High-Earning Poor

Nat009 · November 2015

I thought that this was an interesting article I just came across about the lack of savings with the upper middle class.

http://qz.com/520414/the-high-earning-poor/??utm_source=parIC&cid=sf01002

Two thoughts:

- Really quite scary, because by the age of 55, there is A LOT of catching up to do in a short amount of time if you don't have much for retirement already.

- The article classifies the upper middle class with starting at ~$55k. In my HCOL area, that number seems really difficult to classify as "upper"... Even the upper tier, $74-100k, can be a bit of a stretch if student loans, home/rent, auto, daycare, insurance, etc. are all a factor.

Thoughts?

AprilZ81 · November 2015

Articles like this are hard to take too seriously because they make so many sweeping generalizations. Median salary is more useful than averages because you don't have the super low and super high earners skewing the numbers, but it really does leave out a lot of factors.

$55,000 in a LCOL (or even a medium) goes a lot further than New York, Chicago or San Francisco.

They just classify all debt as "debt" instead of taking the time to unpack the numbers and report what kind of debt people have. They do a quick line about mortgages and student loans and that is it.

Most of these articles are written for the shock value and authors spout a line or two about needing higher wages or lower debt levels, but they rarely say what needs to be done.

Most of us on this board know what needs to be done.

1) Start with basic financial education in schools and at home (of course the parents are sometimes not any better informed than the kids).

2) Repeat step 1.

In most cases spending money doesn't just happen, it is an action taken. You choose to go to an expensive college instead of a community college. You choose to buy a brand new car instead of a reliable used car. You choose to buy new shoes because they are pretty. You get the picture.

Americans in general think their "wants" are "needs" and feel entitled to what they want immediately instead of creating a savings plan to get what they want.

I'm guilty of this myself and I may need to get off my high horse since I chose to go to an expensive college and my parents made sacrifices to pay for most of it. I'm very, very lucky that I only had to pay back a small student loan. That being said, I learned to live within my means at school and after I graduated.

Debt problems don't just show up over night, it is usually a gradual increase and if you (general you) just pay attention you can take care of it in a relatively short amount of time.

smerka · November 2015

This article speaks to me. I am in both the age range and salary range. I live in the suburbs of Chicago and so many people here have houses full of stuff, go on Disney vacations, get new smart phones every year or so, drive shiny new minivans, etc. I still have a dumb phone made in the previous decade, a 2004 car with 120,000 miles on it that we keep limping along, and we have been on a big vacations in years (we have a lot of medical expenses for my son instead). I comfort myself in the knowledge that we have no debt other than our mortgage and our retirement savings are okay, not fantastic, but okay. I know someone who needed new tires and instead drove home with newl, leased car. It is pretty nuts.

als1982 · November 2015

Keeping up with the Jones is in my opinion a national epidemic which has caused a decline in our societal values. American consumerism, and the value of a person being measured by the size of their house, the newness of their car and the brand of the clothes on their backs is detrimental to our individual and national economic health. This new value system (stuff over security and perception over reality) is in large part why so many don't have savings.

As for $55,000, in my small rural hometown, that would certainly be upper middle class. However, in my current LCOL city and surrounding suburbs, a family with two working parents making that amount would find it hard to afford the rent/mortgage, food, utilities and day care, and consistently save for retirement. That amount equates to approximately $13 an hour per person, which while livable here, it certainly isn't luxurious nor would there be much, if any, room in a typical budget for savings or debt payoff.

bmo88 · November 2015

Interesting article. As a couple currently carrying about $28,000 in student loan/car loan (previously $65,000 just two years ago) and mortgage debt, and with a high income, I honestly think it comes down to priorities and financial education.

We have been fortunate to increase our income significantly each year, however, with those increases we have increased our debt repayment and our retirement savings, not our living expenses. We have taken a few vacations, but we planned and budgeted for them. Every raise, bonus and tax return has either gone to debt or our emergency savings. We rarely eat out, don't buy new clothes, DH drives a 2007 paid off car and I only got a newer car after mine was totaled in an accident two years ago. Our washer and dryer are 16 years old and our house is only a new build because as crazy as it sounds, it was cheaper than an existing home for our area and price range.

