What is the mindset of middle class people that keep them middle class?

In My Humble Opinion
241

I know I said I got it, but I didn’t truly get it until a little while ago while discussing finances with my husband, and I just want to thank you for what I feel is some of the best financial advice I’ve ever received. I understand now that with a fixed payment, keeping the money in savings really doesn’t change the financial picture at all, except that it keeps the money flexible for emergency expenses and other necessities. This may be common sense to you, but it has been a major paradigm shift for me. As I said, this money stuff doesn’t come easily to everyone.

FWIW, I agree with Malthus that it can be hard sometimes to do an honest cost/benefit analysis of paying more for education. Especially when you’re dealing with the top-tier schools, you have to really consider whether having that brand attached to your name is going to benefit you enough to justify the extra cost. I went through this myself, and it was extra difficult because of how much I just freaking love education. It’s hard to think rationally when you just want to learn.

I admit I wasn’t totally basing my decision on what was most financially sound, but the reality is people who graduate from my program make more than the average person in that field, have access to numerous job opportunities and training enhancements and a number of things that you just don’t get at cheaper schools. I had to consider that when weighing my options.

It kind of came down to something like this: make $40k a year with $60k student loans, or make $50k or 60k with $100k in student loans? And neither is a guarantee. You can make an educated guess, but it’s getting harder and harder to do that. Only time will tell if my investment will pay off in terms of pure finances, but I can at least say I tried to get the best education I possibly could. That to me is really ‘‘living life.’’

242

Wait, what? OP, you consider yourself to have moved away from middle-class? So you think yourself upper-class? But you were born working-class?

Haha! You are NOT upper-class. Upper-middle-class, sure. But upper-class is not just about money; it takes generations to be upper class. If your daughter were to marry Prince William, she wouldn’t be Upper Class, though their kids would be through him - he gives them a fast-track line to the upper class. If your daughter married a minor baronet then their kids would be upper-middle-class.

You don’t really think you’re upper-class, do you? Seriously? Do you think the Beckhams are upper class because they have lots of money?

243

I think I’m out of this conversation at this point. We seem to be diving into minutae and coming full circle with points and counter points.

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I find it more frustrating the portions of the middle class that feel the need to get a really good education - in History. A good education in anything at all is not a guarantee to a job, but some situations are not terribly supportable.

My husband went to a very expensive private liberal arts school - with a degree in Sociology. Its worked out well for him - basically he got lucky. But some of his classmates have never really managed to turn their liberal arts backgrounds into jobs that pay well in the 25 years since we graduated. Which, when the tuition at the school is $40k a year, can lead to a really crippling situation with regards to debt.

You are better off financially going to trade school and becoming a car mechanic than spending four years at a private liberal arts college for a degree in English Literature. Which doesn’t mean a degree in English Lit isn’t a very worthwhile thing to study and can’t be terribly fulfilling and can’t be your passion. But as a financial investment in your future … no.

My first almost a degree is in Art History, minors in History and Women’s Studies. I’m the Queen of useless B.As. - or almost B.As. Like my husband I did well, like my husband I got lucky and fell into a career where the degree, even having one, wasn’t important. Not that common to fall into a six figure a year job with “almost” a B.A. in Art History - it was 15 years of falling before I made that though - I left college as a $7 an hour secretary. I also went to a state university and between my Dad’s very generous contribution, a nice full ride my last year, and working 20 hours a week from before I left high school - I didn’t have a penny of debt.

245

[quote=“emacknight, post:180, topic:550255”]

Good luck finding someone without pre-existing assets and making only $50k/yr in the DC area where I live that can buy a house, or even a condo in a relatively safe area.

After the 40% that comes off the top in income taxes and deductions, and the extremely high cost of living here, I think you’d need more like $500k/yr to buy a house.

246

Yeah, I noted somewhere upthread that some of these numbers going around need to be adjusted for location. However, you should also note that DC and other areas like it (NYC, SF, LA, etc.) are the exception rather than the rule.

And yes, in these areas, you have to spend a higher percentage of your income on housing than what the so-called economic gurus recommend in order to not be killed or have your kids go through metal detectors at school.

247

Oh, and don’t forget, “empire” has a distinct meaning here. I wonder how much product $10 million would get me for further redistribution. :stuck_out_tongue:

If I were “rich” instead of “middle class” I could tell my employer to screw himself, and then I wouldn’t have to be in Mexico City. I’d be back home in Michigan.

My neighborhood in Mexico City is actually richer than I am. They pay more (in US dollars, I might add) for tiny, little “luxury” apartments that have zero land and Ikea kitchens, than the sum total of every house I’ve ever owned. I wouldn’t be dumb enough to waste any of my own money here, even if it were lottery proceeds.

248

Agreed on this point, but I think there is a pretty simple solution. At most universities nowadays it is pretty easy to do a double-major. So I think I would say to my future children, should they choose to attend college, ‘‘Whatever you want, whatever is your passion and dream, study that. But also study something you’re interested in that will get you paid.’’

