Real Families, Real Finances

There is a popular saying in my family: “You can never tell what’s going on in someone’s relationship or her pocketbook.” This expression is a warning against looking at anyone with envy or assuming you know specific details about the finances or relationships of a friend, neighbor or coworker. In a nutshell, it says, we shouldn’t waste time trying to keep up with the Joneses because we don’t know squat about what’s really going on with the Joneses.
Perhaps, however, there is some use in trying to understand the Jones family’s financial health as a means to assess your own family’s financial health. Could learning more about those infamous Joneses help our own finances? Carolina Parent decided to look closer at the pocketbooks and piggybanks of North Carolina families. To learn more about the bottom line when it comes to our collective and individual financial health. The news about how we — you, me and the Joneses — are doing is mixed.

We’re making money.
In some ways, we North Carolinians are doing very well. For example, most of us are working hard. According to the most recent census data, over the last six months the unemployment averages locally are 3.5 percent (Raleigh-Cary) and 3.8 percent (Durham). These are far below the national average of 4.6 percent to 4.8 percent. Not surprisingly, the leisure and hospitality, educational and health services, financial and informational sectors are keeping our jobless rates low and our local economy fairly strong.
Many of these professions pay well. Locally, people working in the legal or management professions earn the highest salaries on average — in the mid to high $80,000s. Those in the food preparation and food serving industry make the least: approximately $18,000. These averages encompass the full range of individuals within those professions from the lowest paid clerk or table clearer to the highest paid attorney or chef. Other local professional categories that average $60,000 or more: business and financial, computer and mathematical, architecture and engineering, and healthcare practitioners. The median family income in the Triangle is approximately $47,000.
The value of our assets may also be helping local families. Although the Triangle real estate market isn’t as inflated as parts of New York and California, the average Raleigh home now is valued at approximately $222,000, a full $49,000 more than the national average.

We’re saving money.
On an individual level, we have some strengths — and some considerable weaknesses. Lesley Day, CLU, CFP, is a financial adviser Northwestern Mutual Financial Network in Raleigh. She’s impressed with the number of local families she advises who have started savings programs for their retirement through their employers. Although 401(k) and 403(b) plans weren’t commonplace until the job turmoil, massive layoffs and pension erosion of the 1980s, Day’s clientele (primarily couples and parents in their 30s) have embraced these savings vehicles.
“Our age bracket has been ingrained with this [saving technique]. The clients that come through my office are doing well with this,” says Day.
Even so, there’s room for improvement. Parents can save more and they can save earlier.

But we’re not saving enough.
According to financial advisor Bill Bryant, CFP, CRPS, with Scott & Stringfellow in Raleigh, “The big issue with any savings plan, especially with younger families, they aren’t even starting to think about retirement and they’re missing some prime compounding years. They need to start earlier.”
This also holds true with saving for our children’s higher educations. Day says that many families open 529 accounts (state sponsored college savings programs) and either under-fund them or misunderstand how they can best be used.
“Some people started 529 plans and have a little here, a little there, but they haven’t matched their goals to what they really need. A lot of people have a false sense of security. … It’s not that people don’t care. They either already think they’ve done enough, or they are scared of what the outcome is going to be. What it’s going to take to get to their goals. It’s not that scary, really. I feel empowered knowing, having control over my outcomes,” says Day.
Bryant worries that too many young parents invest in 529 plans when they aren’t saving for their own retirement. “529 plans — which to some extent are tax-advantaged and North Carolina has amended the law and in some cases you may get a tax deduction for contribution — they are a good vehicle. … The bigger problem, in my opinion, with the 529 plan/saving for college [desire] is it gets a lot of press. But people are doing this at the detriment of their own retirement. Folks should look to see if they can afford to save for retirement and college.” If they can’t, Bryant believes parents should focus first on their retirement and then plan for college savings.
Day worries, too, that parents are forgetting to put money away for emergencies. Job loss, unexpected major car repairs, a furnace on the fritz and health-care expenses are enough to send many families from a place of financial solvency to a place of debt or worse. She encourages her clients to plan for these types of unforeseen financial obstacles.

