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A secure retirement…no college debt…a home without a mortgage…a huge credit card line and zero balance… Do any of these notions suggest “financial independence” to you?
The concept means different things to different people. To the more literal minded, it embodies the notion of having enough investments and assets to live off the returns without being part of the paycheck crowd. To the more pragmatic, it can simply mean the ability to pay the bills and maintain a consistent savings and retirement plan. (Related: Financial security and the wellness wheel)
What both visions — and all the visions in-between — tend to overlook is the interdependence it takes to get to independence.
Solid finances are put together through a combination of budgets, savings, and investments. But the success of those endeavors for the individual comes through the cooperation and consideration of family, friends, business partners, and employers.
For example:
- The family budget. Whether it covers a couple or a large brood, it only works if everyone cooperates, sticks to spending levels, and avoids amassing debt.
- Savings plans need that kind of cooperation too, as well as availability and accessibility through institutions and employers.
- Investments? Many people lean on others there as well, whether it’s friends and family or business connections like a financial professional or wealth manager.
And this doesn’t take into account the many little things people do for one another to help money situations, from car-pooling to co-op groceries to shared vacation homes.
Unfortunately, there is not enough of this type of cooperation. Consumer surveys regularly indicate that a good portion of people don’t have a budget and don’t keep track of their spending. And not all employers offer savings plans and among those that do, only a little more than half of workers, on average, participate.
No wonder, then, that a significant portion of Americans don’t feel close to a financially independent vision.
Indeed, in a recent MassMutual survey, only half of Americans felt optimistic about their financial situation. And a decisive majority worry about the impact recent and looming changes in the financial world will have on their day-to-day finances — particularly inflation (86 percent) and recession (45 percent).
Additionally:
- 42 percent of Americans believe inflation will have a negative impact on their finances.
- Many Americans are reducing spending on dining out (63 percent), clothing (47 percent), and "self-care" activities such as massages or hair salons (41 percent) due to inflation.
But while the survey pointed up concerns about financial security, it also pointed up the inter-connectedness of financial success: 62 percent of Americans agree that their parents did a good job setting them up for financial success.
Among Americans encouraged to be financially independent by their parents, 44 percent said this encouragement came from both their mother and father (29 percent said only their father, 27 percent said only their mother).
American parents have helped or are planning to help their children learn how to manage personal finances by talking to them about:
- Paying bills on time (56 percent).
- Noting the importance of budgeting and saving (55 percent).
- Encouraging financial independence (47 percent).
These are same most common lessons today's parents received from their parents. And such lessons can help people get on a path to financial security. And MassMutual believes more people can get on that path, provided they remember that independence is a group effort.
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This article was originally published in June 2017. It has been updated.
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