60% of Millennials Earning over $100k Live Paycheck to Paycheck
businessinsider.com
businessinsider.com
Many individuals like to show off when they have some money. Buying expensive cars, expensive clothes, expensive dinners, expensive outings, expensive gifts....and the list goes on and on.
I am extremely comfortable around $100k. I do my own house maintenance, projects, I do my own car maintenance and repairs. We eat out here and there but nothing fancy. I am constantly doing small updates on the house and I have decent medical expenses. Every month we have money to spare, while constantly investing in 401k, S&P/Russel, bonds.
People need to turn off social media and stop buying garbage. I have met a guy making $400k a year in the banking industry prior to 2008 crash. Wife stayed home, while kids went to daycare. They cleaning ladies, and sometimes cooks to make dinner for them. Few million dollar house. After he lost his job, they lost cars, house and then divorced.
The moral of the story is it doesn't matter how much money you make but how financially savvy you are. There is a reason many professional sports players in the US "flex" during their prime years but then go broke when money dries up.
The people I went to law school with are now buying $1.5 million+ houses. Even on a $500k/year salary that's insane. My wife, who grew up in a modest household, simply couldn't pull the trigger on a mortgage like that. We moved an hour outside D.C. and bought a house for 1/3 that much.
I understand close-in houses are more expensive than they used to be, but there's also been serious lifestyle inflation among middle class millenials. I grew up in a solidly middle class household; my dad had a graduate degree and a white collar job. We ate at Sizzler, sat through the timeshare pitch to get tickets at Disney, etc. We travelled internationally just three times growing up: twice to go back home to Bangladesh, and once to Paris. Today, it seems like millenials think that just because you have a white collar job you should be able to afford an international vacation every year.
I would even say that given some people's circumstances, and the odds they face, it might very well make sense for them to live it up in their healthy years if they feel like the probability of seeing a sufficient return on their grind is too low.
Maybe they saw their parents and families work two jobs and end up with nothing, or for whatever reason, do not have the chops to get the right credentials or learn the skills to vault them onto the next rung of the ladder. Or they were 18 to 21 and invested in an enormous amount of debt thanks to the US government's "generosity", that has very little payoff, and they figure they will never make it out of that debt.
At that point, you have already made mistakes you cannot recover from and it makes sense to just say screw it, and live for the present.
The fact that people are complaining about the cost of kids and housing is telling. The media glorifies the Sex in the City lifestyle, but I think most normal people once they hit their 30s want to have a family and a house. What they want in life is closer to Des Moines than Greenwich Village. It’s really hard to do that in NYC and SF, and I think our culture has done a poor job educating millennials about what alternatives are out there.
But maybe people have preferences of what they want in life and Iowa is not it. If Iowa was many people’s dream of a location, the unemployment wouldn’t be 3.7.
> But maybe people have preferences of what they want in life
As with everything in life, there are tradeoffs. If someone is so wedded to the idea of living in the Bay Area or New York City, then they should accept the reality that a low six-figure salary won't get them very far in terms of material benefits and creature comforts. In return, they get trendy brunch places, awesome dim sum, and proximity to Hamilton. You're right that if people prefer that, it's their prerogative, but they also can't come back and complain that they can't afford a nice big house and maybe a little more disposable income like their peers in Iowa. Ideally, these cities do more to construct housing to meet their demand, but as long as that's not happening, this is a very real tradeoff that every rational person needs to make; especially those that are privileged enough to earn $100k+ per year.
I chose to live in New York City, and fully accept all the upsides and downsides of my decision.
When will the people who write these articles understand this?
I am convinced that today's house prices are tearing apart the fabric of society, without exaggeration.
This is then coupled with restrictions on land use for those limited areas that are in high demand (sometimes because of the quality of life enabled by the restrictions on land use).
Otherwise, there are very large swaths of the US with reasonable land prices. But they come with tradeoffs, so addressing house prices itself is not good solution. Addressing the tradeoffs themselves is a long term solution.
With you so far.
> and implement a basic flat tax
What's a "basic flat tax"? How does taxing every income at the same percentage simplify "loopholes"? Loopholes occur when deciding what counts as income.
They do say that $100k is considered middle class, so I guess they might be semi-high earners. But they still aren't in the upper class according to income.
Studio rent in San Francisco averages $1900 according to a few online sites.
That means after housing and taxes in the most expensive city in the most expensive state, a single millennial making $100k per year will have $4100 per month in disposable income. That is plenty to invest, cover a car payment and some student loans, food, clothing and other essentials, and still have plenty in the bank afterwards.
