Does society have a skewed view on what constitutes a good income?

Great Debates
81

Part of it is comparison. My household is in the top 10% of incomes, but the cost of living here means that we live three-people to a funky old one bedroom apartment. I am fine with that-- after being in Peace Corps, running water still feels luxurious. But it does trip me out that my neighborhood is nearly entirely million dollar plus homes (most of which are objectively quite modest). I am surrounded by thousands of them. If we are in the top 10% and stacked like sardines in this little apartment…who the heck are these people? What do they do? How are there so many of them? It seriously does boggle the mind.

You can get the same effect watching Househunters International. It’s always stories of what seems like impossibly young people with vague job titles looking for a $750k home in Belize. Again, who are these people? How do I get to be one?

After a while, you stop looking at your own successes and start wondering why you seemed to have missed whatever money train all those people caught. Even if you are actually doing quite well.

82

I know what you mean. I live in the Bay Area, which also is famous for its high cost of living. I have a commute to work that takes me through neighborhoods of hundreds of expensive homes every day. Like you, I have a relatively high income, so I know how I manage to live here, but I don’t know how the thousands of other people do it. There are 8 million people in the Bay Area!

83

I have a uniquely inside view on the young and well-off. We ran a company for 12 years that employed about 100 people, 10-12 of whom were highly compensated program managers. (The rest were well-paid but mostly part-time therapists.)

Now, we made very good money in this era, but being financially wise and conservative, did not live anywhere near the corresponding visible level. (Modest suburban house, 3-5 year old cars, etc. - and the distorted financial calculators of the time suggested we could easily afford a home well into seven figures.) Our senior employees, to a couple, lived in houses in the most exclusive areas of town at what we estimated were 6-10 times their income. (Which, of course, we knew.) And drove two or three expensive cars. And had expensive toys (boats, ski cabins, lavish travel). I’m sure they wondered as much about us, living at perhaps one-third their apparent economic level, as we did, about what note their finances would play when plucked - something in the upper third of the keys, in most cases. More than one couple had a crisis - a laid-off spouse, an illness, a parent needing special care - and talked openly about how thinly they were spread. But never, as far as we could tell, changed a bit of their spending and acquisition and adding pools and multi-level decks with outdoor kitchens etc.

Then we decided to close the company. Everyone got plenty of notice, generous severance and had opportunities with the handful of other companies in the area.

A year later, every single one of them had been through economic disaster, lost their glam houses and toys, and were working at about one-third the income. Every one of them could have lived well and still banked enough to survive a bad year without income, or make better overall choices with a fat nest egg. But they were all paycheck-to-paycheck.

It was painful to watch, early on and later, as these people were more like family than employees. But there never was a time and place to say, “You know…”

84

That’s what I meant by TV causing a lot of anxiety. Occasionally I catch Suze Orman on CNBC. The whole show makes my stomach churn. Everyone who seems to call into the show seems to pull in a huge amount of money every month. Even the young people. I’ll think to myself, “This guy is making $XX,000 a month and he needs Suze to tell him whether or not he can afford to buy a fourth motorcycle? He’s clearly an idiot, but he’s an idiot who makes more money than I do. What the hell is wrong with me?!”

85

It reminds me of a joke recently posted at my office : “If you don’t give me a raise, I’ll tell everybody I got one”

86

Yeah. clairobscur above wondered “If being able to live in a $ 500 000 house isn’t luxury, then what is ?”. Well, my $500k house is a 1250 sq ft condo. It’s comfortable, but it ain’t luxury. The median house size in the US is over 2100 sq ft. And I don’t even have a yard. High property taxes mean that home prices are even worse than they seem.

I suspect that a huge fraction of people are living at their means or below. The national household savings rate is like 5%… and one of me means there are 10 people saving 0%, or 5 people saving -5%.

87

That’s bonkers. Where I live, $300k gets you a pristine 4 bedroom Victorian with a garage and a sunroom in an urban neighborhood that’s been comfortably gentrifying for 15 years.

88

Well, what do you do that is above average that you should earn an above average income?
TV certainly does inflate expectations for standard of living. Characters are often depicted living well above what their means would be in real life. Or upper middle class and affluent professions are disproportionately represented. Even “poor” or “working class” families are rarely portrayed as struggling financially, beyond some bickering over bills or a recent purchase.

