How does the middle class afford its lifestyle?

[carolinayellowdog]

Hey,

One lament frequently heard around here is the difficulty in getting the US middle class to vote for its own interests rather than those of the superrich. All kinds of explanations have been put forth, but the psychological/political identification of the middle class with the rich raises another issue that has bothered me for a long time. Sorry to put it in such personal terms, but here goes. I make slightly more than the median *family* income and live alone. That should make for a very solidly middle class lifestyle. But the median house price is over $120,000 and though I own a house and a weekend cabin both are tiny and old and their combined value is about $60,000. The average American family has a car payment and the median car price is over $20,000. I drive an old clunker paid for years ago. The average American family spends close to a thousand dollars on Christmas presents, according to reports I hear in the news; $300 is a lot for me to spend at that time of year. Average Americans are alleged to spend a thousand a year on clothes; again I'm lucky to hit $300. Other things that make my lifestyle decidedly *lower* middle class: can't afford real vacations, just driving trips to visit friends; never spend money on movies or concerts etc. and rarely buy books; have no electronic gadgetry to speak of; eat out a time or two per week but never more than $10. I don't spend money on drugs or tobacco-- and never more than $7-8 per week on alcohol. But somehow just keeping the bills paid eats up my income. Meanwhile, other people with $40-50K *family* incomes live in $100K+ houses and drive $20K+ cars and buy tons of Christmas presents and lots of new clothes and go to the movies and eat out and raise kids and send them to college, and I'm totally perplexed as to how they manage to do it. No wonder they don't identify politically with poorer people--they live like the rich! And all I can come up with to explain it is that I have no debts and am constantly hearing about how high average credit card debt is.

Are we really a nation of consumers living beyond our means? And if so, what does this say about the economic future of the country? Is the time coming when the middle class won't be able to afford their SUVs and 4 bedroom ranchers etc. etc.? Is there some mathematical aspect of all these medians that is eluding me?

CYD

[GOPisEvil]

1. Overextension of credit...

...which is why the "reform" of bankruptcy laws is so important.

I know people whose whole lives is a huge house of cards. If there is a loss of income, these people would be screwed, totally.

[NewYorkerfromMass]

24. yep...leveraged out the wazooo

we are teetering precipitously at the edge.

[David Zephyr]

95. Overextension of Credit. The Correct Answer.

And we are all about to pay the piper.

[ixion]

2. I think many are living beyond their means...

it's all on borrowed money. the reason they pay out so much per month is all the finance charges. They make no headway on the principle, just paying on the interest. It's an easy road to walk down by mistake. Credit card companies gladly extend credit (at 30%) and before you know it, you're nose deep in credit card debt... tac a house and a car on, and there you go: middle class 'merika.

[molly]

3. Is there a chart somewhere that has

the income ranges for the classes? I have no idea what the median family income is. But, a lot of people live beyond their means - credit card, loans, etc, etc. There is a funny TV ad about that. You sound like a "cash'n'carry" type of person which is ideal.

[tedoll78]

7. !!!!!

"I'm up to my eyeballs in debt!"

"Please help me!"

LOL!

The first time I saw that commercial, I nearly fell off the couch laughing. The actor they got for that ad was perfect.. he had that synthetic "everything will be alright" smile plastered on his face.

hehe..

[jmcgowanjm]

14. there is no middleclass in the US-destruction began in '73

www.lcurve.org-income distribution in the US.

[carolinayellowdog]

27. Here are state medians as of most recent stats

http://www.census.gov/hhes/income/income01/statemhi.html

still looking for national quintiles

on edit-- wow, I knew that VA was richer than NC by a long shot but had no idea it ranked higher than NY and PA

[molly]

32. Thanks!

some surprises in state rankings - Alaska had the highest? WOW!

[Art_from_Ark]

50. Alaska-- low population, high proportion of roughnecks

who make big bucks on the North Slope, and an annual "share the oil wealth" payment made to qualified residents.

[NewYorkerfromMass]

75. also very expensive to live there

what with the extreme energy demands in the winter, and lots of mosquito repellant in the summer. :)

[Corgigal]

4. Hey CYD

I hear what you're saying and I have been thinking the same way. I own my house and our cars but like you, I have to make sure we get through the month. I have a friend, retired and her hubby who works at chain fast food place who have a large home and an expensive imported car.
I just think some people are ants and some are grasshoppers and if the shit hits the fan here in the ole USA, you and I will be thankful we are the way we are.
I also live in the Carolinas by the way.

[Skittles]

5. I see extreme sense of entitlement all around me

people think they "need" things when in truth they just WANT THEM. And if they have to go into debt to get them, that's A-OK. I absolutely cannot understand it.

[Heddi]

56. Yep. My Sister-In Law is like that

She and her husband are *SO* middle class, but she really can't stand it. Drives a $40k car and a $40k SUV, lives in a $350k house, has a $10k boat...but everything they "own" isn't theirs...it belongs to the banks and the finance companies and the mortgage companies.

She looks down her nose at my husband (her brother) and I because we're 30 and 27 respectively, have no "great" career. Drive a 5 yr old car (which we paid cash for), live in an apartment, and live on $30k a year between the both of us.

HOWEVER--the only debt *we* have is about $100 or so on our credit cards. We've got about $20k in savings, and we literally own everything we own. Nothing is financed---oh wait. I do have some financial aid I'm accruing now that I'm in school---but that's it.

To her, we're trash. To us, we're smart. We could outright buy a new car right now today with cash. SHe can't do that. If she lost her job, or if her husband lost HIS job, they'd be in a world of shit b/c they can't live without those paychecks. In any way.

We've made permanent on easy go lifestyles. I just don't understand consumerism.

I agree with the original poster when she says "people spend hundreds of dollars on Christmas..."---when I wasn't in school and working, hubby and I made close to $45k/yr before taxes. That's not a bad salary (to me anyways), and we NEVER spent ANYTHING close to what our 'income range' should be spending on clothing, entertainment, travel, housing, cars---NOT EVEN CLOSE.

But our society is driven by consuemerism.

Why do you think that they release those reports? To make people who DON"T spend that money feel like they're out of the "mainstream". Maybe they ARE being too frugal during Christmas Time. Maybe they SHOULD buy a car that's $7,000 more than the one they want...just for "show" to others that "Yes, I Can afford these things, even if I can't" , or even if they're happy not spending more.

