The hole in the bucket: Americans obsessed over personal finance during the last forty years as never before. So how come so many of us wound up broke? Here's the little-known story.

• Author: Longman, Phillip
• Position: THE FUTURE OF SUCCESS

Never before in history has the great American middle class obsessed so much over financial planning as during the last forty years or so. In the 1970s, this obsession fueled the growth of hot new magazines like Money and TV shows like Louis Rukeyser's Wall Street Week. By the 1980s, it had led to the creation of personal finance sections in almost every newspaper, and to myriad radio talk shows counseling Americans on what mutual funds to buy, how much they should put into new savings vehicles like Individual Retirement Accounts or Keoghs, and how to manage their new 401(k) plans.

In the 1990s, millions of Americans learned the accounting program Quicken, avidly followed the tips offered by dim Cramer and the Motley Fool, and employed legions of tax and financial advisers and online tools to help them figure out whether they should convert to a Roth IRA and how they should take advantage of the new "529" college savings accounts. In the last decade, millions more have turned to outlets like HGTV to learn the ins and outs of flipping houses, consolidating credit card debt with a home equity loan, and combining a medical savings account with a high-deductible insurance plan.

Who in the 1950s ever worried so much about managing money?

And yet here we are today. According to a recent study by the Employee Benefits Research Institute, fully 44 percent of Baby Boomers and Gen-Xers lack the savings and pension coverage needed to meet basic retirement-age expenses, even assuming no future cuts in Social Security or Medicare, employer-provided benefits, or home prices. Most Americans approaching retirement age don't have a 401(k) or other retirement account. Among the minority who do, the median balance in 2009 was just $69,127. Meanwhile, the college students who graduated in 2011 started off their adult lives encumbered by an average $25,000 in student loans.

What went wrong? We can all come up with scapegoats, of course. It's common to hear, for example, that America became a nation of impulse shoppers and spendthrifts over the last generation. But like a lot of conventional wisdom, this consensus isn't just wrong, it's mean. The average American household actually spends significantly less on clothes, food, appliances, and household furnishings than did its counterpart of a generation ago. There is, however, a deeper story to tell--one that is still largely unacknowledged in our political debates.

As far back as the 1970s, many thoughtful observers could see the basic outlines of the middle-class insolvency crisis we are facing today. Some were even able to predict accurately, decades in advance, that it would all start coming to a head around the end of the 2000s. The big new trend they focused on was changing demography. By the end of the '70s, birth rates were falling precipitously, meaning that the rapid population growth that had come with the arrival of the Baby Boom generation in the 1950s was over. At the same time, Americans were living longer and retiring earlier, and the poverty rate among children was starting to rise sharply.

This sea change had all sorts of implications. But one of the most obvious--to, among others, thoughtful liberals like Joseph Califano, a member of President Carter's cabinet, and Senator Patrick Moynihan--was the long-term challenge the shift presented to the financing of Social Security and private pension plans. At the time, Social Security was paying out benefits to retirees that exceeded the value of their contributions by between $250,000 and $300,000 in today's money, as Sylvester Schieber, former chairman of the Social Security Advisory Board, recounts in his recent book, The Predictable Surprise. Yet while these windfalls had set expectations among Americans of all ages about what constituted a minimally comfortable...