Why do so many Americans have trouble funding their retirement? I blame Don Draper.
OK, no, I don’t really blame a fictional TV character. But Draper, the advertising genius from AMC’s “Mad Men,” does symbolize my real the culprit: the relentless marketing that has created a consumer culture built on shopping, buying and spending.
Prior to World War II, America was largely a nation of prudent savers. The pent-up demand caused by the deprivation of the war years, combined with America’s post-war emergence as an economic superpower, fueled new levels of affluence and a post-war spending boom. Between 1945 and 1949, Americans purchased 200 million refrigerators, 21.4 million cars and 5.5 million stoves. In the 1950’s, TVs were flying off the shelves at a rate of five million per year as the devices became more affordable.
Much of this new spending was influenced by the increasingly effective advertising industry. The Mad Men (“mad” derived by the famed advertising mecca in Manhattan, Madison Ave.) not only helped direct people to specific brands of existing staples and luxuries, but also mastered the insidious art of creating perceived needs in the minds of consumers. These truly brilliant communicators also convinced us that we “deserve” certain consumer luxuries and that our emotional needs can be met by acquiring things.
As Don Draper explains: “Advertising is based on one thing, happiness. And you know what happiness is? Happiness is the smell of a new car. It’s freedom from fear. It’s a billboard on the side of the road that screams reassurance that whatever you are doing is okay. You are okay.”
Despite the mounting pressure to buy, buy, buy, consumers managed to keep their spending somewhat under control for several decades. In 1975, for example, Americans saved a record 14.5 percent of their disposable income. But over the past couple of decades, we have become a nation of spendthrifts. There are several reasons for this.
The boom times and easy credit of recent years sent a tidal wave of money sloshing through households at most every income level. Technological advances and globalization gave us more things to buy – cell phones, iPads, 80-inch flat screens, HD cable service, cheap-but-disposable clothing, to name but a few things unavailable to our parents’ generation.
Online shopping made it possible to spend $10 or $1,000 on your lunch break with just an impulsive click. Somewhere along the line we gave in to the all the temptation; we lost our saver tendencies and became relentless consumers. In 2005 Americans saved just 0.8 percent of their disposable income.
So it should come as no surprise that 28 percent of workers say they are not confident they will have enough money to live comfortably in retirement. In fact, 58 percent of workers report that they have saved $25,000 or less towards retirement. A stunning 37 percent of workers aged 55-plus say they are not currently saving ANYTHING towards retirement.
Sadly, our spending habits too often don’t change when we retire. I recently heard the story of a retired couple who are fretting about the next ten years because, as the husband admitted, “We’d be alright if we spent less money. We don’t need to spend as much as we do – don’t need this much house or all the stuff we buy… we just can’t help ourselves.”
I’m not suggesting that you start living like a monk. Nor am I saying that advertising is evil. On the contrary, marketing messages are very important to the free market system, which thrives on buyers making good decisions. I’m merely urging a return to balance between our spending and saving. Disposable income should be exactly that – money you can dispose of on the nice-to-haves AFTER you have paid the bills in full AND saved at the appropriate rate.
If you need help starting or boosting your savings, check out my savings hierarchy plan and retirement calculator. Maybe committing to something like this will help bring that balance back to your financial life.