We live in a society of Peer Pressure. We're encouraged to do things not because we want to, but because other people are doing them. Maybe after we're doing it long enough we'll like it, but if we don't, so what? We're still buying the products and extending our credit and accruing interest.....what's it matter if we can TOTALLY avoid it by using common sense when spending money....??? :eyes:

[Stanchetalarooni]

6. Take a $ bill out of your wallet.

Look for the pyramid.
Think pyramid scheme.
Think crash boom when you can't find any suckers bigger than you.

[jmcgowanjm]

8. REFI's-the only thing floating USAEconomy

"And all I can come up with to explain it is
that I have no debts."

US buys from China, China sells to US, US pays in
Fiat $'s, China buys USTreasuries, repeat cycle.
US wants China to up value of Renminbi's(China
says no).

As my Grandad said, "The world is made up of 80%
Debtors and 20% Creditors, always has been.

[On the Road]

9. Well, One Reason Everyone Seems to Live Better Than Their Means

is that those who do stand out. Fiscally conservative people like you never make others stop and think "I'm living better than my means."

[ProfessorGAC]

34. Good Point

I'm not the millionaire next door or anything, but i'll bet my neighbors don't know that i make >6 times the median income of our town and 5.5x the median income of the country. (Just the one income.)

So, i wouldn't stand out as someone who lives beneath my means, because nobody else knows exactly what i make. But, people who work in a power plant driving a $30k truck, and a $40k SUV, in a brand new $300k home standout as someone doing VERY well for themselves. Problem is, they only make $80k/year with overtime. So, folks like the original poster wonder how they can do it, because the consumption is conspicuous.

Mine sure isn't. Unless you know me and have been in my basement, you wouldn't know i've got 5 keyboards, 8 guitars, 2 basses, 3 amps, and 3 sets of golf clubs. So my consumption is better hidden, i guess.

They just see the relatively small home, the 2 1995 vehicles. No conspicuous consumption.
The Professor

[SharonAnn]

57. Sort of like Warren Buffet

He's not into conspicuous consumption either.

[thom1102]

10. It's like that commercial

Where the guy is talking about the great life that he leads, belonging to the country club, owning expensive cars, huge house, etc. "How do I do it? I'm in debt up to my eyeballs! I can't even afford to make my interest payments." All with a huge smile on his face, as he rides off on his ride on mower.

[Starpass]

11. Here's the real horror story hidden in it all

You say something in your post about our complaint of them "voting against their own interests". The monster is waiting right below the surface for them and they either don't know it's there or are afraid to deal with reality. What I mean is this: Yes, of course, all this "stuff" is on credit--HOWEVER, these same morons are voting for people who want to kill things like ss or medicare or let companies rape pension funds, etc. because these sad morons think that by the time they retire (company doesn't want them anymore, too old) they will have saved and invested mega-millions to live on!!! They can't even pay the goddamn daily bills without stretching every penny!!! Have they made their first contribution to the savings program that's going to net them their future millions??? In other words they are trying to live like people who have a lot more income and stupidly feel they will be able to survive and keep their toys in later years like the more affulent can. A lot of kids are going to have the old man and the old lady on their doorsteps....broke. (and if they are counting on an inheritance..hahaha, forgetaboutit)

[Heddi]

59. Yup! And add to that the rapidly aging population

and the fact that people are living longer than they used to----you're going to have alot of pissed off GenX'ers in a few years because all their moms and dads who were so "consumer-driven" in the 90's and 00's are going to be at their doorstep needing a place to stay, needing medical coverage, needing hospitalization, because they weren't frugal with the money when it was coming in, and expected it to be there all along.

Hubby and I have about $20k in savings. Maybe one day we'll buy a house (we rent), maybe one day we'll buy a new car. Maybe one day we won't have spent it and have $80k sitting there just accumulating for our old age.

I'm 27 and he's 30 and we're the only people that we know of our age group that has ANY kind of a saving.

We don't bring in big bucks at ALL---$30k before taxes is our household income. But we do with a $700/mo apt instead of an $1100/mo one in a cooler part of town. WE do without a new car and are happy with the one we have. All the money that we COULD spend on stupid shit goes in for our future. I never want to be a burden on anyone.

My mom is 47 and has no savings. NOne at all. She stretches that paychek to the last penny---how can she save? How can she contribute to a non-existent retirement fund?

I'm an only child and the burden is going to fall on my husband and I when/if/should my mother lose her job, or reach an age where she can no longer work. And that hurts me on many, many levels.

Everyone SHOULD have a saftey net. HOwever there are far too many people that are too stupid to plan early, and far more people that are too poor to do anything at any time in their lives.

[West Coast Democrat]

61. Wow! You should be proud about your savings account!

$20K is a large savings account, at any age, and you're still young. My boyfriend and I are in our early 30s, and we do put aside money for savings (separate from 401k) every month, but it doesn't come close to $20K yet. We're saving to buy a house in the next few years. We end up paying too much for rent, but that's my fault, because I got so tired of living in an apartment without a garden, and so we live in a house with a nice yard. We have a newer, used car because we got tired of costly repairs on the 12yr old car.

[Heddi]

64. we are proud

It's there should he lose his job and we need living expenses, for medical, and hopefully for a house, or something like that....

My Father In Law is Mr. Investment and keeps telling us how much $$ we're losing by renting, yar yar yar---I don't care---seriously. I have a lifestyle right now where if we wanted to pack up and move, we could, with no strings attached. We're losing money, but we're gaining a happier life, saving on homeowners insurance, lawn maintenance, furnishing an ENTIRE house (as opposed to a 1br apartment), electricity for an ENTIRE house, water for an ENTIRE house....all that stuff adds up.

I know homes build equity and that shit, but it can be cheap living in apartments, especially if you're not ready to have to fix stuff yourself....so nice that maintenance is on call 24-hours a day ha ha.

As for savings---save up little by little. We have a jar for coins and we just put coins in there. Usually dig out the silver for parking meters and stuff, but pennies add up---take it to a Coinstar or a bank and cash it in once or twice a year and you've got a nice little chunk of change. Put it immediately in the bank. It adds up :)

Sounds like you're in the right path, though. So what if you pay more in rent---are you happier? Maybe that could be $1000 more in savings a year, but if you're happy where you live, then so be it. We just moved into an apt that was $60 more a month than we were paying, but it has a fireplace and a HUGE deck---well worth it for me :)

[West Coast Democrat]

66. My Boyfriend's Dad keeps bothering us about renting also

But the way I see it, if we'd have bought a house a couple of years ago, or if we were to buy one right now, we'd be paying WAY TOO MUCH! So, the rates are low right now, but the prices are even higher to make up for it. I believe the real estate bubble will break soon.

