Many Americans believe that if they spent less time watching television, used public transit instead of their cars and cooked more meals at home that they wouldn’t be in the financial situation that they’re in now. People come to these conclusions from personal finance books and advisors telling them that cutting out daily luxuries, such as coffee, are key to avoiding debt. Although cutting some personal needs from daily life could help, the bigger issue is fixed costs, the items and services that are difficult or impossible to ‘cutback on’. Housing, health care and education costs are only a few of the average American’s fixed costs. These payments cost the average family 75 percent of their discretionary income in the 2000s. Compared to only 50 percent in the 1970s. With the rising costs of medical services and college tuition its no wonder Americans are falling deeper and deeper into debt. Finally, if rising fixed costs weren’t bad enough, the average household income is falling as well. The median income for families in the 33 to 44 age range fell 14 percent between 2001 and 2010. With these two problems on American’s hands, there’s no question why they’re sliding further into debt.
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- Clement Hue Yat Kong on Fixed Costs: The Cause of Debt?
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In the blog, “Fixed Costs: The Cause of Debt?” by Allison Bullen, the writer mentioned the issues American families are facing with their “fixed costs” such as housing, health care and rising educational costs that are impossible to reduce. These costs lead Americans into further debt, and just by cutting down on daily costs by taking public transportations and cooking at home wouldn’t make a very big difference. Based on statistics shown on the blog, housing, health care and college tuition etc. costs an average family 75% of their income in the year 2000, compared to 50% in the 1970s.
Ever since the global financial crisis of 2008, things haven’t really gotten much better. Prices continue to inflate; the average household income is decreasing yearly. The writer mentioned in her blog that the average household income for families between the ages of 33 to 44 fell 14% from 2001 to 2010. With a big cost and low income, the economy has made many families and people desperate. In the current economy, the best possible way for a family to survive is to continue to reduce daily costs as much as possible, and through making smart decisions with anything big such as their “fixed costs”.