the understanding that the promotion of retirement is a result of the financial industry trying to increase profits on a large scale rather than corporate concern for the well-being of a nation and the knowledge that Americans must do something drastic to save money in order to fulfill the dream of quitting work, some Americans choose to invest while others would sooner give away their firstborn rather than drink the financial industry’s Kool-Aid.

LIMRA may be right — that most people who do not invest for retirement with 401(k) plans and IRAs have not done so because the industry’s message hasn’t successfully penetrated their consciousness. That may be due in part to a lack of education, but for others, it’s a lack of faith and trust in the industry.

Photo: zoonabar
LIMRA

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Tavis Smiley and Dr. Cornel West have been working hard to bring the issue of poverty into the consciousness of the citizens and political discourse of the United States. As a team, Smiley and West have been touring city to city, speaking to audiences concerned about the increasing wealth gap in this country. Their book, The Rich and the Rest of Us: A Poverty Manifeseto, is the culmination of their observations of American citizens throughout these travels.

While the economy is technically in recovery from the Great Recession, a vast slice of Americans have not experienced a real recovery. A “jobless recovery,” where the beneficiaries of an improving economy are the wealthy while the middle class struggles with unemployment, is not a real recovery. Despite this disadvantage, the prevalence and pervasiveness of poverty is still astonishing. According to Smiley and West, 150 million people in this country are in or near poverty. That number represents one out of every two individuals — half the country.

Tavis SmileyThe issue of poverty, affecting this number of individuals, is bigger than poverty itself. The government tallies 46 million Americans living in poverty according to the 2010 census and the government’s own definitions of poverty. Many more individuals are affected by poverty because they are living dangerously close. Many middle class households, particularly those already living in debt or in a paycheck-to-paycheck situation, are one lost paycheck away from a dangerous financial situation, and many families are already experiencing a personal decline due to the inability to find gainful employment.

Poverty has traditionally been a problem classified as urban or rural. Minorities have been and are disproportionately affected by poverty, but poverty is not a suburban problem, too. With white, middle-class families now facing the issue of poverty, whether by losing a job or being dangerously close to not being able to afford their homes, the issue is gaining more attention. While poverty is making life difficult for an increasing number of Americans, those in or seeking office, whether Democrats or Republicans, are not concerned. In order to receive a voice in political discourse, you need money. While the United States may have been founded on the ideals of freedom and liberty, these have generally only been granted to an elite selection of its inhabitants. The distribution of social power is expanded only by revolution among the disenfranchised.

Smiley and West contacted Consumerism Commentary with an interest in speaking to me about these issues — to defend their position, and to open my eyes to the realities faced even by the middle class in this country, many of whom are the “new poor.” We arranged an interview for the Consumerism Commentary Podcast, airing Sunday, May 13. Unfortunately, Dr. West was unable to participate in the interview at the last minutes as he was in New York waiting for a verdict after a conviction related to a political protest in that city. Tavis Smiley was able to participate, but our time together was short. We weren’t able to address all the questions I had prepared, but the discussion was valuable.

Listen to the entire discussion with Tavis Smiley, podcast host Jay Frosting, and myself, Luke Landes, once it is available this weekend. Smiley is the host of Tavis Smiley on PBS and The Tavis Smiley Show on Public Radio International. Update: Listen to the podcast here.

In the interview, Smiley dispelled many of the myths about poverty. One such myth is the idea that those in poverty are entirely to blame for their financial situation.

On Consumerism Commentary, I’ve written that taking personal responsibility for your decisions, financial and otherwise, plays the biggest role in achieving financial security and independence. This is today’s American promise: “Anyone can make it in America.” The media love rags-to-riches stories, even if it doesn’t reflect a reality for the majority of Americans. It’s true that this country’s brand of capitalism is favorable to the situations European immigrants left behind. Religious intolerance, a caste system based on ancestry, and an economic system wherein generally only the first-born male would have rights to any property drove pioneers to create a new society or join a country with a promise to create a better life for yourself. Never mind that doing so displaced others who occupied the land here.