I agree with you about the benefits of renting in terms of no maintenance costs. In the past couple of years, my landlord has had to paint the exterior, make roof repairs, replace the water heater, repair and basement leak and all the carpeting, etc. etc. etc. What a headache, and what a lot of cost! And I didn't have to worry about it!

[sable302]

65. You do not know how good

it is to finally hear about somebody like my wife and I.

She is 26 and I am 29 and we also have zero debt, a savings acct like yours, we own our home, we rent an apartment in another city, we drive an old car we got for $100, and we have never had a combined income of over $30,000 in six years of marriage.

Oh, and we have a two year old child, we put ourselves through college and grad school (no debt), and we make our yearly contributions to our IRAs, cause God knows ss won't be around forever (the way things are going).

Hey, I think we live the good life, and we are loving it.

[Heddi]

79. it is the good life

The only bills we have are cable and electricity. H2O paid for by the apartment co as is sewage.

When our credit card bills come in, if they're over $200 COMBINED we're wondering "What did we spend all that money on????"

If we can't pay for it in a month or less, we don't get it.

We don't tap into savings (well, we did when we went to Vegas, but the day we came back we put it all back in from the paycheck).

People are unwilling to sacrifice these days---and I don't mean "sacrifice" in the terms of going without dinner 2 nights a week to save cash---I mean, we pay $35 a month for cable. Next month, our special is running out and it'll be $55 a month. The cable is going to go. To some people, that's a "sacrifice"--to me, that's $35 more a month we can either save or use for other things.

"Sacrifice" to some people is buying store-brand foods instead of $5-more-a-can Del Monte.

"Sacrifice" to some people is not eating lunch out every day---I see people I go to school with go to lunch every day inbetween classes, plunk down $10 on a sandwich and a coke---that's $50 a week---$200 a month in eating out costs. We don't even spend $200 a month on GROCERIES....

It's all about priorities. Many people choose to live in the here and now and don't think about their spending in terms of the future. Mr. Heddi and I do live for today, but we're constantly thinking about tomorrow.

I grew up very poor---below the poverty level. My mom worked 3 jobs nearly my entire life just to make ends meet for her and her one child. I will NEVER live like that again, and in addition to making sure I don't live like that NOW (By living frugally and not living beyond our means), I'm also ensuring that I'll never live like that AGAIN (by saving for the future).

Sweating over bills is no fun. Trying to divide $200 into a months worth of expenses is stressful and I want no part of it.

SO we don't have a plasma TV and our car is five years old. Who gives a shit? Not me. I'm not out to impress anyone, and it's quite easy and nice to live a 'cheap' lifestyle and still have nice things (IKEA!!!) without owing your first child to Visa

[West Coast Democrat]

83. $200 Per Month On Groceries?

Wow! That is VERY frugal. I can't even begin to imagine how my boyfriend and I would live on $200/mo groceries. We spend twice that much, but that includes more than just food--everything else you buy at a grocery store. I shop mainly at Trader Joes.

I am also a big fan of IKEA, and we make a special trip from Portland up to Seattle once or twice a year just to shop there. Everything is such a good deal.

[Heddi]

90. well, we buy alot at Costco

we don't eat alot of meat--mainly pasta, rices, veggies. When we do buy meat, we either buy a bag at Costco for $11 and that lasts us 2+ months. Any beef is something like $2 for 2 cubed steaks, which we split up over several meals.

we eat salads, and we get take out on weekends :)

It's not frugality on purpose---it just happens that we don't eat expensive stuff :)

[Lauren2882]

78. Marriage

While I do think it's impressive that you've been able to save what you have, and most of that is probably due to sacrificing excessive spending, I think that *part* of your ability to save comes from being married. Single people can't share a car with someone else, or share a one-bedroom apartment, etc. Not trying to discount your fruguality, just pointing out one reason that makes it difficult for other people to do the same.

[Heddi]

80. well we lived together for 3 years before we got married

and have been married for 3 years. 6 years total, and we started saving about 2 years into living together.

I do agree that being in a relationship and living with someone makes it much easier. I've had roommates, and you're correct--you can't share a car, or a bedroom, or combine bills in anything other than a 50-50 type of way.

And I do agree with you that it's difficult for other people to do the same---my mom and grandma live together---mom's 47, granny's 66 or so...they have NO savings. Just SSI and mom's paycheck, which isn't a healthy sum. Even though they live together, again, they have the 2 cars, and everything is split 50/50 instead of being 'communal' like it is in a marraige. They have no savings because they cannot AFFORD to save. That penny is stretched to the max.

We were able to make it work, but many people are not. Because of that, I feel that there should be SOME government responsibility regarding retirement.

As of now, my mom has worked for her shitty company for about 15 years. She makes $10 an hour. Has never been promoted, and this is a VERY small company--under 50 employees. Everyone is treated like shit, but my mom has no education except for HS and is only capable of doing the job that she's currently doing. She can't afford to go to school because she can't afford to lose her job.

Her Co. offers *NO* retirement whatsoever. Do I think companies should be REQUIRED to do so? Well, I think that if someone has worked for you for 20 years, they deserve SOMETHING, especially if the boss has been a tight-ass and only gives 5-cent-raises every 2 or 3 years and doesn't OFFER any kind of employee contribution plan---not that she could afford to contribute anything to it anyways.

I think it sucks that people AREN'T able to save money. It's a basic human right to 'save' what you earn. Today, though, you can't make it with what you earn, much less have any left over. WE're lucky that we do, and I'm very thankful for that, and I understand that not everyone can do it, and that makes me very, very sad.

[Lauren2882]

84. Good points

Yeah, I agree with what you're said, that in these times the government should take more of a responsibility for retirement because it's getting harder and harder for people to provide for it themselves. The difficult part is coming up with a policy that would reward people like your mother who have tried as hard as they could but haven't been able to acquire a savings because of forces beyond their control, and not reward as much those people who are advantaged with high incomes, education, etc., but haven't been able to acquire a savings because of short-sighted consumption.

