Seven things the Middle Class can no longer afford

[daylatedollarshort]

Quote:

Originally Posted by Hamlet This old youtube lecture by Elizabeth Warren before she entered politics does a much better job of presenting this case, IMO. She does a pretty thorough job of presenting actual data

I read her book Two Income Trap years ago and would put it on my top ten of all time best financial books list.

As far as the video, I agree with many of her points, but house size is one variable the middle class still has control over. House sizes have crept way up over recent decades, it is not just buying schools:

"According to the National Association of Home Builders, the average size of a new single-family American residence in 1950 was 983 square feet. Today, it is nearly 2500 square feet."

The Righteous Small House: Challenging House Size and the Irresponsible American Dream by Jason McLennan — YES! Magazine

This is not something I thought a lot about when we were younger. If we had, we would have gone smaller - lower home prices, insurance, taxes, upkeep, utilities, etc.

[Hamlet]

She actually addresses that in the video. New built homes are no longer being bought by entry level home-buyers, but by the upper middle class and above. Basically, there are no longer entry level homes being built-- all the new houses are move-up homes and the middle class is for the most part living in older homes.

The size of the house bought by the median-income two parent, two child family that she filtered for went up by a bathroom or a bedroom (but not both). So some creep, but nothing compared to the size change in new homes.

Quote:

Originally Posted by daylatedollarshort I read her book Two Income Trap years ago and would put it on my top ten of all time best financial books list. As far as the video, I agree with many of her points, but house size is one variable the middle class still has control over. House sizes have crept way up over recent decades, it is not just buying schools: "According to the National Association of Home Builders, the average size of a new single-family American residence in 1950 was 983 square feet. Today, it is nearly 2500 square feet." The Righteous Small House: Challenging House Size and the Irresponsible American Dream by Jason McLennan — YES! Magazine This is not something I thought a lot about when we were younger. If we had, we would have gone smaller - lower home prices, insurance, taxes, upkeep, utilities, etc.

[purplesky]

Quote:

Originally Posted by Hamlet She actually addresses that in the video. New built homes are no longer being bought by entry level home-buyers, but by the upper middle class and above. Basically, there are no longer entry level homes being built-- all the new houses are move-up homes and the middle class is for the most part living in older homes. The size of the house bought by the median-income two parent, two child family that she filtered for went up by a bathroom or a bedroom (but not both). So some creep, but nothing compared to the size change in new homes.

Yes I think the stagnant wages that the middle class has enjoyed for the past several decades has finally brought new home construction at the entry level to a crawl.

A few markets are still good. The rest of the country. not so much.

[athena53]

Quote:

Originally Posted by robnplunder Can average people in this forum relate to the article & where the author is coming from? Most folks in this forum seem to be multi-millionaires who can (and have been for some time) afford everything in the list.

Heck, yes, I can. I've never been able to afford everything I wanted in that list. My splurge is travel to Europe. I went at age 25 and age 28 and couldn't afford to go again on my own dime till I was 48. (Got there on business, though.). I married a financial train wreck, had a kid and struggled to keep the bills paid while my husband was unemployed the last 5 years and spending money faster than I could make it. I haven't bought a new car since 1991; current DH and I lived with one car for 11 years.

You know what? Life is good. We ARE multimillionaires and we still can't afford to have the best of everything on that list and we "can't afford" credit card interest at all. We're both adults who know that you can't get everything you want and sometimes you can but it takes awhile.

[Al in Ohio]

Article is crap. Shock value and way off base.


Sent from my iPad using Early Retirement Forum

[daylatedollarshort]

Quote:

Originally Posted by Hamlet She actually addresses that in the video. New built homes are no longer being bought by entry level home-buyers, but by the upper middle class and above. Basically, there are no longer entry level homes being built-- all the new houses are move-up homes and the middle class is for the most part living in older homes. The size of the house bought by the median-income two parent, two child family that she filtered for went up by a bathroom or a bedroom (but not both). So some creep, but nothing compared to the size change in new homes.

I guess I don't see that personally because in the Bay Area a lot of the cost is in the land, so many of the lower cost subdvisions are made up of newer homes out in the boonies. The urban areas with the older homes are often where the prices are higher because of the location and proximity to jobs.

[AnIntentionalRoad]

Quote:

Originally Posted by shotgunner I came across this article today. I am not sure what point the author is trying to make. Her list of 7 things the middle class can no longer afford strikes me as putting the people who can not afford such things well below middle class. Perhaps my perspective is skewed. What she says the M/C can no longer afford: - Vacations - New Cars - Paying off Debt - Emergency Savings Account - Retirement Accounts - Medical Care - Dental Care 7 Things the Middle Class Can’t Afford Anymore

Yes, it's tough to afford those things when one has a $150 cable bill and $200 mobile phone bill each month. Not to mention the fast food and luxury home.