And we carry too much debt.
Credit card debt is another area of concern. “The credit card company compounds your interest [in debt] the way you could compound your interest [in savings]. You need a plan to pay it off. If all you do is make the minimum payments, then you are probably paying almost triple your original balance,” says Bryant.
For many families, the beginning of financial security or even financial solvency is cutting up those cards. Day recommends that families relying on their cards pay closer attention to living truly within their means and that they create a plan to eliminate that debt.
“They have to pay those credit card minimums on time to maintain their credit score. And they have to figure out a realistic consumer debt reduction plan for their family in conjunction with building liquidity,” says Day.
She cautions against paying off all your credit card debt at the expense of having nothing invested in savings. “They shouldn’t be zero debt and have nothing in savings, because if something happens they will pull out that credit card again. I like to have them build structure so that they don’t go back to using the credit cards,” says Day.

And we’re living way beyond our means.
Big houses, fancy cars, expensive schools, designer clothing, extravagant vacations. Families in the Triangle are no different than families all across America. We want it all. But Day warns her clients about living beyond their means.
“I see people in too large houses that they can’t afford,” she says. “They have no wiggle room. They have to make that mortgage payment. When you talk about wealth accumulation, they have two choices: move or make more money.”
Bryant, too, cautions against the “Snob Appeal” principle. “There is a whole economic premise based on this [concept],” he says. “Back in the 80s, you take the alligator off the Izod and you have the exact same shirt, but you can’t sell it for as much. This is advertising at work and people are buying in. That, more than anything, kills folks. Looking at what you need versus what you have to have. There is limited value in buying the same product for more money just because it has a name on it,” says Bryant.
It’s a mistake to make assumptions about the kinds of people who are saving and the kinds of people who are spending. In the end, it’s not about salary levels or careers.
“I actually had two teachers who came in and saved more money than two physicians,” says Day. “It’s not about your income it’s about your ability to save and live below your means,” says Day.

Still, we can build strong financial futures.
Even though extravagant spending and credit card debt sometimes feels beyond our control, Day believes that it’s neither too late nor too painful for us to change patterns and reach a place of healthy financial balance. Families really can get ahead without extraordinary effort, she says.
She recommends starting with the knowledge of exactly how much you make and where you spend your money.
“Understand where your money goes. Track what you are saving and the fixed bills that go out every month,” says Day.
After you’ve determined exactly how much you’re spending in each category, you can look for creative ways to trim the budget. Whether that means eating more meals at home, renting DVDs instead of going to the theater, car-pooling or telecommuting instead of driving to work solo, small changes are viable strategies for painless budget reduction.
For families at the lower end of the spectrum, Day’s advice is based on her own experience starting a new business and attempting to make ends meet. She put herself on a strict budget so that she could create a rainy-day spending fund and pay into a retirement fund.
“Even if I felt I couldn’t afford it, I started something for retirement and something for savings. The hardest part was getting started … with that first $25. Even if you don’t make a lot of money but you’re structured, you know what goes in and what goes out, you can create something,” says Day. Bryant uses the example set by his parents as a benchmark for his own family. “From a personal standpoint,” he says, “I look at where my wife and I are versus where our parents were at our age. … Put this in perspective when you are thinking about something else to buy. Do you really need a big screen plasma TV?”

To develop financial security, families need to assess what it would take for them to reach their goals. But first they have to have a clear idea of what those goals are. A will or estate plan, a clear head about your family’s finances, a rainy-day fund, a savings fund for retirement and education for your kids, and the ability to live within your means will lead to the best outcome of all: your family’s sound financial health.

Sidebar: Some Surprising Statistics About Our State
North Carolina Rural Urban
Median Household Income 2000 $39,184
White Median Household Income $42,530
Black Median Household Income $27,845
American Indian Median Household Income $30,390
Asian Median Household Income $49,497
Hispanic Median Household Income $32,353
Population in Poverty 2000 958,667 564,477 394,190
Poverty Rate 2000 12.3% 14.1% 10.3%
White Poverty Rate 8.4% 9.8% 7.0%
Black Poverty Rate 22.9% 27.0% 19.0%
American Indian Poverty Rate 21.0% 22.3% 15.4%
Asian Poverty Rate 10.1% 12.1% 9.5%
Hispanic Poverty Rate 25.2% 28.3% 22.7%
Child Poverty Rate 15.7% 18.5% 12.8%
Elderly Poverty Rate 13.2% 15.4% 10.3%
Source: N.C. Rural Economic Development Center, updated 2/1/2006, data from 2000