The big lesson from the recently ended partial government shutdown for everyone is this: When it comes to personal finance the key questions are “What is the downside?” and “What could go wrong?”
Living on the financial edge is a way of life for many people. Job insecurity has been the story of workers on the factory floor and the office cubicle in recent decades (at least until the current tight labor market).
Senior management has restructured, downsized, right-sized — pick your favorite euphemism — millions of Americans out of jobs while clamping down on wages. Growing numbers of workers have joined the contingent labor market. Their pay is typically inconsistent. They don’t participate in much of the employer-based safety net system.
Being a federal employee has long been considered a secure career. Yet suddenly federal workers weren’t getting paid, through no fault of their own. Worse off are contractors who won’t get their back pay like federal workers.
People are being asked to take on more risk when it comes to making decisions about their retirement investments, health insurance and children’s college education. A classic example is the decline in private sector pensions in favor of 401(k) plans. With traditional pensions, the employer bears the investment risk and commits to a fixed payout of money. With 401(k)s, the employee absorbs the investment risk. Employees must decide how much to invest and where to invest it (within the choices offered in the plan).
Borrowing in modern America is incredibly easy. The merchants of debt are savvy at making it convenient to borrow while masking the total cost of debt.
The recent experience of many unpaid federal workers reinforces the sobering statistic that four in 10 Americans can’t muster $400 in an emergency. People are financially exposed to unexpected shocks — like a government shutdown.
To lower your household’s financial risk, embrace a simple strategy: Save. Don’t get fancy. Don’t worry about stocks, bonds, target date funds and so on (at least until a sizable nest egg is accumulated). We all know how to put money — no matter how small — automatically from our checking account into our savings account. Get rid of your consumer debt. Build up your secure savings in case something bad happens to good people — like federal workers and contractors.
Chris Farrell is senior economics contributor, “Marketplace,” commentator, Minnesota Public Radio.