[fortyfeetunder]

99. My 700th post on consumerism

You definitely are on the right track by saving. I got into that habit in my 20's..after the layoff early in my career, was scared crapless about not having money, and now living somewhat below my means. I am doing reasonably well in my job, knock on wood.

Fortunately, my current job does not require me to dress up much. Can casually dress except for the few times I have do look somewhat professional.

A few things I grew up with and as an old geezer looking 50 down the road, is buying the latest albums aren't that important. The latest clothes are no biggie. I used to want a Mercedes when I was younger but now I am happy with something else less flashy. The car dealers just about crap on themselves when I show them my QFD analysis on car buying and my budget vs. my current salary. They probably think I am an effin tightwad.

Get hobbies that can make you money instead of spending money, and look at investments, like homes and education that will give you a return on investment later on. And save for your retirement. Wait until you have enough $$$ in backlog before you have kids, they do suck up the dough.

Do all that, and when you get to be a geezer like me you will have few worries.

[juajen]

102. Well, she will

have social security and medicare. That's worth something, isn't it?

[RichM]

12. Yes, that time is coming.... // Kevin Phillips' book is relevant to the

points you're raising. Basically it shows, among other things, that since the late 1970's, the financial position of the bottom 80% of the population has not improved at all, & quality of life (measured not only by income but by hours worked, job security, & benefits as well) has deteriorated. Percentiles 80-90 have gained a few crumbs but not much. It's only when you get above the 90th percentile, that things have really improved, & of course that goes up sharply the higher your percentile (ie, the gains of the 90th percentile are a pittance compared to the gains of the 96th, etc).

Your comment about debt seems on-target. People who aren't really that well-off can live high by taking on debt -- for a while. Obviously there are mathematical limits as to how far this process can continue.

Yes, we are really a nation of consumers living beyond our means. It's a phony Ponzi scheme. The financial structure is not basically sound, because real prosperity requires having enough consumers with enough buying power to purchase what is produced. Yet the underlying reality is that the concentration of wealth is getting progressively more lop-sided. The appearance of prosperity can only be maintained by taking on more debt, & also by "cooperation" of financial markets (ie, stocks have to maintain their high valuations, & foreigners have to keep buying US Treasuries, otherwise everything unravels). The outlook for the federal budget is a trainwreck. All the states are broke; this will "immiserate" the national quality of life as health & education services are axed. There is no end in sight to the process of shipping good jobs overseas to exploit cheap labor.

There is only one outcome that is possible from all this: further enrichment of the already-rich; further pressure on everyone else. At some point, those who grew up thinking of themselves as middle-class will get angry. Whether that point comes in time to do anything about it is another question.

[hatrack]

74. Another interesting point from Phillips' book

He also nails a weakness of the talking heads and economic cloud-cuckoo crowd.

One thing you'll notice if you watch much talking-head TV is the general lack of numbers. Rather than talking about income quintiles, real wages over time, the disappearance of the defined benefit pension, the skyrocketing cost of insurance, the lower wages of service-sector jobs (as compared to industrial jobs) and other topics of great import for middle-class Americans, they almost invariably focus on stuff.

Big screen TVs, computers, VCRs, DVDs, automobiles, dishwashers, and similar modern innovations are the kinds of rubbish commonly flung into the numerical gap. The point, of course, is along the lines of "Well, income disparity and falling real wages really don't matter, don't really matter, because look at how much more STUFF we have available to us as consumers. Why, Charlemagne himself could never have lived like this!"

Of course, this argument ignores little things like technological change over time, the flood of imports made necessary by our demand for all this fabulous stuff, the concomitant departure of industrial capacity that imported stuff produces, and the steady erosion of the middle class. But none of that matters, I suppose, so long as big screen tee-vees and Dell PCs can somehow be shoehorned into the discussion.

One final example - in 1945, it took the average wage earner one day's work to earn the equivalent of closing costs for a house in Levittown. It now takes five months.

[trof]

13. I like the commercial running now.

Nice looking guy. "I have a new 4 bedroom house, a new car, a new riding mower, and I like to play golf. How do I do it? I'm in hock up to my eyeballs. I can't pay the monthly finance charges. Help."
That about says it.

[thom1102]

18. Hello?

Didn't I already say that? (see post 10):eyes:

[tedoll78]

21. Yup..

And I said it in #7. lol..

[trof]

23. Imitation is the sincerest form of flattery.

and I don't read all the replies.
It's a failing I try to correct.
;-)

[tedoll78]

26. I laugh!

It's a really good commercial.

And I'm guilty of not reading them all too.. :P

[Enraged_Ape]

33. What is this ad for?

I haven't seen this one. Is it some sort of consolidation or home equity loan outfit?

[trof]

81. I think so.

One of my marketing professors once said the ad's no good, no matter how funny or clever, if you can't remember what the product is.

[jagguy]

15. no they don't live within their means

but they typically have double the income as its the norm for wives to work.

Unfortunately, too many in our country believe that there is something wrong if we don't spend lavishly on cars, vacations holidays etc. As a result they have little or no savings and are something like 3 paychecks away from bankruptcy.

I suspect that you have a savings program. You spend your vacation money on your cabin which doubles as an investment. You'll likely be able to retire in confort. I'm not so sure the same can be said of the rest.

There is nothing wrong with you or what you're doing. Sounds like you are content in your life. What more can anyone ask ?

The country probably will have problems if people opt for a simpler lifestyle en masse but I'm not so sure that this will happen.

[SoCalDem]

16. It actually started in the 50's

PBS did a great series on it.. After the soldiers all came back, the fabric of America was ripped right down the middle.. Those "boys" who went away to war, straight off the farms, or out of Pop's hardware store on main street, did NOT go back to their "old life".. They wanted houses of their own..($1.00 down for returning vets)... They wanted college...(G.I. Bill)...

Prior to the war, people still lived "clannish" lives; kids grew up , married the girl next door and often lived in the family home until their parents were gone...or they bulit a small house on Mom & Dad's farm..

The war changed everything.. Young people saw that there was a BIG world out there and Uncle Sam was willing to help them take it on..

Advertisers saw the gold mine and jumped in with both feet.. The sense of "entitlement" began there...."Hey, you fought a war to free humanity from Hitler...you DESERVE a new car/house/washing machine/radio/etc"....

For the first time ever, "lower station" men were getting college educations, and once they emerged with that shiny degree, they were NEVER going back to Podunk, KS to farm with Dad & Grandpa...