Even in this new society, you had to be a member of the elite to receive the rights as endowed. Not everyone begins on equal footing. The lack of early educational opportunities throughout this country is one of the strongest causes of generational poverty. As Smiley addresses in the podcast, Washington state is the home to large multi-national corporations, providing a huge advantage to those who reside in Washington thanks to the tax these companies pay. The educational opportunities in Washington state far outshine the opportunities in Washington, D.C., for example. Until a quality education for the entire country is given priority, generational poverty will continue to exist.

In the interview, we also address the issue of austerity. The concept of reducing the deficit and national debt is and should be a high priority for policymakers, but the timing of austerity measures, such as reducing funding to societal programs, is just as important. Smiley argues that we cannot cut the budget for these important issues when the economy is not “flowing,” saying that the budget is being balanced on the backs of poor people. Budgets are moral documents, and you can determine a country’s real priorities by evaluating where the money is going. If this country does not address the economy for the 99 percent — those who have seen no benefit from this “jobless recovery” — rather than the “1 percent,” Smiley warns of the downfall of the United States as a world leader.

No empire in the history of the world that at some point did not falter or fail. Every empire had its day. Americans don’t want to think we could be dangerously close to the edge… Poverty is the moral and spiritual issue of our time.

Time did not permit us to explore all the topics I would have liked to cover in the interview with Tavis Smiley. For example, I would have liked to talk more about the Occupy movement and getting a national stage for the issue of poverty. In recent weeks, civil rights are again receiving national attention, from the perspective of same-sex marriage. Not to minimize that issue of equal treatment under the law for all individuals, poverty deserves the same attention from our nation’s leaders.

Be sure to subscribe to the Consumerism Commentary Podcast to hear the interview with Tavis Smiley, where we address more topics related to poverty than are outlined above, as soon as it is available. Be sure also to read The Rich and the Rest of Us: A Poverty Manifesto. Update: The interview is now available as a podcast here.

Photo: DC Central Kitchen

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Dr. Cornel West is a Princeton University professor and author. Tavis Smiley is a television and radio talk show host and author as well. The two have known each other for a long time, and last year they toured the country to hear from citizens and talk about the issue of poverty in America. After their travels and discoveries, they published a new book together, The Rich and the Rest of Us.

The central concept of the pair’s appearances, including visits to news programs and public speaking, is that poverty is largely ignored as an issue. When Mitt Romney explained that he wasn’t concerned about the very poor thanks to the systemic advantages this class is afforded, Romney was speaking from the system’s perspective.

Cornel West and Tavis SmileyMoney rules politics, and only groups with significant amounts to pledge to campaigns or lobbyists can influence public policy. It’s the way our democracy is designed, and it’s not much different than when the country was founded. The primary difference is that wealthy corporations, not just wealthy individuals, have a bigger influence today. Democrats or Republicans, the power of money is the same.

Smiley and West offer an interesting statistic. They claim that one in two Americans — half of this country’s population — deals with poverty. 150 million people are in or near poverty, perhaps just one lost paycheck away from spiraling into a financial situation that could be difficult to fix. The authors are also including “new poor” in this figure, and the “new poor” are the former middle class.

I’d like to get a chance to chat with either of the authors about this concept. Is the middle class truly poor? As a group, they are certainly better off than those in abject poverty. My understanding of middle class — and I realize that there are always ways to interpret classes differently depending on one’s perspective — is that today’s middle class is generally working, earning a paycheck, and somewhat able to spend beyond the basic physiological needs like food and shelter.

On the contrary, the middle class has faced unemployment over the last few years, and for many, this has been a struggle for families. Unemployment has enabled class mobility in a negative direction, removing families from the particular designation of middle class. Families remaining in the middle class live paycheck-to-paycheck, so the loss of that consistent source of income combined with the difficulty of replacing a middle class job could lead a family into poverty. For many middle class families, debt is a way of life, and allows people to “afford” a living that appears to be like their neighbors’.

