Money Clinic: No Need to Keep Up with the Jones’s

U.S. stocks traded higher on Friday after the release of stronger-than-expected employment
data. The Nasdaq closed at new highs. Everything is back to normal, right?

Unfortunately for most American households, the stock indexes measure an economy far
removed from their own daily reality. For many American families, who collectively own a very small percentage of the stock market (even when you factor in their retirement accounts) the Dow and the S&P 500 are little more than numeric refractions.

Maybe this is the new normal?

While the U.S. economy added 313,000 jobs in February, wages grew less than expected, rising 2.6 percent on an annualized basis. So, jobs are growing – wages are not. This isn’t the kind of news that exemplifies a thriving economy.

A new Rural King just opened in our neighborhood. I’m sure they are creating at least 25 new jobs…at or slightly above minimum wage.

New jobs. Low wages.

Is this the sign of a thriving economy? Really?

While the recent tax cuts provided hope to create an economic boom as corporations increase wages, hire and produce more so that consumers can have extra money in their pockets to spend, the increase in take-home pay has already been offset by surging health care cost, rent, energy and higher debt service payments.

Low-paying jobs are plentiful but too many jobs are also being lost due to cut-backs and business closings. Even Toys-R-Us can’t keep the doors open.

In this “thriving economy”, many people are working two jobs to keep the economy above water.

On the other hand, numerous companies are using tax breaks to buy back their own stock. One of the primary tools used by businesses to increase profitability has been through the heavy use of stock buybacks. This will help many glossy-eyed investment pundits proclaim that earnings per share numbers are looking solid. On top of that, I’ve heard TV charlatans proclaim that a solid jobs number with lower wage numbers has muted inflation concerns, which is good for the markets.

Unfortunately, what is good for the markets is not necessarily good for the economy.

While tax cuts can be pro-growth, they must be focused on the high percentage of American’s that make up most of the consumption in the economy, not hoarded by the wealthy, which already consume at capacity,

The reality is that most U.S. companies are NOT increasing wages because higher wages increase tax liability, benefit costs, etc. Higher payroll costs erode bottom line profitability. In an economy with very weak top-line revenue growth, companies are extremely protective of profitability to meet Wall Street estimates and support their share price which directly impacts executive compensation.

Case in point: since March 2009, the S&P 500 is up around 300 percent.

How much of that return have you garnered?

Just look around, most Americans are unhappy, over-worked, contemplating divorce, plagued with enormous debt, and still trying to keep up with the Jones’s. Many Americans, no matter where they live and how much they make, maintain their finances precariously close to the edge of break-even. Those working multiple jobs are feeling even more pain. Furthermore, stress about retirement preparations and worry over personal finances at work are causing employees to be less productive while at work.

Wages are failing to keep up with even historically low rates of “reported” inflation. It is very likely that your inflation, if you spend money on food, rent, education and health care – let alone any discretionary spending, is higher than “reported” inflation. Is it any wonder that almost half the population has less than $10,000 saved for retirement? A lot of people just don’t make enough money to save for retirement let alone to cover financial emergencies.

We are living in a time where there is a glaring economic anomaly. It is crucial that you adhere to strong financial fundamentals and put rigid savings and investment rules in place that have stood the test of time.

It all begins with doing everything in your power to make yourself more valuable. Follow this with a commitment to developing strong financial literacy skills.

Finally, forget about keeping up with the Jones’s – they aren’t doing that great.

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