My illustrative example is my two friends who majored in theater. One majored in theater alone, the other double-majored in theater and political science. They both graduated at the same time. One is working retail and living with her parents, the other is in law school.

I kind of broke with my own advice when I majored in Spanish Literature, but at that point it was really about graduating in something. I suspected Spanish would be a good base degree to pursue an MSW, and I was right. I damn near majored in Philosophy, so it could have been much worse. :wink:

Yeah, this is basically true in New Jersey too. The cost of living here is very high, particularly housing. I’m living in a suburb of Philadelphia and pay more for rent than my best friend who lives in Chicago. And I don’t own a home, but I’ve heard horror stories about property taxes. It seems like if you’re really interested in stretching your dollar, it’s a bad idea to live on the East Coast.

249

I have a friend who majored in Theatre and went to Law School. One of my favorite History peers was a guy who majored in History and got accepted to med school (he did take a lot of Bio, Chem, etc. - but not enough, or not the right classes, to have a Sciences major).

If you are going to go to grad school, and are convinced when you start that you know what direction you are going (and are going to get there), for a lot of fields you can undergrad in anything. My acquaintance with the History major might have been a little better off with a chem eng degree, just in case he didn’t get into med school from a career standpoint.

(My friend with a Social Work degree just started nursing school. She decided she’d rather be a nurse than a social worker, but she was almost done with the social work program).

Which is another thing that gets me - going into debt for a grad degree that you don’t bother to start until you are 40. I have a number of friends in their 40s (and not always on the early side) starting Masters degrees - generally to the tune of $75-100k+. The ROI on that one doesn’t look promising. There are reasons to do it other than it being a good financial decision - pursuing your dreams has value. But as a financial decision, there is a point in time where you have to say “That ship has sailed.”

250

The jobs are higher-paying and the opportunites to make even more money are better here in DC. My county has comparatively lower property tax rates and the housing bubble didn’t have as profound effect.

251

Sometimes, the mere fact of having a useless degree can be financially useful down the road … as you mention later, in the example of your friend who got a history BA and then went on to med school.

I did that, sorta. I’m the king of the useless BA - majored in anthropology - but having good marks helped with getting into law school.

Certainly, I had not the least thought of financial practicality when I sought that first degree. :smiley: I did it because I wanted to, for my own amusement.

The problem here is that the way the system is set, seeking financially useful vocational-type training can forever preclude you from seeking anything more (or at least, make it very difficult). If I had been more financially prudent back then, and sought training in the skilled trades rather than a useless anthro degree, I’d be (say) a plumber and not a lawyer now.

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It worked well for me, too. But its a riskier move - you either need grad school (which assumes you have the talents for grad school) or to get lucky (which isn’t just luck, either, my husband and I have done well with useless degrees because we were in the right place at the right time, but with the right talents and the willingness to say “sure, I can learn that!”)

I hang on another board filled with mostly middle class mothers asking money questions. Of late there has been a lot of “my kid is going to a $40k+ a year school for a degree in Anthropology and will need loans” questions. If you want a degree in Anthropology, great - might be an unaffordable luxury to do that at a private school though and there is a lot of risk that the benefits of a very liberal liberal arts education at a private school won’t pay off long term.

253

College degrees can have funny connections with careers. I majored in Biology and Microbiology, but never finished the graduate programs because I couldn’t make the ROI work for me.

After 10 years doing medical research, I switched to software engineering. I got my first job because when I explained what I did to plan and execute an experiment, the hiring manager for the software firm said “That very close to the process we use to analyze and design software systems.” - and gave me a shot. Worked out great for both of us.

254

I think for a lot of us, university was much more affordable than it is now. I get the sense that like me Malthus went to university in Canada when it was probably less than $3000 a year. My first year tuition was just over 2 grand, and by the time I was graduating it had risen to about 4. Grad school then cost $6000 a year. By the time my sister started school her undergrad tuition was about to $6000 per year.

Sort of goes back to what I was saying about culinary school. At $2000 it was a great experience, but at $26,000 it’s a ridiculous waste of time.

With that in mind, what would you recommend to a 17 year old about to graduate highschool? He could probably find a job and make a solid $30k, or he could spend 4 years and over $100,000 on tuition and residence to make $50k.

Once he starts working, all that money has to be paid back, which is going to take a huge chunk out of his pay checks. Repaying it in 5 years is almost $2000 a month! Or $1000 a month for 10. If our new grad puts away for retirement, after taxes he’ll only make slightly more than $3000 per month. So for 10 years he’ll only have $2000 per month to live on.

Meanwhile, his friend without the degree is making just slightly less than $2000 per month.

The key difference here is that at retirement, the college grad will have considerably more.

And I fear the biggest problem here is that when faced with the $1000 a month loan repayment, it’s just way too easy to say, “I’ll wait to start saving until after I pay this off.” And this is where it all starts.

Remember that part of the middle class mindset is to want to live at your means. It is very unlikely that this new grad is going to want to live like someone making $30k a year. He isn’t saving so his car is leased and he runs credit card debt.