Millions of "new middle-classers" were minted after the war, and they all had households, wives, babies....and they all needed "stuff"..

Grandparents of the boomers loathed "credit".. They were the ones who lived through "the crash".. This new group saw only endless possibilities.. They started the ball rolling and that snowball is pretty big now...and it's gaining on us :scared:

The advertising & media folks have created a hungry monster..Most people now have transformed "wants" into "needs", and if ya need something, there's gonna be a way found to GET it..


My son has friends who have every cent they make committed to car payments, rent, and car insurance.. These friends always wonder why my son has money to spend.. It's because he drives a 1972 Super Beetle that I gave to him and he has no car payment.. His insurance is cheap, it only costs $45.00 to register the bug.. He would love to have a new car, but the thought of car payments changes his mind ..:)

[GOPisEvil]

17. Your son is smart!

I had to get smart the hard way. :-(

When my old beater truck finally breathed its last breath, my parents were about to buy a new car. My dad said, "You can buy a new car, or use what you were going to put as a down payment to buy your mother's car." Uh, can you say no car payment and a lovingly maintained car that is nicer than anything I could buy new? Last time I got that offer, I bought the new car. :dunce: Learned that lesson!

[SoCalDem]

20. The funny thing is.. I bought the Bug because I always wanted one

when I was a teenager.. We found this beautifully maintained one in Huntington Beach.. They guy had put a $3,000.00 paint job on it,and a new engiine, and he just wanted it to have a good home :eyes: We paid $1,600.00 cash for it..

I think I drove it about 10 times, before I realized that I was spoiled by the Honda accord we also had, and was too old now to enjoy the spartan nature of a Bug.. When our youngest turned 17 I just gave it to him.. His friends drove BMW's and one even had a Lincoln Navigator ...(A HIGH SCHOOL SENIOR :grr:...), but the kids always wanted to ride with Steve in the bug.. Go figure.. He alsolutely loves that car and says he will never part with it..

He got his share of police scrutiny , though.. It's BRIGHT YELLOW..with a red stripe down one side :eyes:.. He always knew that the cops would "see" his car, so he was more careful... a side benefit for Mom & Dad :)

[Nederland]

19. Do the math

Here's what you claim about the average middle class person:

1) They live house price is over $120,000.
2) They own a car worth over $20,000.
3) They spend thousand dollars on Christmas presents a year.
4) They spend a thousand a year on clothes.

So let's just do the math for just these things. I'm bumping up the numbers on the house to 200K and the car to 30K just to be safe.

200K 30 year Mortgage @ 6.5% = $1265 a month
30K 5 year Car Payment @ 8.0% = $609 a month
1000 a year for Christmas = $84 a month
1000 a year for clothes = $84 a month

Total: $2042

Now I'll add in some things you forgot:

Food - $200 a month
Phone - $50 a month
Electric - $50 a month
Heat - $50 a month

Grand Total: $2392 --> $28074 a year (needed after taxes)

Typically, a person making $35K a year will take home at least 28K after paying taxes, depending on what state you live in. Now I'm sure there are a lot of other things you have to add in--college education, medical expenses, etc. but I think its clear that person making 40K-50K a year can in fact live in a $100K+ house and drive a 20K+ car.

[SoCalDem]

22. Electric...WRONGO...

If they live in CA ...it's more like $400.00 a month :(

[Nederland]

29. $400 a month?

No wonder Davis is in trouble...

[carolinayellowdog]

45. More math

My takehome is $12,000/yr. less than gross, and that's in a low tax state. Gasoline and car insurance run a couple thousand per year for most people, more like 3K for me. Heat is more likely to be $100/month than $50. But it seems to me that the real kicker is the non-recurring "nickel and dime" stuff that adds up to thousands per year. Your numbers may seem roughly good in theory, but anyone who tried living on that budget would end up in debt IMO because anything unforeseen would have to be paid for with credit.

[MISSDem]

46. But wait, these same people

have children in private school, they wear designer clothes, eat out for lunch every day, have birthday parties for their kids at places like Chuckie Cheese's for 100 kids, etc. How do they do all of this? Oh yes, they also go on expensive vacations like cruises, etc.

[West Coast Democrat]

49. Uh...You are forgetting MANY other expenses!!

First of all, a person making $35k per year pays more in taxes than you state, especially if they are childless.

But what if they have children, and have all of the expenses involved, including daycare?

What about buying furniture, appliances, miscellaneous household items?

What about entertainment, vacations, eating out?

What about health expenses?

Car insurance on that over $20k car has got to be nearly $100 per month. And then there's homeowner's insurance.

Where do you get the money to fuel the car, and service it?

Do you have any pets?

Also, utilities run closer to $200 per month where I live...you leave out the water/sewer bill. And I hope you don't need cable TV.

And I don't know anyone who can feed a family on $200 per month--$200 per person, maybe.

[Nederland]

68. OK

Add all your new numbers together with my old ones. You'll still see that there is still money left over for a person making 40K-50K.

[West Coast Democrat]

72. If you are talking about a couple, and they both make $40-50K

then they could mostly afford it. But if either one had a period of unemployment, they'd be in big trouble.

[Nederland]

73. Prove It

Do the math and you'll see you're wrong.

[West Coast Democrat]

76. Do you live in a major metropolitan area?

I'm guessing no, since you stated $120K as the starting point for home value. The median in my city is much more than that, and every house in my neighborhood is over $250K, most over $300K. It's a very middle-class neighborhood.

[Nederland]

77. Fine

Add in whatever you want then:

DO THE MATH!

Then we'll talk.

[revcarol]

87. Biggie you forgot!! Health insurance.

If you can get it through a company, average for one person is about $4000 a year, for a couple or family over $6000.

And that's without one day of being sick. (Doesn't include co-pays, deductibles and things just not covered.)

[Art_from_Ark]

51. You forgot gasoline for that big car

1000 gallons/year (for SUV @12,000 miles/year) X $1.50 = $1500
Water/sewer/trash collection $20/month X 12 =$240
Cable TV (basic service) = $100/yr

Throw in car repairs, restaurants, incidental expenses (medical, dental, school events, etc.) and your hypothetical $35K income earner is deep in debt.

[West Coast Democrat]

52. You pay only $20 per month for water/sewer/trash?

and only $100 per year for basic cable?