To work towards the solution of eradicating poverty in the United States, the two authors want to see President Obama or whoever receives the office after the next election set up a conference on the issue. They would like to see the government move forward with a massive job program, investment in education, and abandonment of austerity policies. This is not a solution to poverty, and I believe the authors realize this. It’s intended as a beginning, a way to keep poverty in the forefront of political discourse, and encourage smart people to get together and work on solutions to poverty.

It’s hard not to compare Smiley and West with their hero and the hero of many others in this country, Dr. Martin Luther King, Jr. The issue of poverty of worthy of as much attention as the civil rights movement received in the 1960s. Where the comparison fails is that Dr. King had the ability to foment a revolution. The public, for the most part, saw civil rights as an important issue. The time was right, with a public ready to be involved, empowered to force a change. Dr. King took his message to the streets; Smiley and West are taking their message to the streets, selling a book, and charging admission to their talks.

For poverty to become the lead story in a system that pays attention only to the issues prescribed by those with money, there needs to be an uprising, a revolution. An apathetic public without the feeling that the issue of poverty is personally relevant will not rise up. There might be a thought that the Occupy-branded protests show that the public is ready to support a major issue like civil rights was in the 1960s, but I don’t think it’s ready yet. The Occupy-branded protests are too small and too unfocused to make the necessary impact. If Smiley and West want to influence the way Americans think about poverty, they’ll need to take a page from Dr. King’s book, and do a better job of getting people to care about the issue and see the value of change.

Here’s a clip of Tavis Smily and Dr. Cornel West on Face the Nation (sorry about the advertisement first):

The pair also appeared on Stephen Colbert’s Colbert Report recently for an entertaining interview.

Photo: DC Central Kitchen

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I’ll be thirty-six years old this month, officially closer to forty than thirty. I’ve never owned real estate. Once in a while, someone judges this as a failure on my part, or a reluctance to “grow up” or enter a more sophisticated stage of development, as if maturity was somehow related to the ownership of property. I live in a nice apartment for a good monthly cost, and owning a house in the area where I live would cost more than twice as much to own and have additional maintenance costs.

When I returned to New Jersey thirteen years ago, I never intended to stay in the state. Yet, I’ve spent my adult life here. I’ve had the flexibility to move from sharing a small apartment with three roommates to a comfortable living space. Thirteen years ago, I would never have been able to afford a house of my own, so I don’t regret my choices.

House for saleSince my financial situation has improved, I’ve also delayed buying a house. I see buying real estate as a more permanent decision, and I always assumed that I’d be starting a family before making a financial decision whose effects are more permanent. It’s a decision that should be shared in a family; otherwise, I might buy a house today and discover soon that the decision is incompatible with someone else.

From the financial perspective, though, signs point towards making that decision soon, even if it is on my own. Thirteen years ago, I thought that mortgage interest rates were low when real estate values were high, and interest rates were high when values were low. It seems that today’s economy features both low interest rates and low home values. There’s lower demand in real estate now mostly because those who already own are reluctant to sell for a loss, more people like me who are choosing renting over the high cost of buying, and the effects of the wave of new construction throughout the last decade that was intended to supply an ever-growing demand for real estate that never took place.

At the same time, there are more homes being sold for a loss and more foreclosures, keeping the value comparable homes down. The cost of buying and owning a home over 30 years hasn’t changed much, though. Maintenance and improvements cut into an owner’s return on investment. While these expenses are said to be priced into the monthly rent for those who choose not to purchase the home they live in, renting is often the better deal despite the hard work of a real estate agents’ industry group’s attempting to convince the public that it’s better to own. (Whether you’re buying or selling, the timing is supposedly always right.)

This doesn’t change the fact that there is a “nicer” selection of real estate available to buy than there is available to rent. If someone is planning to own at some point in the future, and has the funds available, the coordination of low interest rates mixed with historically low overall prices is the perfect combination. Sellers’ desperation right now, with the lack of demand for real estate, could make it easier to find negotiable deals.

Would you use today’s economy as an opportunity to move from renting to owning a home? Would you wait until your personal life was in the form you’d like before making a financial decision that would effect the next fifteen to thirty years of your life? Is any decision really permanent?

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The Best Online Savings Accounts, May 2012

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Mitt Romney

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