It’s not bonkers if you are in NYC where there are a ton of bankers, traders, lawyers, consultants, executives, celebrities, business executives, entrepreneurs and whatnot who make hundreds of thousands or millions of dollars a year.

The nice thing is that you don’t HAVE to be a schoolteacher, truck driver, librarian or waiter in Manhattan. Those are jobs you can do pretty much anywhere in the country. So you have the advantage of being able to move someplace cheaper.

89

First-generation money is never handled wisely. If your parents were lower middle class (or worse) they couldn’t teach you wise habits because they were constantly worrying about the bills while you were young. You learned bad habits. On top of that, you tend to get to where you are by one of two methods: Extreme frugality or Extreme Largesse. You save up real money, or you smoke and mirror the money to make yourself look good to others.

The smoke and mirror route always works until there’s a problem. If it’s good economic times, you can probably ride through multiple problems. The save up real money always works through a couple of problems (depending on size of problems, etc). But if you were never taught good habits, you need a dose of reality to start to learn…but you’re just starting to learn. It’s hard to go from “Hey, I have an extra $200 from my tax return. I should get a new phone.” to “I already have the latest iThingamajig, I should stick that $200 into savings.”

And even if you DO stick it into savings, it’ll still usually be gone. You go from a mind set of “NEVER SPEND!” to “It’ll be okay if I spend a little.” and then “It’ll be okay if I spend a little more.” and so on and so forth until you’ve blown through whatever your discretionary income is. It’s not as easy as most people make it sound to change your entire frame of mind in regards to money. It’s a deeply personal thing that most people don’t talk about and have no idea where to go for help with it. They can’t afford an accountant, and they weren’t trained to handle it. They have to learn via trial and error.

As someone who was poor, I had to teach myself responsible money management when I started to rise in income. I had to learn what things I needed to rise into and what things I had to keep putting off. I learned to live frugally. Cable TV? Hah. NetFlix and Hulu are $100 cheaper combined. $20,000 car? What do I look like? Uncle Moneybags? I’ll take the $13,000 one! But, then, I was fairly lucky and got training at work before my income began rising by megacorps who wouldn’t collapse into the ocean if I went over budget. Most people aren’t so lucky when they claw themselves out of the mud, though, and they have to learn from scratch.

90

Where did I say I thought I deserved an above average income? I’m confused.

91

You can marry well. That’s what my husband did. I don’t mean marry wealthy, I mean marry someone with more sense about money that you have. If he held the financial reins or had married someone like him, we’d have been Amateur Barbarian’s former staff years ago. Its really only my frugality and his laziness that has kept us above water, even with high incomes. In his hands, money spends. He is way better after twenty years of marriage, some of the habits have stuck - but he took a long time to get through “I make a lot of money, I can afford this” and had to learn that because I kept repeating how wrong it was, while developing the initial thought pattern of “buying this would stress my wife out.”

92

While that can help, there is usually nothing stopping one spouse from taking their earnings and playing their own ball game. When my relationship started, we were both at the low end of the earnings scale and we were both equally irresponsible. I gained experience in my work that let me learn, as I stated above, how to manage money properly. My SO wasn’t so fortunate. She had to learn the hard way.

My SO took the ball to her own court after she started her own business and was “making a lot of money.” (She wasn’t, really.) Unfortunately, my warnings of dire consequences of not paying the IRS went unheeded. We are still paying off me giving up the nagging and letting the IRS give the rude awakening needed.

But I readily admit that I’m an asshole. Readers probably shouldn’t take that tack with their SOs unless they know it’ll work (and they know the SO won’t murder them for the insurance money to pay off the IRS.)

93

I disagree, there is something that prevents your partner from doing so, its called divorce. The moment you realize that your partner refuses to become financially responsible, you should treat that like you would a spouse that refuses to stay faithful, or refuses to stop abusing drugs - because it is. Been there done that.

94

I don’t think she’s saying she’s above average. She’s saying that people who need to call Suze Orman to ask if they should buy a fourth motorcycle probably don’t deserve six figure salaries.

95

I think you mean to say “Manhattan and Brooklyn.”