In practice, you'll have like 3000 a month in disposable income. Living in an expensive city that pays high salaries, you can live frugally on $1,000 so that leaves $24,000 savings a year if you live an incredibly cheap life.
Entertainment, alcohol, day trips/vacations, and hobbies can easily eat that up.
$2000 seems like an insanely high amount of money to spend on "Entertainment, alcohol, day trips/vacations, and hobbies", especially when you consider that's almost double the federal minimum wage.
That said I think you could make the same argument with the same numbers you point to roommate situations rather than studios. Anecdotally, most of my fellow new-grad engineering hires at around $110k had roommates. I was unique in commuting about an hour for a 1BR.
https://doctorow.medium.com/the-rents-too-damned-high-1a04a5...
But how can it be tearing apart the fabric of society if inflation adjusted mortgage payments (ie. the number you actually care about) has been trending down since the 30s?
https://awealthofcommonsense.com/wp-content/uploads/2021/03/..., from https://awealthofcommonsense.com/2021/03/what-if-housing-pri...
One of those is less brittle than the other, though:
* Down payment on a $1M home is almost the cash price of a $300k home. Saving up for a down payment is analogous to saving up for a home.
* It's a lot easier to come up with $300k than $1M if I want to pay off the mortgage early and be free (and it's financially worthwhile). A $1M mortgage is a 30-year ball-and-chain.
* A lot of associated costs are lower. For example, if I sell a $1M home bought on margin, I'm out $50k in realtor fees. If I sell a $300k home on margin, I'm out $15k in realtor fees.
I'm not quite sure the right number to look at. Down payment doesn't seem like a bad one, though.
If your job opportunities aren't in Cleveland, that housing prices have decreased there doesn't really help you.
Anecdotally, the sacrifice required -- living a draconian life of cheap groceries, awful living conditions and long commutes -- is simply not worth it to lots of millennials who instead choose to enjoy their 20s and the healthiest years of their life having a good time balancing a regular job with a relatively lavish lifestyle off of work.
The tradeoff will probably mean much later home ownership (if at all), marrying someone who has money, or inheriting property from their parents.
That's not to say that there isn't plenty of poor financial management going on, but if you have 3 kids you can't just start a 4th side hustle, live in a cardboard box, and put all your money in crypto and then retire in 4 years.
$500/m, maybe, on healthcare, for kids who aren't particularly sickly and don't have chronic conditions. Family insurance coverage levels this cost out a bit, though each kid increases the likelihood of accidents or illness, which is expensive. Birth cost is likely to hit whatever your max-individual-out-of-pocket cost is, and potentially double that if you time it very poorly.
Cost increases to housing and transportation vary a lot but I think $500/m is a fair low-side-of-average guess to put on that. You can technically avoid much of that, but usually only at costs most people won't accept if they can at all afford not to (e.g. sending your kids to bad/dangerous schools). This doesn't scale per-kid like day care does, though.
Food and other consumables.
Probably looking at $5,000-$15,000 for each birth, unless you spread too much of the pregnancy over two years (if you get all the pre-natal care in one deductible year, and the actual birth in another, that's very bad). This assumes none of the kids are actually sick. Three kids (minimum for statistical above-replacement rate) and we're talking $15,000-$45,000 paid for births, and probably $30,000-40,000/yr while they're young (daycare), dropping to maybe $15,000-$20,000/yr when they're a little older, total, for all three. Food, clothes, incidentals all (very roughly) included. Again, assuming your kids are basically healthy—any chronic illness can add hundreds to thousands per month, easily.
Yeah, it's a fuckton of money, and a whole lot of risk on top of what you're nigh-guaranteed to spend.
At least you get a tax credit to pay for a small fraction of it. That's nice.
Mine are in early grade school or about to enter school. Did a mix of some stay-at-home-parent and some daycare. I reckon we're approaching half a million spent so far, which would have had us well on the way to early retirement. I'm not counting opportunity cost. Way the market's done, that'd be well on the way to a million now. We've taken, like, one of them on a non-long-weekend vacation ever (the others weren't born yet, it's not like we ditched them), and none of them have ever flown anywhere, so we're not spending lavishly on vacations. Public school (so far, anyway). Mostly cheap "activities" (swimming lessons at the community center, stuff like that). We're in a low-cost-of-living area. Having kids took us from guaranteed, comfortable early retirement to... well, frankly I don't expect to be able to stop working until I'm not physically able any more.
