Vishesh Raisinghani
·4 min read
Jennifer, 46, is a prime example of how earning more isn’t the only ingredient needed for financial freedom.
As a commercial loan closer, the Dallas, Texas, resident earned $130,000 last year. In theory, that should put her on the fast-track to early retirement. Instead, she’s swimming in debt trying to keep her two adult children and their kids afloat.
Don't miss
Anything can happen in 2024. Try these 5 easy money hacks to help you make and save thousands of dollars in the new year (they will only take seconds)
‘The biggest crash in history': Robert Kiyosaki warns that millions of 401(k)s and IRAs will be 'toast' — here's what he likes for protection
Commercial real estate has beaten the stock market for 25 years — but only the super rich could buy in. Here's how even ordinary investors can become the landlord of Walmart, Whole Foods or Kroger
“This is going to make me vomit,” said Caleb Hammer, as he sifted through her credit card statements during an episode of his YouTube show, Financial Audit.
Jennifer’s finances highlight multiple trends emerging across the American economy, the biggest of which is multigenerational homes.
Multigenerational debt
The rising cost of living, coupled with low incomes and a spike in unemployment, is putting the squeeze on many American families.
Home prices have surged in recent years and, in 2023, only 16% of listed properties could be considered “affordable” according to real estate platform Redfin.
Wages haven’t kept up with this pace either, as the year-over-year wage growth rate sits at 4.5%, according to the Economic Policy Institute.
Higher home prices and lower wages have pushed more families to consider multigenerational living. Roughly 14% of homebuyers in 2022 were multigenerational families living together, according to the National Association of Realtors (NAR). Minority homebuyers were even more likely to live in multigenerational houses, an increase of 19%.
From 1971 to 2021, the number of Americans living in multigenerational households has quadrupled, according to the Pew Research Center.
Now, Jennifer is living this statistic. She was a homeowner, but ended up selling the unit due to personal reasons. She was left owning a balance on her mortgage, which she said she paid for with credit cards.
Now she’s renting a two-bedroom condo at $2,209 a month. However, she shares the unit with her two sons, aged 25 and 28 respectively, along with their children and partners. Altogether, the unit is shared by seven people.
Her sons contribute $700 each for rent, but are both currently unemployed. Effectively, the entire family is reliant on Jennifer’s income, which results in monthly grocery bills that total as high as $2,898.
“I’ve never seen anything like that in my life,” Hammer told her.
To make matters worse, Jennifer’s spending is fueled by credit cards and buy-now-pay-later services. Sometimes, she uses a card to pay off her buy-now-pay-later balances. Altogether, she has “almost $60,000 of bad debt,” Hammer calculated.
This mountain of debt doesn’t seem to be slowing her down, though. Jennifer booked a cruise for December. “Whatever you’re spending on isn’t as important as you being able to retire,” Hammer told her.
However, Hammer said an overhaul of her spending habits and family living situation could improve her financial situation substantially.
Read more: Here's how you can invest in rental properties without the responsibility of being a landlord
Emptying the nest
Jennifer and Hammer both agreed that it’s time for her adult sons to leave. Despite the fact that they struggle with employment and one of them is in the midst of divorce, they’re old enough to take care of themselves. “[They] could and should figure it out,” Hammer said.
According to Pew research, 53% of adult children living with their parents say the arrangement helps them financially, while only 29% of parents in these situations say the same.
Jennifer could significantly reduce her monthly expenses or debt burden if her sons seek out employment and move out as soon as they can. Meanwhile, Hammer advised her to swear off credit cards completely. “You’re not a credit card person,” he said.
These steps should allow her to start saving towards retirement — which is rapidly approaching. Given her robust income, it’s not too late for Jennifer to plan for (and enjoy) financial freedom.
What to read next
Suze Orman: If you think you're ready for retirement, think again — 3 money moves to avoid being poor when you're retired
Car insurance rates have spiked in the US to a stunning $2,150/year — but you can be smarter than that. Here's how you can save yourself as much as $820 annually in minutes (it's 100% free)
Can I collect my dead spouse's Social Security and my own at the same time? Here are 5 secrets of 'survivors benefits' you need to know
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