Wow! I pay over $50 per month for water/sewer, and cable in my area is near $50 per month for basic, more for expanded basic.

[Art_from_Ark]

58. Admittedly, those prices are what I pay in Japan

But they are similar to what my folks pay in Arkansas (which I used as a basis for the gasoline prices).

Maybe the water/sewer/trash rates might be lower in this part of Japan than in your area because we sort almost everything-- cans, bottles, newspapers/cardboard, burnable trash (which is incinerated in a state-of-the-art cogenerator). This saves a LOT of landfill space-- plus, they make money on the electricity they produce and the city makes some money on the materials it recycles.

[West Coast Democrat]

60. My trash/recyle rate is separate from water/sewer

and we recycle everything here as well. The recycling fee is what makes that bill higher.

[Art_from_Ark]

67. It sounds like life in the USA is more expensive

than I thought.

[Nederland]

69. Ok

Add all your new numbers together with my old ones. You'll still see that there is still money left over for a person making 40K-50K.

[kittykitty]

54. No Savings!

They spend everything, and have no money for savings, IRAs, investing, the future.

[Nederland]

70. Ok

Add in some savings with my numbers. You'll still see that there is still money left over for a person making 40K-50K.

[teryang]

91. I just did the numbers for a very middle class

...life style for a family of four in my area. With no vacation money or college expenses or purchases for appliances or furniture, this comfortable but humble, life style comes to $55,980 a year, including taxes and a fair but overpriced health plan. Includes average home, basic cable, (no broadcast tv available) dial up, and one cell phone. Does the employer pay for that 700 a month health care plan? Removing the 8400 for annual medical plan, it would be 47,580 annually. Average home, 3 used cars, (no public trans., no school bus service here) and all operating expenses figured in. This is in a state where the average household income is about 38K if I recall correctly. This is why we have huge numbers of trailer parks, substandard housing, and uninsured and illegal drivers here. Lose your job and not find one within several months and filing for bankruptcy will be necessary.

[geomon]

105. Fuzzy math if I ever saw it!

Now I'll add in some things you forgot:

Food - $200 a month
Phone - $50 a month
Electric - $50 a month
Heat - $50 a month


where is it that cheap??? You also forgot insurance fot the car..could be 100 per month..gas for the car etc...it all adds up quick.

[Yupster]

25. So

What are you spending your money on then?

[carolinayellowdog]

35. Gasoline is a huge expense as is heating

but even if I drive more than most people, it's in a car that gets high mileage. Maybe the savings from living in an old inexpensive house and driving an old car get eaten up with repairs? I can't imagine that people in most of the country can heat a decent sized house on $50 per month.

[SoCalDem]

47. $280.00 a month for gasoline..It's calif.. we commute long distances

:(

[MISSDem]

48. Well I save about 25% and I invest

another 15%.

[ProfessorGAC]

28. No Tricks

Some people, like you, and my wife and i, choose to live beneath their means.

So, when averages are taken (i know you used medians, but the income ranges actually are examined as averages within the ranges), folks like us keep the averages low. That means that for every person making 6 figures who lives in a $100k home (at current value, like mine, although i didn't pay that much), there has to be someone in a $250k home. Similar with cars. For everyone of us that has no car payment, someone has to have 2!

The fact is that for as many people who live beneath their means, there has to be someone living in a highly leveraged way. Huge credit card balances, huge car payments, huge house payments and exorbitant property taxes compared to their dispensible income.

There are no tricks or ways around out. Either you live at or below the means of the dollars you bring in to the household, or you live on credit. No thanks. I'll buy what's mine and if i can't afford it, i don't buy it. (Excepting my house of course. I didn't pay cash for that.)
The Professor

[tedoll78]

30. That's the way to go!

Otherwise, how can one ever save-up enough for retirement?

[ProfessorGAC]

36. Right You Are!

I don't want to work until i'm 70. My house will be paid off in 34 months. After that, every dime of that money goes into the investment pile. I'll probably max out my 401k contributions to the legal limit and save an extra $1200+ per month for retirement without even affecting our normal lifestyle. Then i might be able to pull the plug at 60.
The Professor

[tedoll78]

38. After I'm out of school..

I'm going to kill my student loans from the useless bachelor's degree and start throwing money like mad into retirement. Maybe I'll be able to retire in 25 years (age 52)? It's terrible that I know near-nothing about investing though.

[supernova]

31. Sounds like you got it down carolinayellowdog

My story is similar to yours. I don't spend a lot even when I do have a job, which unfortunately is not now. x(

I shop at thrift stores, yard sales, auctions, etc. My car is ten years old, so no car payment. The house is paid for too, so no house payment.

I don't think I spend 500/year on clothes/shoes, etc.

I don't know how people manage to carry so much debt and be so blythe about it. The thought terrifies me. :scared: :scared:

[cmf]

37. Credit, sense of entitlement, optimism.

I think the wide array of credit and the acceptance of credit spending is a problem.

People expect to do better than they're parents did. Unfortunately "do" means own nicer stuff. I know people my age (27), going out and buying 4 bedroom, 3000 sf houses even though they don't have children, and the mortgage is 30% of their income. They expect to just have nice things without saving and working for them. They need every consumer item presented to them - cell phones, designer clothes, etc. At the same time they're contributing 1% to their 401(k) plans and nothing to liquid savings. Because if they work hard enough, when they're old they're going to be rich, you know.

Which brings me to my last point. Everyone thinks they're going to be rich one day, so that's why they're so reluctant to screw the rich. They're thinking "that's going to be me one day". If they work hard enough they're going to be rich.

[Kat45]

96. Your last paragraph states a very important point--

The reason people don't want to screw the rich, and don't mind when the rich get tax breaks and other perks, is that they think they will be one of those rich folks some day. Whether they think they'll get there by working hard or by winning the lottery, they live under the delusion that they will get there.

And though they are not among the rich, they try to emulate them in their lifestyles. They tend to identify with the rich; they don't identify with the working poor or even realize that they are closer to them than they would imagine.