Bottom line: Debt can be leveraged as a tool if done carefully or it can cripple you financially. With financial education, goal setting and a plan, people can live affordable, enjoyable lives on almost any budget. But it can also go the other way with high incomes. You can make the most money in the world and with poor spending habits, little savings and no plans, you can live paycheck to paycheck.

Xstatic3333 · November 2015

als1982 said:
Keeping up with the Jones is in my opinion a national epidemic which has caused a decline in our societal values. American consumerism, and the value of a person being measured by the size of their house, the newness of their car and the brand of the clothes on their backs is detrimental to our individual and national economic health. This new value system (stuff over security and perception over reality) is in large part why so many don't have savings.

As for $55,000, in my small rural hometown, that would certainly be upper middle class. However, in my current LCOL city and surrounding suburbs, a family with two working parents making that amount would find it hard to afford the rent/mortgage, food, utilities and day care, and consistently save for retirement. That amount equates to approximately $13 an hour per person, which while livable here, it certainly isn't luxurious nor would there be much, if any, room in a typical budget for savings or debt payoff.

I agree with you about the focus on "stuff." I also think it has really hurt our economy. We've traded well made, locally sold goods that supported middle class jobs for cheap luxury goods produced overseas that give the illusion of wealth but only support low paying service sector jobs at home. I truly believe our nation's security and future is at risk from this shift.

The most surprising part of this article for me was the non-retirement savings part. We're working on our retirement while carrying some debt, so the debt ratios were no surprise, but I'm shocked how many people don't have even $1,000 in a liquid savings account for emergencies.

lbonga1 · November 2015

Xstatic3333 said:

Keeping up with the Jones is in my opinion a national epidemic which has caused a decline in our societal values. American consumerism, and the value of a person being measured by the size of their house, the newness of their car and the brand of the clothes on their backs is detrimental to our individual and national economic health. This new value system (stuff over security and perception over reality) is in large part why so many don't have savings. As for $55,000, in my small rural hometown, that would certainly be upper middle class. However, in my current LCOL city and surrounding suburbs, a family with two working parents making that amount would find it hard to afford the rent/mortgage, food, utilities and day care, and consistently save for retirement. That amount equates to approximately $13 an hour per person, which while livable here, it certainly isn't luxurious nor would there be much, if any, room in a typical budget for savings or debt payoff.
I agree with you about the focus on "stuff." I also think it has really hurt our economy. We've traded well made, locally sold goods that supported middle class jobs for cheap luxury goods produced overseas that give the illusion of wealth but only support low paying service sector jobs at home. I truly believe our nation's security and future is at risk from this shift. The most surprising part of this article for me was the non-retirement savings part. We're working on our retirement while carrying some debt, so the debt ratios were no surprise, but I'm shocked how many people don't have even $1,000 in a liquid savings account for emergencies.

I really think this has to do with a lack of impulse control, along with keeping up with the Jones's. If people see that money in their account they spend it, or they already have so much debt that they're living paycheck to paycheck.

BlueBirdMB · November 2015

This reminds me of a story. My mom has a friend and we've always suspected she and her husband make a very good living. They live in an expensive area and live a nice lifestyle. When we got married a couple of years ago, my parents paid for a large portion of our wedding and her friend said to her, "You have cash just sitting around?" My mother was like "well yes... of course we have liquid cash." And her friend says "We can never seem to have more than a thousand dollars of so." These are people who live in a house valued at around 800k, own a large sailboat, go on several vacations a year, and only buy designer clothing.

How does one go about keeping up that balancing act?

Xstatic3333 · November 2015

BlueBirdMB said:
This reminds me of a story. My mom has a friend and we've always suspected she and her husband make a very good living. They live in an expensive area and live a nice lifestyle. When we got married a couple of years ago, my parents paid for a large portion of our wedding and her friend said to her, "You have cash just sitting around?" My mother was like "well yes... of course we have liquid cash." And her friend says "We can never seem to have more than a thousand dollars of so." These are people who live in a house valued at around 800k, own a large sailboat, go on several vacations a year, and only buy designer clothing.
How does one go about keeping up that balancing act?

Eek, that is so scary!

