Money advice can fluctuate with changes in our world. How we earn, save and spend money is subject to change based upon demographic and digital shifts. It is important to be aware of these changes so that you can prepare for your future and retirement accurately. While I am not a financial planner, here are some ways to understand and take advantage of these changes based on my research, statistics and opinion.
Demographics are the socioeconomic characteristics of a population expressed statistically, such as age, gender, education level, income level, marital status, occupation, religion, birth rate, death rate, average size of a family and average age at marriage. One important change that drastically affects our financial future is the fact that people are living longer. The Stanford Center for Longevity states that Americans have added roughly three decades to their lives. Between 1900 and 2000, women’s life expectancy has jumped from 50 to 79 years. As of today, that number is now 81 years of age. While this extended life expectancy is wonderful, with kudos to modern medicine, it also creates a need for money and resources to provide for our older age. A 2018 study by Merrill Lynch found that 42 percent of women are afraid they will run out of money by age 80. This is not unfounded, since many Americans have not saved adequately for their retirement. Putting your money in an investment account as early as possible will enable you to earn from the compound interest. You don’t have to be rich to invest money, even a small amount can grow. Remember, don’t put your eggs all in one basket; diversify your savings and investments into different areas. If you don’t have an employer sponsored retirement program, you should speak to a financial planner. While the recommended retirement plan savings amount is up to four times your annual salary, most people don’t even have double their salary saved. This fact makes it extra important to rethink what your retirement will look like. Most of us will have to work much longer than planned. Many people are continuing to work part time after their planned retirement age.
The Gig Economy
With a labor market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs (referred to as the “gig economy”) many Americans are jumping on this bandwagon to earn money. Gallup estimates that 36 percent of people in the U.S. are doing some type of independent work. The money they make from this freelance work is often their primary income. It is important to realize that when you are working as an independent, you have to plan ahead for taxes and retirement savings, as there is no employer taking this money out of your paycheck and contributing 50 percent towards your Social Security and Medicare. Without a financial plan, you could end up owing a fortune at tax time and have no savings to retire on. If this independent work is your side job, consider putting 90 percent of your earnings to pay off debt or into savings, using the other ten percent as you wish. Seniors and retirees age 60 and older have jumped on this bandwagon. Airbnb reports that seniors are the fastest growing host demographic, with an average earning of $7,000 annually. This is a great way of generating income for our extended life span.
The New Definition of Family
The demographic of a family as a father, mother and 2.5 children has changed drastically over the last several decades. Women marrying later, same sex marriages, single parent families and deciding not to have children are common shifts in the demographic of the American family. If your family does not fit the old standard financial assumptions, you have to plan differently. If you are a single parent, there is no other salary to rely on if you become ill or lose your job. Emergency savings are a necessity and some type of disability insurance is an important consideration. Having the proper legal paperwork in place is extremely important. Everyone should have a will, durable power of attorney for health care and a durable power of attorney for finances. If you have a life partner but aren’t married, you should have legal paperwork in place to ensure that your assets are documented in case something happens to you. If you have no financial dependents, you could consider forgoing life insurance. An estate attorney can help you get your legal affairs in order. Websites such as LegalZoom and Rocket Lawyer also offer a range of DIY options.
Instant Gratification Economy
The current “instant gratification” economy that has evolved from online websites like Amazon and Instacart has enabled us to purchase things instantly with a tap on the screen of your phone or computer. This type of shopping is wonderful when you are pressed for time, housebound or in a rush. However, it can easily become a habit and can destroy your savings. When we are feeling down, retail therapy is a swipe away. The take-out food offerings that many restaurants offer makes it very easy to call up and order meals and pick them up from the comfort of your car or have them delivered right to your home. It is important to review and track the amount you are spending on these services. If you find it is out of hand, consider some swaps you can make that will save money and still provide a way to save time and hassle. If your take-out budget is too high, perhaps a meal-kit subscription might be a less costly alternative. Many of the big retailers like Walmart and Amazon offer “subscribe and save services” on items you use regularly like diapers and toilet paper at decent savings while still avoiding the time needed to shop. The emergence of streaming TV channels is a less expensive alternative to cable. Many people no longer have a dedicated telephone line in the house and only maintain their cell phones to save that monthly expense. Being aware of these economic and demographic shifts and how they are reshaping our world will enable you to take advantage of them and have a better financial future.