[jafap]

104. Actually, they think they already are

I have seen people quoting polls that say 17% of Americans think they are in the top 1% of income earners. But even people in the top 40% should be doing very well. Even someone at, say, the 37th percentile can look around and easily see many who are worse off financially than him/her.
Myself, I have been in the bottom quintile since I jumped off the good job train in 1986. A couple times I have edged into the second to the bottom quintile, but not for long. At my poorest I had $1000 in the bank and 100 shares of stock. I spent ten days in Deutschland in 2001. I own 3 computers, including a laptop. I own a couple hundred CDs, and maybe 3 score of videos and half a dozen DVDs. Not to mention about 500 LPs, but I do not know if those are an asset or a liability. Also thousands of books, but I basically got them for free. I used to joke - "I am not poor. I own 2 bikes."
I find that stuff like that is pretty easy to accumulate. Of course, there are many things that I do without - like cable TV, cell phones, health insurance, eating out, a car a girlfriend, alcoholic drinks, etc.
What I see when I walk or bike around the towns I live in, are lots and lots of tiny little houses that look way too small, and I know that millions of people are living in mobile homes and renting. When I started house hunting, my sister was amazed at some of the trashy houses and neighborhoods that were in her town. I think you are over-looking lower cost housing, and the neighborhoods you are looking at are upper-middle class rather than middle class.

[bleedingheart]

39. Its all about choices

some people like living near the edge but it is really hard to dig yourself out of the debt hole once it starts...

[BiggJawn]

40. "Whats in YOUR Wallet???"

Credit cards. Plain and Simple. Credit cards, 0% intro rates, never mind that you already have $55,000 worth of cards and they're all maxed out, have another with 0% and a $30,000 limit....

Yep, that's how they do it.

And once the whole thing comes crashing down, and you're bankrupt, don't worry, because there's all sorts of people who want to extend to you LOTS of short-term high-interest Debt, because they know you can't bail under Ch. 7 for another 7 years....

[GOPisEvil]

41. Been there - done that!

I was on my way to problem #2 with no safety net when I finally got smart and bit the bullet. I got my life under control, and have knocked my debts down to under $1500 (and falling monthly). By next summer, I will be completely debt free to stay (except for vehicles and a home, if I ever decide to buy one).

[shrike]

42. I got lucky

If you want to call it "luck." My dear father left me enough money when he passed away to pay off our house, vehicles and credit card debt, with enough leftover to fund some retirement investments ... and I'm in my early 40s. He wasn't a rich man, just thrifty. I nagged him for years to spend the money on himself and "have fun." He refused, saying he wanted "to leave me something." Guess Father Knew Best after all.

If you can find the means (hopefully no one you dearly love will pass on) to pay off debt I'd recommend it. The peace of mind is priceless, as they say in (lots of irony) in the Mastercard commercial.

[MISSDem]

43. carolinayellowdog, you took the words right

out of my mouth. I have often wondered the very same thing. Someone tell us.

[jiacinto]

44. I went to a liberal arts college in PA with very

"wealthy" students. And I used to think that they were so "rich" until I overheard some of their students.

A lot of them had:

houses that are on their third or fourth mortgages;
credit cards that were maxed out;
little to no savings;
homes that were out of their price range, but that all too willing loan officers were willing to give them mortgages to;
expensive cars they really couldn't afford.

A lot of the people who look "rich" are really heavily indebted people. Read the book "The Millionaire Next Door".

[kittykitty]

55. "The Millionaire Next Door"

Great book! I highly recommend it!

[jiacinto]

62. Yeah

It made me realize the truth about people I went to high school with. I grew up in Montgomery County, MD, and that book opened my eyes.

[teryang]

92. I read the other book, Millionaire Mind or

...something like that by the same author. One thing that struck me is that most of these people owned their own businesses (which were successful). That takes capital and risk taking. The millionaires I know have large credit lines at local banks and they do take large risks. I don't recall reading much about that in this book.

[rocktivity]

53. The rich blame the shortcomings of the middle class on the poor

Through the media, the super rich tell the middle class to look down the economic ladder at the criminals/welfare families/unemployed to find out why they aren't richer. They should be looking up the ladder and complaining about tax breaks that don't help them and the feeding of the military/industrial complex.

And yes, I've seen that commercial, too. The financial industry as we now know it is the result of campaign contributions and lobbying for laws allowing the charging interest rates so high they used to be illegal!

rocknation

[ScreamingMeemie]

63. As the lendingtree.com commercial says...."They're in debt up to their

eyeballs" Of course lending tree would just make it worse.

[annonymous]

71. They are living beyond their means.

I read that the average American has about $8,000 of credit card debt. They are a lot of middle class people with a lot of debt i.e. mortgage, car payments, student loans and credit card debt. This is why bankruptcies are at a all time high.

[jiacinto]

82. Exactly

And I know people like that all too well. Looks can be deciving. You see the 500k home, the two expensive luxury cars in the driveways, the children going to boarding schools, and the vacations to the Riveria every year on the outside. But when you look on the inside you see the truth and it isn't pretty.

A lot of these people are living beyond their means and from paycheck to paycheck. If one of the parents loses their job, well then, big trouble ensues.

I went to high school and college with people like this.

[maynard]

85. working poor

I teach school and I see all types of family income in the classroom. The poor families in my area are not considered poor by government standards. The don't have health insurance and as a result don't go to the doctor unless it is they are actually on their death bed. They don't have telephones because if they could pay the deposit, they couldn't afford the monthly fees. They don't qualify for welfare or food stamps. They ride the bus because if the car needs repairs, they have to let it sit until they come up with repair money. They live from paycheck to paycheck to paycheck. They do not go out and see movies. They don't have cable. They don't have credit cards because they have no credit. They don't have a savings account let alone a checking account. They pay their bills with cash as they earn the money to do so. The parent(s) work 2 & 3 jobs just to get by. The kids work hard in school. The parents support their neighborhood schools. The things that we do and buy that we see as necessities, they see as luxuries. Hot water in the house, VCR's. DVD players, cable, call waiting, caller ID, home PC's, air conditioning in their house, gas money, etc.

I see these families and I am reminded about living beyond my means. These people barely have enough means to get by. They never got the tax cuts/credits. They work hard but are unable to get out of the hole that they are in.

I am one of the lucky ones. I have a good job. I can pay my bills, I have very few bills (outside of utilities & mortgage. I have play money even though I am limited in it. I have a retirement account. I have savings. I am glad to be where I am in life and I don't want to get caught up in trying to impress those I come in contact with.

[jiacinto]

86. There are families like that

What school district are you in, if you don't mind me asking?

[inthecorneroverhere]

88. yep-

I think a lot of people are paying credit card etc. interest off of 2 incomes.