Nat009 · November 2015

Xstatic3333 said:

BlueBirdMB said:
This reminds me of a story. My mom has a friend and we've always suspected she and her husband make a very good living. They live in an expensive area and live a nice lifestyle. When we got married a couple of years ago, my parents paid for a large portion of our wedding and her friend said to her, "You have cash just sitting around?" My mother was like "well yes... of course we have liquid cash." And her friend says "We can never seem to have more than a thousand dollars of so." These are people who live in a house valued at around 800k, own a large sailboat, go on several vacations a year, and only buy designer clothing.
How does one go about keeping up that balancing act?
Eek, that is so scary!

BAW, ok that is just ridiculously excessive and poor planning/money management.

When I read the article, the point that really stuck out to me was the lower bracket that a household at "upper middle class" is considered. Even with good money management and realatively low debt (i.e.: not a $800k house and brand new cars), it can definitely be a struggle. Throw in no savings/emergency funds with keeping up with the Jonses and you wind up with a good percent of older workers with no retirement plan. I guess I'm not saying anything but that it just freaks me out... Especially adding in also that the current state of social security management is not working/sustainable

hoffse · November 2015

Yeah I'm with April on the quality of the article. They really should separate out low-interest mortgage debt vs. student loan debt vs. consumer/credit card debt. I mean, with a mortgage you also get a house. I feel like these articles often ignore that a house is actually something that should be considered a personal asset, and if you were an accountant the house value would offset the mortgage debt on a balance sheet.

Likewise, student loan debt is an investment in future earning potential. Certainly not everyone makes a smart decision with how much they borrow, but you CAN borrow tens or even hundreds of thousands of dollars for your education and have it pay off in spades. Student loans aren't inherently evil, and if you leverage them correctly they can be a great way to boost your earning potential for decades.

As for savings, it's really all about trade-off. When you choose to spend money today, it's gone for future spending tomorrow. Sometimes that's fine, sometimes it's a problem. It depends a lot on your debt-to-income ratio, your savings rate, your current income, and your potential for income growth. If you're doing everything you need to be doing - good savings rate, secure job, retirement planning on track - then I don't see a problem with spending some of it on luxuries. The thing is, a lot of people put luxuries higher than those other categories, and then they are toast.

bmo88 · November 2015

hoffse said:

Yeah I'm with April on the quality of the article. They really should separate out low-interest mortgage debt vs. student loan debt vs. consumer/credit card debt. I mean, with a mortgage you also get a house. I feel like these articles often ignore that a house is actually something that should be considered a personal asset, and if you were an accountant the house value would offset the mortgage debt on a balance sheet.

Likewise, student loan debt is an investment in future earning potential. Certainly not everyone makes a smart decision with how much they borrow, but you CAN borrow tens or even hundreds of thousands of dollars for your education and have it pay off in spades. Student loans aren't inherently evil, and if you leverage them correctly they can be a great way to boost your earning potential for decades.

As for savings, it's really all about trade-off. When you choose to spend money today, it's gone for future spending tomorrow. Sometimes that's fine, sometimes it's a problem. It depends a lot on your debt-to-income ratio, your savings rate, your current income, and your potential for income growth. If you're doing everything you need to be doing - good savings rate, secure job, retirement planning on track - then I don't see a problem with spending some of it on luxuries. The thing is, a lot of people put luxuries higher than those other categories, and then they are toast.

I complete agree. Student loans can be a great way to access successful careers and maximize earning potential. However, it can also become a financial burden if someone takes out too much or chooses a degree/program that does not earn a lot of money or lead to secure employment.

Additionally, life is about living at the end of the day. Should you save for the future? Absolutely. Should you save so much for your retirement that you do not do anything you enjoy today? Absolutely not. As much as I hate to say this, you are only promised today. People need to find their own balance of how much is enough to save and how much is appropriate to spend. Personally, we could save a lot more for retirement, but we stick with 15% of our incomes because 1) we feel it is appropriate for the lifestyle we plan to have and 2) we want to enjoy some travel and small luxuries now. It comes down to priorities and intentional plans. If more people planned and took steps toward achieving specific goals, we would probably be in a better place financially in the world.

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