That is what the article says so seems there is at least some issue with their spending habits.
Maybe you have kids, and don't want to take them away from their school.
Maybe you have kids with an ex, and you're legally not allowed to move more than N miles from your ex without their agreement.
Maybe you're heavily invested in your community with friends, family, church, sports, etc.
Maybe you can move, and get a job somewhere else, but for some reason your partner is much less likely to be able to.
It's not that moving is always impossible. Heck moving might truly be the better idea. But it can be extremely costly socially to move, and even then it isn't necessarily going to actually solve your problem.
I’d like to see less hysteria over home prices and “a bar of soap used to be five cents, everything is so expensive now!!”
The average home is larger with more amenities than it was during the mid-century. You can get roommates, your kids can share bedrooms. You don’t need two bathrooms: my parents grew up with four kids sharing one bathroom.
And, yes, parents always had to make lifestyle sacrifices to raise kids. My parents weren’t going out to eat and traveling to exotic locations when they were raising me.
By the way, people don’t shop on home prices, they shop on monthly payment. That’s a large reason why home values increased during Covid: interest rates plummeted, so everyone can afford a higher priced home.
> HENRYs [High Earners, Not Rich Yet] typically fall victim to lifestyle creep, when one increases one's standard of living to match a rise in discretionary income. They prefer a comfortable and often expensive lifestyle that leaves them living paycheck to paycheck.
That kind of problem can't be solved with more money. It has to be solved with a behavior change.
Is that so crazy if you're making 1.5x the national median income?
> That kind of problem can't be solved with more money
Who's talking about "more money"?
> solved with a behavior change.
Or a zoning change? Or changes to property taxes?
> Is that so crazy if you're making 1.5x the national median income?
You left out the rest of the quote: "that leaves them living paycheck to paycheck."
If you're living paycheck to paycheck, you are living above your means. You have no financial room to adjust if something unexpected happens.
That's a problem. A completely unnecessary one as you would have enough leeway if you reduced your cost basis. People that earn much less usually don't have that possibility.
Sure. But if regulations force prices of essentials (like housing) up enough to take most of your paycheck, how much is it down to personal responsibility? And how much to regulations beating down regular workers?
Yes, housing regulations are pretty much the root cause of all of the Bay Area's problems (IMO). But at the same time, people making $100k+ aren't helpless, they have all the agency and means to live within their means. This includes making the decision to live with roommates, or perhaps even leaving the Bay Area for saner pasteurs like other commenters in this thread.
Earlier, you said the following: "Is that so crazy if you're making 1.5x the national median income?", and I'd like to dig into that a little more. It's not really accurate to compare Bay Area's income with the national median without also considering how the cost of living compares with the national median also. Bay Area new grads are certainly high earners relative to people in Iowa, but they're decidedly middle class relative to their peers in the Bay Area. If you want a proper apples-to-apples comparison of how "HENRYs" ought to live their lives, you need to compare them with people in other parts of America that are also middle class relative to their local peers.
Either that, or you have to compare their income to the median income in the Bay Area, which I believe is around $96k. So if you're earning $100k, you're not earning 1.5x the median, you're at the median, and should therefore spend like you're in the median.
Sometimes it's "keeping up with the johns'", but I think it's more that what people see as the base level of living at their level is too expensive, and people don't want to give anything up.
A huge number of people operate at the verge of insolvency, because they refuse to compromise quality of living. It's not just about knowing, you have to be willing to give something up.
1 USD is just under 0.85 EUR at the moment, but if you convert the price of a beer or hamburger in a place like New York or San Francisco to euro and compare to Paris or Berlin you get 1.2 or so beer/burger there for that same dollar. Suggesting that in US big city terms maybe a dollar is only worth maybe 0.70 euro in buying power.
I'm not an economics expert, but I think this results in a built-in wealth transfer from "countryside" US to big city US. Because wages in San Francisco and New York increase with the high prices but the rest of the country doesn't do so as much.
A good idea if money is losing value (inflation) faster than the cost of money (interest rates). AND if you can find an asset that will gain value faster than (interest rate) - (inflation). After discounting for risk and volatility.
But asset prices appear to running ahead of inflation right now, and thus risky.
Still, the Federal Govt and Federal Reserve appear to be interfering in the price-setting mechanisms of the market in new ways lately. Really since 2008. Signaling that (upper)middle-class property speculators will have some protection from rising interest rates. And too-big-to-fail banks and perhaps large employers will also be protected.
What's not clear is how much control the Feds really have. And how far they're willing to go.