96

With respect…I’m sorry, but that is a simplistic and very judmental hard line stance. Everyone’s relationship is different, and it doesn’t take into account time frames. You yourself said that your SO took 15-20 years to learn about financial responsibility.

So…at what point do you feel betrayed and repulsed by the other person if they would prefer learning by doing? I mean, how many times did your SO commit a fiscal indiscretion that you didn’t approve of? It had to be quite a few in such a long term relationship.

Not everyone can learn by being spoken at, and allowing them the flexibility to learn that lesson on their own terms is too often left out of the pile for a hard line stance, like what you defined above.

97

You been to Queens lately? :wink:

I mean, I guess if we get specific, we’d say parts of Manhattan, Brooklyn, Queens, and Staten Island. Not sure how gentrified the Bronx is.

98

Excellent point, and wonderfully communicated. I admit I fall prey to this on occasion. I see families I know who own, say, a boat, several ATVs, motorcycles, etc. and can’t help but think they a) make more money than I think they do, or b) are spending themselves wildly into debt. But I don’t consider how much they spend on automobiles, vacations, day care, dining out, property taxes or other expensive outlays. You can’t look at one aspect without considering all expenditures. Not to say a lot of people don’t spend too much, but one must also consider that everyone has different priorities.

And, as others point out, $150 per year means vastly different things depending on where you live, whether you have children, etc.

99

It’s more of a matter of discipline- there has to be a mindset that your obligations need to be met first, and there has to be some awareness of what purchases will actually do to your finances- there has to be that “I can afford this, but I won’t have any money left over” or the “I can afford this, but if I get that other item, I’ll have adequate capability and save 50%”.

Basically just because you can afford a 65" LED flatscreen TV doesn’t mean that you have to get one if a 40" version will do the job in your house.

I know a lot of people who don’t really think that way- it’s ALWAYS the biggest and best that they can afford at any given moment, usually because they’re trying to impress other people.

I’m reminded of a friend of mine’s parents, who got caught up in the “keeping up with the Joneses” rat-race with a bunch of other parents of kids I knew growing up (roughly 1975-1995). While my parents were content to be considered no-fun and to have crappier stuff and save for retirement, my friend’s parents tried to keep up with the other kids’ parents despite a lesser income.

Fast-forward to 2013, and my parents have been comfortably retired for 10 years, and my friend’s parents are still working in their 70s because they didn’t save any money for retirement, and spent it all on cars and houses and spiffy furniture.

100

To amplify what others have said, people take their impression of what is normal from their peers, and what they see around them … which means sources like TV.

The problem with this is that much of what we see from both sources is often distorted.

First, what we see in others is often distorted by the plague of un-frugality that afflicts our society, combined with our habitual secretiveness about financies. In general, people overspend on consumer goods and luxuries and undersave. The result is that what we see in our peers and surroundings is that people are spending like mad on fancy cars and luxurious houses and furnishings; what we don’t see is how much of this is financed through debt - or at best, by people who spend far more then they ought, at the expense of rational levels of savings.

Second, the media aids and abets this perception in countless ways. Look where you will, in TV shows and ads the “average person” is pretty consistantly depicted as living in a luxurious house surrounded by expensive consumer goods that are either well out of reach of the actual “average person” or, alternatively, can only be afforded by the above-noted frantic spending and lack of savings.

Confession time: I am a lawyer in a major Canadian city by profession and my income is, as I know, quite high compared to the norm. I support a family. I save what I consider to be a rational amount for the future and retirement. Given these facts, I can afford many things, like a house and a certain level of spending, but I cannot really afford much by way of serious luxuries. I cannot afford a luxury car, or a vacation home; even serious home renovations are a stretch - that is, I cannot afford these things, and still save money for retirement, for my kid’s education, etc.

In short, I can just afford the “average middle class lifestyle” as depicted in various media and as seen on my street and many like it, and no more. Yet pecentage-wise, I’m in the top 1% of earners. How do others who earn less do it? Logically, the only answer is - they aren’t saving. If they are earning less than me, have no inherited wealth, and yet have more luxurious surroundings, they must, inevitably, be spending a greater percentage of their income - at the expense of savings - or running up debt.