A few weeks ago I was channel surfing and I came upon one of those reality shows in which two families trade mothers. In this case, one of the families was a very well off two-income family with a palatial house in the Washington, D.C., suburbs. At one point, it was hinted that this affluent family had a lot of credit card debt and they were to use the $50,000 they were paid for appearing on the show to pay some of that debt.
That got me to wondering – fairly regularly we hear that the personal debt levels in the United States are skyrocketing. I had assumed that most of that debt was for the lower range of the middle class, say with annual household incomes in the range of $40,000 to $100,000. However, is it the case that more affluent households are also taking on massive debt to fuel their lifestyles?
Does anyone have figures for the personal (non-housing/mortgage) debt of households in the $100,000 to $200,000 range?
This is not new. The rich have always borrowed. It’s called leveraging and it’s the way people like Donald Trump and Ted Turner can recover after losing millions in a failed deal. They have little free capital to buy a new building, but if they can convince some investors that they have the Midas touch, they can borrow to start a new project.
In the 1800’s, John C. Fremont bragged, “When I came to California I was broke, and now I owe two millions of dollars.”
Note, though, that I’m not talking about the very rich, who can fail their way to the top. I’m specifically interested in the bottom of the affluent tier, as I indicated, with annual household incomes between $100,000 and $200,000.
$100,000 is setting your sights quite low. Okay, in the middle of Mayville, that’s probably pretty affluent. In any case, it’s not a bad income, unless a 900 foot ranch on a 40x60 lot costs $500,000. And for the record, yes, it’s more than I clear.
For context: an autoworker can make that with good overtime. Her autoworker husband can bring in the same. In my experience, they require the overtime, because their debt-load for their toys is extreme (not well-educated people, mostly).
Do you mean to suggest that those with degrees or professional occupations are less likely to accumulate personal debt? I can’t say that I’ve heard such a statistic – my gut reaction is to doubt it.
No, I don’t mean to imply that at all, and I’m sorry if I came across like that. “Education” is any means to know something. And, yes, less educated people are terribly guilty of spending everything they have and going into debt just because they can.
Statistics? No, but a whole lot of anecdotal evidence. Could be just my region of the country, where we have a high incidence of overpaid auto workers who are comparatively rich compared to the same job type in the rest of the country (the USA, I mean). Some of them have better former education than I do; please understand I’m speaking of broad generalities and not for 100% of the people.
Balthisar: *$100,000 is setting your sights quite low. *
Actually, it’s right about where acsenray said: “the bottom of the affluent tier”. Or at least it was as recently as the late 90’s. According to this report, in 1995 only 3.3% of families had incomes greater than $100,000. 33% fell into the $25K–50K category.
This report has figures up through 1998, indicating that in that year, the percentage of families in the $100,000+ income group that were “heavily indebted” (i.e., had debt service payments equal to or greater than 40% of their income) was 2.1%. For families with incomes below $10,000, that percentage was 32%, which isn’t surprising. The average debt burden for those two classes, though, was 10.0% and 19.4%, respectively.
I don’t know where you might find numbers specifically for the bottom part of the top quintile, though. But it does look as though, in general, those with high incomes are less likely to accumulate large amounts of debt—large in proportion to their income, at least.
Well, at a 3% raise per year, that’s $134,000 income per year, so it’s significantly higher today.
Given that, then, wow, I need to get out of the Michigan area. We’d be rich and affluent! As it is, we’re just the poor folks in our neighborhood.
Actually, if it were truly possible to make the same salary and benefits in another part of the country, this would be true. I have a funny habit of looking at prices on Realtor.com after getting to know neighborhoods throughout my travels. If I kept the same style house, then the surplus income not spent on housing would accumulate real wealth pretty quickly. Or we’d be able to live in “priviledged” neighborhoods for the same prices.
Lesson here: okay, national averages are one thing, but maybe local averages are a lot more important.
Balthisar: * Well, at a 3% raise per year, that’s $134,000 income per year, so it’s significantly higher today.*
True, and what’s more, since income inequality is increasing, the incomes of the wealthy have been increasing at a faster rate than average. So the “bottom of the top” probably is quite a bit higher than $100 K by now. I can’t find very recent figures for the floor of each income quintile, but the average income in the top quintile in 2000 was over $200K.
According to that the mean income in 1999 of the top 20% was $135k, which means that a small percentage of the top 20% are actually wealthy in the stereotypical sense of the word, for every household making a million a year you have about 25 households making 100k a year.
Don’t know much about debt, but it could be partly because the housing prices here in the DC area have gone nuts. While I know that other areas have gone up, I think that the DC area is one of the biggest. The house I own now, a small townhouse 30 miles outside of DC, I bought at $150,000 two years ago. Now it’s around $180,000+. I saw the price of the women I bought it off of and a few years before that they bought it at $90,000.
Many of the houses in the area have more then doubled their price, and it wouldn’t suprise me if they got a larger house and then proceded to buy a lot of stuff on credit. I’m not saying that’s the case but it could well be.
Last week I heard a radio show interview David Bach, who wrote the book Start Late, Finish Rich. He said on there that he got set up to interview a group of youngish people in New York who were making around $1M/year. What was surprising to him was that these people still managed to spend just about every penny they made, they just had more expensive stuff they spent it on. They had large monthly expenses to rid them of all that income, such as a high-end apartment, fancy cars, clothes, eating in expensive restaurants, etc.
My own data: my household income is somewhere in the 150-200 k/year range, I have no debt other than my mortgate (I owe about half of my house’s value), and I pay my credit card bill off in full each month. I haven’t paid a penny in credit card interest ever, in 21 years of having one. I haven’t had a car payment since 1987. My wife and I also put about 25% of our gross income into savings.
My own data: my household income is somewhere in the 150-200 k/year range, I have no debt other than my mortgate (I owe about half of my house’s value), and I pay my credit card bill off in full each month. I haven’t paid a penny in credit card interest ever, in 21 years of having one. I haven’t had a car payment since 1987. My wife and I also put about 25% of our gross income into savings.[/QUOTE]
Slight hijack, but can I ask what car you drive Curt? (Or maybe you don’t own one now?) I’m curious because it sounds like its indestructible! My wife and I rack up the miles on our motor, and the thought of car payments for the rest of my life is not filling me with joy.
Well, remember, there was a recession and dot com bust in there. So for a lot of people in that income bracket, things like raises came to a screaming halt. That may actually have raised the debt for a lot of people when they used credit cards to bridge gaps in employment. I’m not sure how well employment and salaries for the high tech crowd has recovered.