When it comes time to buy a house, he doesn’t have the 20% down payment so he’s paying mortgage insurance on top of a higher interest rate. He also decided that his house should be 3 x $50k instead of 3 x $22k (his income after retirement, taxes, savings, and loan repayment).

This is how middle class people stay middle class.

255

Now, as a compare and contrast, let’s look at our highschool grad making $30k a year.

He puts 10% to retirement, 15% to taxes, then saves a modest 10% for mid to short term savings. His monthly salary will be $1721, of that he’ll have about $500-600 a month for living expenses. In my experience in a variety of cities that means sharing a two bedroom apartment, nothing fancy. He’ll have about $600 a month for transportation and expenses, and $600 a month for enjoyment.

After 4 years, he’ll have saved $12,000, more than enough to buy a good used car. And after 8 he’ll have saved $25,000. If you consider that he has $600 a month to put towards a mortgage, plus $20,000 down payment, he can get a $100,000 house. So at age 27 he’s building equity. And by age 57 he’ll own his house. And depending on interest rates, by 65 he’ll have a million dollars in his retirement account.

The college grad on the other hand doesn’t get to save anything for the 4 years while at school (or at least not very much), and then after graduating has $12,000 a year in loan repayments.

Here is where it gets interesting: If he puts 10% to retirement, and 15% to tax, and 10% to savings, he’ll have $34k per year ($2800 per month) and then loses $12000 to loan payments leaving him less than $1800 per month. About what the other guy makes. So if he’s willing to live like someone making $30k a year he can actually save $20k by age 27 and buy the house next door to his buddy.

If, on the other hand, he forgoes saving, he could pretend he has $2200 a month, and put about $750 towards rent. Means he gets a nice little 1 bedroom. He has more money per month to put towards transportation so he leases a nice car. And has slightly more money to play with making him feel better. When it comes time to buy a house, he doesn’t have the down payment, so he gets one of those crazy no money down mortgages. At $750 per month he can only get a $90,000 house.

His middle class mind set has made him worse off. At least for the next 10 years until his loan is paid off.

This is where people start doing weird things. Remember he makes $50k a year, he feels he’s entitled to a $150,000 house. But that would cost him over $1100 per month! Leaving him just over $1000 a month for all his other expenses.

Granted, these are all back of a napkin calculations, but it should give some perspective to what I was saying about savings and the ability to either get better, stay the same, or get much much worse.

256

To me, the issues you’ve described are what keep people in the lower end of the middle class. Upper-middle class don’t do those sorts of things, and truly rich people do whatever they want.

The biggest factors working against upward mobility are probably that (a) class mobility is really hard, you might get to move up one class per generation, (b) the persistent myth that there is a ladder-like meritocracy that you can ascend by working hard enough, acing tests, etc. Sometimes the Horatio Alger story works, but as a general rule, the truly rich are either born that way or did things that would make most of us vomit.

Note: I recognize there’s some goalpost-moving in saying “truly rich”. IMO, having salted away thrice again what you need for retirement makes you financially rich by some measures, but that alone doesn’t advance you to the upper class. If something came along and wiped out your wealth, and you couldn’t reconstitute most of of your upper-class lifestyle within 2-3 years, you weren’t truly rich nor upper class.

257

Just saw this post… if you have enough to the point to where your income is is around $200K per year, passively managed, you are “rich”. If you need to work, you’re not rich. I think that would put you around 10 million of productive capital, not including your possessions. A person with no debt, nice house, nice car, ample savings, is well-off but not what I would call upper-class or rich-class or what have you.

258

I brought up lottery winners for the reason that it represents a windfall, much like being a successful entrepreneur. The comparison isn’t that the two people are the same.
The comparison is that they now must deal with the fact that they suddenly have millions of dollars at their disposal.

Both arrived at “rich” in two entirely different ways, but their mindset will ultimately determine what happens next.

It is entirely possible that our brilliant inventor will blow everything he has on blow. And is is entirely possible that the lottery winner will turn it into billions.

I’m not trying to suggest that just by saving a person will become exceedingly wealthy. But if you consider the life of a person making $50k a year, chances are to them making $80k a year *seems *like being rich. Add to that the ability to live like something making $80k a year AND not having to work seems like a pretty good improvement from $50k a year.

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I only read the OP, and I understand all of those things very well. (MBA/CPA/JD)

The answer for me is that I could be “rich” if that’s what I wanted to spend my time thinking about and doing, but I don’t. There’s lots more to life to go after once you reach a basic level of security. Class is only relative. In absolute terms, my middle class existence is quite enough to let me focus on more meaningful things.

260

(sorry, haven’t read the whole thread!)

The answer is they are not willing or able to give up time with their families in pursuit of more, more, more.

Some people don’t need BMW’s and 3,000 sq. ft homes. Trading off the time it would take to get another degree, work more hours, isn’t something that motivates them. They have a roof, groceries, one car, some savings and they find it enough.

(oopsy, I only now, see Flipshod was thinking the same as I!)