When one person loses his or her job, the family is up a creek without a paddle.

[TheBigGuy]

89. I afford my lifestye via credit cards

.....I like my lifestyle, & anyone who wants to take it away can go to hell.

[paulsbc]

93. yes, and I'm one

of the people you list. My wife and I are almost to Chapter 7, and may be there by the end of the year (I'm unemployed at this point).

My long (and boring, story) :)

Rewind to 1998. We both had good jobs, I was making great money (175k), the wife great money (80k), and I worked at a startup company that was going to close on a $20mil 3rd round of financing in which I was going to reap about 200k in stock purchase proceeds.

We had no debt, 2 kids, small house, and lots of savings (30k or so) and were around 30.

We decided things were going swimmingly, so we built a nice house in a great neighborhood and put most of the movings expenses and furniture on credit cards, as the 3rd round of financing was the "sure thing". My wife quit her job to spend more time with the kids, and we all settled down for "the good life", sure that the income I was making was going to continue for years, and that a nice windfall was going to erase our credit card and student loan debt, and add nicely to our savings and child college funds.

This was in Feb, 2000 (starting building the house in Oct, 2001)

Crash :)

Funding market crashed, the startup struggled to make ends meet until finally closing down in mid-2000, and we were not in debt up to our eyeballs and now had no income. I consulted and job searched for about 7 months, and we piled up more and more debt during that time just to make ends meet (we had stellar credit, obviously).

Found a job in 2001 making around $140k again, but by this time had too large of a mortgage, huge credit card debt, and could barely meet our bills

Fast foward to today, where I'm laid off again, and going back to struggling as a consultant, and I'm in that category you all are talking about.

Now, I am not blaming anyone but myself, and I realize that we did the proverbial "counting of chickens before they hatched" thing with our money and future. The job market for senior IT managers is tough, and I'm most likely not going to be able to find what I had before in short order.

The time may come where we move back where we were in 1998, and start again building, this time with a much more experienced set of values on how to handle money.

Should I not be able to get another job making what I was, Chapter 7 is really the only way out of the debt load in order to support my family. It will be devestating to my physcy, my credit, and my 'position' in life/house/etc., but that is the way the cookie crumbles, so to speak.

Done rambling, but thought you might like to hear one story from someone that was upper middle class, but that might be back to middle-middle class shortly, but that still holds onto the liberal ideals I've had since growing up in small town Wisconsin...

[jbm]

94. welcome to DU paul..

Thanks for sharing your story. Good luck with the job search.

[jiacinto]

97. You aren't alone

I was in a somewhat different position. I graduated from college and then went to graduate school here in DC. I took out student loans and worked part time. I had no credit card debt.

Then, around April 2001, I lost my part time job. Could not find one for six months. Racked up enormous credit card debt.

So I know the feeling. What I've done now is cut down the number of cards I have to two. I've also had their limits reduced.

[paulsbc]

98. thanks

hey, thanks for the PM, I had a nice response all done, but I can't send PMs, something about my post count (doh!). Anyway, thanks for the welcome PM and good luck to you too!

[jiacinto]

101. Write a few more posts

then try to send it again.

[waggawagga]

100. The Median Income Statistics Commonly Used Are Misleading

You didn't say how much you make (I'm kind of curious). It's a good question. I've wondered the same thing myself. After looking at income stats here's the best answer I came up with.

1) the median household income stats most often cited understate just how much people in the top 50% of households make. Stick with me because this gets complicated.

Household income statistics don't really count for the "doubling up" effect of having two wage earners. Imagine three people who live in two housholds. All three make $20,000 a year. Median and average household income is $30,000.

In real terms, though, the first household might have little disposable income while the second has a lot. More significantly the "top 50%" of households really accounts for 2/3rds of people (who have more disposable income, the phrase "two can live as cheaply as one" applies to a lot of household costs).

The US, today, has what I'll call a "bactrian consumer economy" (as opposed to "dromedary", two humps instead of one). If you look at household statistics carefully and count individuals or "householders" instead of "households" what you'll find is that not many people fit the median.

Put simply. The top 50% of households contain more than 50% of the working population (more married people). I think the actual midpoint is where the second and third quintile meet (just under $60,000, again, half of adults live in households where the income is greater than this).

Start with this figure, instead of the $37,000 usually offered as the median, and all of the purchases of SUVs, jetskis, and snow blowers make sense (a lot of people can afford this, the two income family is what makes such purchases possible).

You're single. Most of your income probably goes to fixed household expenses. You're not getting the gravy. While you might be earning an average salary you're not benefitting from this "doubling up" effect.

And neither, generally, are people who are below the household mean (the bottom 40% of households only make up about 25% of the population, they're much more likely to be single).

Ergo, a graph which showed disposable income would look like a bactrian camel with two humps. You generally have it or you don't. And you tend to notice those who do.

I'm sure consumer credit is also a factor but I don't think it's as significant as this (and to the extent it is it influences in the same proportion, who has the most access to consumer credit, households with disposable income).

I think Democrats have fooled themselves to a certain extent, by the way, by relying on the mean household statistics (the ones which really describe the people between the two humps) because if you have this other understanding of the situation the interests of those in the "top hump" do look different.

Such people consider themselves "middle class" (and they are), they have to budget, but they aren't poor. These are your married suburbanites (people who are very much a swing group) who regard themselves as "net contributors" (they pay for social programs, they don't use them).

[waggawagga]

103. A few more thoughts

I think there's a good book waiting to be written about the economic significance of "singles" vs. "marrieds". Because if you think about it this change is relatively recent. Before 1970 the US had a "dromedary consumer economy" (one hump). Plenty of women worked but those who did, overwhelmingly, lived in households where income was below the median (this had the effect of "fattening" the center).

Since 1970 trends in who belongs to a two wage earner household have changed dramatically. Today if you make a lot of money you're much more likely to live with someone who works and might make as much as you. If you live in a household which is below median income, however, you're much more likely to be single (you don't benefit from the "doubling up" effect, which played a large role in boosting the household incomes of earners in this group during the past).

So this "bactrian consumer economy", in part, is a consequence of deep social changes in the society. If Ronald Reagan had never been elected this transition from "one hump" to "two humps" still would have occured in some form. I think social scientists stay away from this because it does touch on so many "hot button" issues. I was disappointed when Kevin Phillips' book didn't touch on this much (he did a good job explaning the super rich).