In a canny feat of trolling, The Wall Street Journal has published an article about people making hundreds of thousands of dollars a year living paycheck to paycheck, on the verge of going broke. There’s Sylvia Flores, who made $200,000 a year but managed to amass $300,000 in credit-card debt. There’s also Robert Bell Platt, a patent lawyer who bought six cars, two vacation homes, and two speedboats along with his partner before realizing that they needed to downsize.
Here’s the scary part: You might think that the Sylvia Floreses and Robert Bell Platts of the world are outliers. Rich families, after all, are much better at saving than poor families, since it is much easier to save when you are rich. But research shows that a surprising share of Americans live hand-to-mouth — even when they are wealthy.
The best look at the phenomenon comes from a recent paper by economists at Princeton and New York University. It finds that about a third of families live paycheck to paycheck, spending as much as they take in and holding little or nothing in their checking or savings accounts. But a full two thirds of these households are not really poor. They own houses, retirement accounts, and cars. Their median holdings at age 40 add up to $50,000.
There are a few important differences between the middle-class-and-up families living hand-to-mouth and the poor families hand-to-mouth, the researchers found. The “wealthy families” — as they described them — tended to be older, better educated, married, and higher income. They also tended to spend only short periods of time living paycheck to paycheck, whereas poor families languished in that state for years and years and years.
It’s easier to get your head above water if your income is higher and you have assets to fall back on, in other words. That’s a reality that the Journal story and the human anecdotes contained within, to their credit, acknowledge. Throughout the piece, out-of-control spending is described as a problem, rather than a too-high cost of subsistence.
That is often not true, as perhaps best demonstrated a few years ago by one Todd Henderson, a University of Chicago law professor incensed at the idea that Barack Obama might hit him with a tax increase. (He’s taken his online rant down, but you can read the full thing toward the bottom of the page here.) At the time, Henderson and his wife were pulling in more than $250,000 a year but still found themselves hard up.
Like most working Americans, insurance, doctors’ bills, utilities, two cars, daycare, groceries, gasoline, cell phones, and cable TV (no movie channels) round out our monthly expenses. We also have someone who cuts our grass, cleans our house, and watches our new baby so we can both work outside the home. At the end of all this, we have less than a few hundred dollars per month of discretionary income. We occasionally eat out but with a baby sitter, these nights take a toll on our budget. Life in America is wonderful, but expensive.
In short, money is easy to spend. Spending all your money is a good way to feel poor. And however rich you are, the guy earning more than you is the guy who is really rich.