Why Do You Feel So Poor?

A woman pulls out the pockets of her pants, showing that they're empty.

(Image credit: Getty Images)

By Neale Godfrey, Financial Literacy Expert

published 24 August 2024

Are you actually poor, or is it that you keep hearing that you are poor and now feel like maybe you are?

The Harris Poll did a survey for the Guardian that shows that 56% of Americans believe that we are in a recession (though, actually, gross domestic product (GDP), the measure of the economy, has been growing), 49% believe that the S&P 500 index is down for the year (it’s up more than 16%), 49% believe that unemployment is at a 50-year high (it is at a 50-year low), and 72% think that inflation is increasing (the rate of inflation has eased for four months in a row, to 2.9% in July 2024, from a post-COVID peak of 9% in June 2022).

What can be done about these misconceptions? Well, for starters, people should step away from TikTok. No, we are not worse off than we were during the pandemic. Yes, we have inflation, because if an economy opens up after being shut down, therefore suppressing demand, which is what happened during the pandemic, when it starts to grow, so will prices. This is simple supply-and-demand theory.

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Supply and Demand 101

This theory, in microeconomics describes how the number of things available for sale (supply) is juxtaposed with the number of things people want to buy (demand). In the perfect world, suppliers would make only the things people want, but we don’t have a perfect world.

During the pandemic, people weren’t eating out in restaurants and stopped buying certain things, so the demand for those goods shrank. Lots of stores were stuck with merchandise they couldn’t sell. Manufacturers cut back on making those goods at that point. After the pandemic was over, the floodgates opened, and people rushed to buy the things that were no longer widely available.

If demand increases, and the supply can’t keep up with the growing demand, there will be a shortage, and people are willing to pay more for things and homes, so prices will increase. This price increase is known as inflation. Conversely, if demand decreases, and supply remains the same, there will be a surplus, and prices will go down, known as deflation.

Why the economics lesson? Because what really happened in the last few years is that we avoided a recession as the economy opened at a time when goods were in such short supply that prices could have gone through the roof — but they didn’t.

That said, I’m not in agreement with the Federal Reserve’s inflation target of 2%, but I’m sure that Chairman Jerome Powell has lost my card and can’t call for my opinion. I feel that unrealistic expectations were set for a growing economy, and here we are. People’s expectations have not been met.

Pew Research reported that about a quarter of Americans rate the country’s economic conditions as excellent or good, while 36% say they are poor. Among Democrats who were polled, 58% feel economic conditions are good. Only 19% of Republicans give the thumbs-up for a positive economy. That divide among party lines, considering the current president is a Democrat, is not surprising. However, nearly 40% of the country inaccurately believes economic conditions are poor.

I feel your pain — sort of

There is no question that prices have risen, and not just because of supply and demand. OPEC, Russia and other oil producers are keeping oil supplies down so they can prop up prices. We also are paying more for certain foods and cars and homes — that is all true. In order to slow the economy’s growth, the Fed raised interest rates with the hopes that things like home mortgage costs would dissuade buyers from buying homes at inflated prices and thus start to bring down inflation.

Pent-up demand has thwarted a slowdown, though, and people are rightfully grumbling about home prices and mortgage rates, even though the ultralow mortgage rates before the pandemic were unrealistic.

You own your 'poverty'

It’s time for you to take responsibility for your wealth or lack thereof. I’m not talking to those of you who have suffered from a financial catastrophe. I’m talking to those of you who choose to be strapped financially. Yes … choose to cry poverty.

Why is this a choice? Because the majority of Americans have chosen to live beyond their means. A 2023 survey conducted by Payroll.com found that 78% of Americans live paycheck to paycheck, and many had only a measly amount of money put away for a rainy day. This means that most people struggle to pay their monthly expenses. The biggest offenders are Baby Boomers (49%). They have not saved enough and have lived beyond their means, and if a disaster strikes, they can’t cope financially.

How to avoid an emergency bringing you to your knees

A recent Bankrate poll found that nearly 6 in 10 adults are uncomfortable with their level of emergency savings. Most of those polled said that they would feel comfortable with about three months of expenses saved, but only 44% actually have that. The shocker is that 27% of U.S. adults have no emergency savings at all. This means that they would have to borrow money to cover an emergency.

Will emergencies happen to you? Over the past five years, the U.S. has experienced an average of $120 billion in climate disasters alone, according to NOAA’s National Centers for Environmental Information. Illness, job loss, the car gets hit, the roof leaks — how can you protect yourself?

You can:

Create a real set of goals, or Your Wish List of Life. These should include: Where do you want to live (how much will it cost)? Do you need a car (how much will it cost)? Do you want to go to college? Each one of your goals will carry a price tag. When you add these up, you now need to compare them to the money you earn. This is where you see if you can afford all of your goals. If you are falling short on income to cover these, then you have two choices: earn more or spend less. Living beyond your means makes you feel poor.
Create a budget that matches your new goals and stick to that budget.
Build up an emergency fund with at least three months of salary. It’s not easy to do this, but emergencies will happen, and this will help you avoid the panic when they do.

I also located a new insurance company called Recoop Disaster Insurance that describes itself as the first and only multiperil disaster coverage that will quickly pay you a lump-sum benefit of up to $25,000 after a disaster. I found this interesting, because most homes are underinsured by over $50,000.

Steve Gaer, president of Recoop, told me, “Most people think that homeowners insurance will cover everything if a disaster hits … wrong. People miss the fine print and loopholes, and on average they may not get their claims, minus their deductibles, for 15 to 30 days.”

I asked Gaer why he thinks a company like Recoop is important. “When I was mayor of West Des Moines, Iowa,” he said, “I saw people panicked and reaching out for support just to find safe shelter and food when a disaster struck. They didn’t have enough emergency funds to cover their immediate needs.”

Gaer went on to explain, “Recoop works to cover the gaps in home and renters insurance policies by giving people funds quickly in the wake of a disaster.”

Happiness is an inside job

My overall point is that many of us are only as poor as we feel. It’s time to take charge of your financial life. Emergencies and disasters will happen, and they cost money. If you are living above your means, you are not a victim to that — you have choices. So, change your choices and reduce your lifestyle and expenses, and you will sleep better at night, because if you don’t control your money life, it will control you.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Neale Godfrey is a New York Times No. 1 bestselling author of 27 books that empower families (and their kids and grandkids) to take charge of their financial lives. Godfrey started her journey with The Chase Manhattan Bank, joining as one of the first female executives, and later became president of The First Women's Bank and founder of The First Children's Bank. Neale pioneered the topic of "kids and money," which took off after her 13 appearances on The Oprah Winfrey Show.