And the middle-class families are split right down the line.
20thCentFox/Courtesy Everett CollectionAmericans have a variety of concerns when it comes to money. DMAMBMCMDMEMGPREVIEWZBZBRZDZDRZFZGZQZRZSZTZU
Money. Bills. Income. Health. Enough.
Those are the words Americans with family income of less than $40,000 associate with financial challenges, according to the Federal Reserve’s survey on economic well-being of U.S. households between 2016 and 2017. And these are the words Americans with family income of more than $100,000 associate with financial challenges:
Retirement. Saving. College. Will.
See:The harsh truth about economic inequality, based on thousands of years of evidence
Low-income families are too worried about day-to-day expenses and surviving to think about the long term, financial advisers say, and income inequality keeps these two types of households widely separated. “They need to take care of safety and shelter first,” said Austin Frye, founder and chief executive officer of Frye Financial Center in Aventura, Fla.
It’s not that retirement and having a will aren’t important to them, but they’re focused first on paying rent and having money set aside for healthcare, he said. “We can talk about college and how expensive it is but you can’t expect or even ask people in that bracket to do these secondary things — it’s too expensive.” The Fed’s survey had more than 6,600 completed responses and asked Americans about income and spending, employment, education and student debt and credit usage.
The words for middle-income households, with family income between $40,000 and $100,000:
Health. Money. Paying. Cost. Retirement.
• About 60% of families with income of less than $40,000 say they have financial challenges, compared to less than half of those with more than $100,000.
• 25% of households with income of less than $40,000 cite short-term concerns (rent, food and utilities) as the biggest challenge versus 9% of those with income of $100,000.
• Employment issues are also more of a concern for lower-income families, with 20% worried about jobs compared to 15% for middle and 12% for high income families.
• More than a quarter of Americans with family income of $100,000 or more are worried about retirement, compared to 12% of those with family income below $40,000.
Don’t miss: How both middle-class and wealth American families are sliding inexorably into the red
Their concerns echo Maslow’s Hierarchy of Needs, a theory that suggests there is a five-tier model of needs that motivates humans and their behaviors. The bottom rung is physiological: Air, food and shelter, followed by safety needs (security), love and belongingness, esteem needs (reputation, dignity and achievement) and self-actualization needs (personal potential and self-fulfillment).
“Once the basics of life are secured with higher income, it is much easier to think about retirement, college, wills, etc.,” said Mark Smith, a financial adviser and president at Vision Wealth Planning in Glen Allen, Va.
The federal poverty level in 2017 was $24,600 for a family of four, but families may find themselves in worse condition depending on where they live. To one person, even family income of $100,000 — though nowhere near poverty — could be insufficient if the money doesn’t cover local living expenses, said Eric Dostal, a financial adviser and vice president at Sontag Advisory in New York. “I’m a little jaded because of east coast expenses,” he said.
Other considerations relate to whether family income is based on single or dual earners, whether by choice or due to disability or unemployment.
Also see:Who is middle class? Their income is lower than you might think
Do these concerns mean Americans shouldn’t try to think about long-term situations and goals? It may, but it shouldn’t, advisers said. Many people bank on Social Security,, but its future benefits are not guaranteed and may be insufficient for living expenses in retirement. https://www.marketwatch.com/story/this-is-why-you-shouldnt-count-on-social-security-2017-10-27
One way to save for the future is through an employer-sponsored retirement account, such as 401(k). Not all employers offer these plans. One third of working Americans are putting money in a retirement account, according to U.S. Census Bureau research. “That’s where you have to bite the bullet a little and just, if you can, just do it,” Frye said.
Alessandra Malito is a personal finance reporter based in New York. You can follow her on Twitter @malito_ali.
More From MarketWatch