This Week in Your Wallet: If You Didn’t Get a Raise, Was It a Pay Cut?

This Week in Your Wallet:
If You Didn’t Get a Raise, Was It a Pay Cut?

Just when you thought the news about inflation couldn’t make you (or your checking account) feel worse, along comes this piece from Business Insider that begs the question: does the 5% raise you were so pleased with (or any pay increase under 7.1%) amount to much more than a hill of beans in 2023?

Juliana Kaplan and Jason Lalljee report that “wages rising by about 5% in the past year have been pretty consistent across economic data.” And while that would be a healthy total most years, it’s not high enough to keep up with inflation. “Real average hourly earnings have fallen by 1.9% from November 2021 to November 2022, reflecting how purchasing power is being eaten up by rising prices,” they wrote: “the data illustrates that while workers are seeing numbers on their paychecks that were higher than last year, they're not actually able to afford more stuff given rising prices across the wider economy. It's why a tight labor market and a still-robust economy feels bad for many.”

I see their point, but fortunately the math doesn’t add up in the same way for everyone. When thinking about how we'll manage our own budgets – whether that means dealing with a recession or not – it’s important to focus on your personal economy, which can look strikingly different from family to family. Someone who has a low-interest, fixed-rate mortgage, a fully-funded emergency cushion (and no credit card debt) won’t feel the economic squeeze as tightly as someone less financially secure. Want to turn the tide on your own finances? Make sure whatever cash you have is working for you at today’s higher interest rates. And focus on controlling the spending you can control (i.e. all those subscription services for a start). If you could use some help with this, check out the next session of FinanceFixx, my new coaching program.

Default on a Student Loan? Uncle Sam Still Wants His Cut

There’s another wrinkle in the student loan debt space, with this twist impacting older Americans who default on student loans and also receive Social Security benefits. While the pandemic pause on garnishments continues for now, a new study from the Center for Retirement Research at Boston College shows that “when collections are in effect, the reduction in annual Social Security benefits is about $2,500 on average, based on 2019 data” for those who defaulted on student loans.

As you may expect, this doesn’t cover a large number of retirees at the moment — less than 5%. But, as CNBC’s Lorie Konish notes, a $2,500 reduction “typically amounts to 4% to 6% of household income, a significant amount that could pay off the average person’s credit card balance.” Siyan Liu, a research economist at the Center for Retirement Research, told CNBC “those balances are expected to be ‘substantially’ higher for future beneficiaries, who are also expected to have higher delinquency rates, according to the research.”

Will The Wage Gap Get Worse For Gen Z Women?

Concerned for the future, one social psychologist (and 59-year old Baby Boomer) is writing two books at the moment that raise alarms about the negative impact social media is having on the generation following Millennials into the workforce. Wall Street Journal contributor Tunku Varadarajan recently talked with Jonathan Haidt, Ph.D., a Professor of Ethical Leadership at New York University's Stern School of Business, about an issue Haidt describes as a national crisis. “We have a whole generation that’s doing terribly,” he says of Generation Z, the children born between 1995 and 2012, noting “they have extraordinarily high rates of anxiety, depression, self-harm, suicide and fragility.”

For a variety of reasons, including the dawn of front-facing phone cameras and tween and teenage girls’ obsession with Instagram, Haidt predicts “Gen-Z women will be much less successful than millennial ones,” explaining “Gen-Z women because they’re so anxious, are going to be less successful than Gen-Z men—and that’s saying a lot, because Gen-Z men are messed up, too.” One solution, Haidt says, is for stronger protections to be implemented and enforced so that children younger than 16 don’t have free access to the Internet. Right now, “they just lie about their birthdays,” he says. And it’s up to parents to step in and put in some protections. I was heartened to read about some teens taking matters into their own hands and voluntarily forgoing a smartphone in favor of a simple flip. Hoping it catches on. But if it doesn’t, it’s worth noting that in addition to all those anxiety-inducing comparisons at teens’ fingertips also lie inspirational stories, salary comparison data, and details on how to do and become absolutely anything.

Why America’s Housing Market Is Down, But Not Out

Finally, nearly anyone who applied for a mortgage or refinanced a home loan in the last dozen years or so – since the Great Recession – knows it can take a month (sometimes longer) for qualified borrowers to gather everything needed to prove to a lender they are credit worthy. That hasn’t always been the case. In the early 2000s, getting a home loan could be a much easier proposition, which, in part, led to troubling times. “A 28% decline in U.S. home prices between 2006 and 2009 sent the value of some 11 million homes below their mortgage balances, triggering widespread defaults, a near-collapse of the financial system and a deep recession,” note Ben Eisen and Nicole Friedman in The Wall Street Journal. In order to see the same amount of mortgaged homes underwater today, home prices would have to fall between 40% and 45% from their peak. And we’re a long, long way away from that now. The story explains the “redesign of the nation’s lending apparatus and overhaul of the financial system meant to insulate it better from economic shocks make a repeat of 2008 exceedingly unlikely,” noting that regulations have now made it impossible for people to acquire some the products that once enabled them to take on loans they couldn’t afford (like ARMs that lured you in with low teaser rates and then skyrocketed.) As always, if you're wondering how much home you can afford, there are some good calculators out there to help you figure it out.

Have a great week,

Jean

HerMoney is not a client, agent, representative or affiliate of EFE. Edelman Financial Engines (“EFE”) is a sponsor of the "HerMoney with Jean Chatzky Podcast,” created by HerMoney Media. Inc. (“HerMoney”) and provides cash compensation to HerMoney Media. HerMoney receives a sponsorship fee from Edelman Financial Engines depending on the number of podcast downloads, as measured by the end of the calendar year. The sponsorship fee is paid on a quarterly basis each year. In turn, HerMoney also provides promotional deliverables regarding EFE on the HerMoney podcast, newsletter, and social media channels. Due to this sponsorship arrangement, HerMoney has an incentive to endorse EFE and its services.

The HerMoney podcast is proudly supported by Edelman Financial Engines. Get sophisticated wealth management for all aspects of your financial life. See more at EdelmanFinancialEngines.com.
Sponsored by Edelman Financial Engines – Modern wealth planning.
All advisory services offered through Financial Engines Advisors L.L.C. (FEA), a federally registered investment advisor. Results are not guaranteed. AM1969416

We maintain a strict editorial policy and a judgment-free zone for our community. We strive to remain transparent in everything we do. Website posts and newsletters may contain advertisements, links and mentions of products from our partners. Learn more about how we make money.