One makes his choices and lives with his choices.

[purplesky]

Quote:

Originally Posted by robnplunder Can average people in this forum relate to the article & where the author is coming from? Most folks in this forum seem to be multi-millionaires who can (and have been for some time) afford everything in the list.

It sounds like everyone on here is a millionaire.

[Major Tom]

Quote:

Originally Posted by purplesky It sounds like everyone on here is a millionaire.

I believe most here who are already ER'ed yes, but not all. I am only a millionaire if you include the value of my future SS. I seem to remember there are a few other ER's here with sub-1M portfolios. We are, of course, foolhardy and not "real" ER's

[marko]

Quote:

Originally Posted by purplesky It sounds like everyone on here is a millionaire.

Well, the "FI" in Fire does stand for Financially Independent. You don't have to be a millionaire, but it does help. (and a million dollars doesn't buy mean what it used to!)

[athena53]

Quote:

Originally Posted by purplesky Did everyone read the same article. The article states that many middle income earners can no longer REALLY afford these items. Yes the middle class can spend the money but the article explains the consequences very well. They said a vacation would require a sacrifice of not buying another big ticket item. The article is saying middle income people shouldn't buy a new 32k car .

OK, I'll admit I didn't read it and thought it was another whiny story about how tough it is for the average person. It sounds like she was telling people to set priorities and they can't have it all. Good message.

I hung out on CruiseCritic when DH and I were planning cruises to Alaska and the cruises listed in the sig lines of many regular posters is mind-boggling. Some do 3 per year. Every once in awhile they start a "how do you pay for this" thread. Many live near the ports so they don't need to pay airfare and can jump on last-minute deals. Some, like DH and I, go cheap on cars and eating out so we can travel the way we want to. Still, when I wandered through Ketchikan before our trip back home, I was amazed at how much $$ you can spend on shore excursions.

• "Flightseeing" by helicopter, plus "sled dog experience"- $489
• Fishing- $160 + $20 for license
• Two hours of flightseeing by amphibious plane- $229
• Ziplining $175
• Taku Glacier Lodge and feast (Wild Alaska King Salmon), including flight- $280
• Walking tour- $45. (Mine was free. :-) )

People do this at every port. Hey, it's once in a lifetime, right? And the charges above are per-person, too. The jewelry items in the store windows(Diamonds International, Tanzanite International, etc.) were positively gaudy. Plenty of other stuff to buy and ship home: gourmet popcorn, salmon, etc. I looked at the people stocking up on Patagonia and North Face gear at one store and wondered if they were saving anything for retirement or their kids' educations.

I'm sure that for some people it really was once in a lifetime- maybe just before the oldest goes off to college- but there are so darned many of them in all those big ships that I really wonder.

[Independent]

Quote:

Originally Posted by Hamlet She actually addresses that in the video. New built homes are no longer being bought by entry level home-buyers, but by the upper middle class and above. Basically, there are no longer entry level homes being built-- all the new houses are move-up homes and the middle class is for the most part living in older homes. The size of the house bought by the median-income two parent, two child family that she filtered for went up by a bathroom or a bedroom (but not both). So some creep, but nothing compared to the size change in new homes.

I think "percent of newly constructed houses purchased by first time home buyers" is a reflection of rates of new family formation rather than general economic trends.

When there were a lot of newly married couples or first time parents relative to the total population, then there was probably a good market for entry level houses. Let's say after WWII or maybe when the boomers were having their first children.

If there is anything going on today that's stressing young couples, it's probably student debt incurred for degrees that don't have good income potential.

[purplesky]

Quote:

Originally Posted by Independent I think "percent of newly constructed houses purchased by first time home buyers" is a reflection of rates of new family formation rather than general economic trends. When there were a lot of newly married couples or first time parents relative to the total population, then there was probably a good market for entry level houses. Let's say after WWII or maybe when the boomers were having their first children. If there is anything going on today that's stressing young couples, it's probably student debt incurred for degrees that don't have good income potential.

Many people in their 20s and early 30s now live with their parents due to this "race to the bottom economy".

So they are getting married later and not having kids because of the economy.

The entry level new home housing market is terrible because of lower wages and healthcare costs and student loan debt.

[clifp]

Quote:

Originally Posted by purplesky Many people in their 20s and early 30s now live with their parents due to this "race to the bottom economy". So they are getting married later and not having kids because of the economy. The entry level new home housing market is terrible because of lower wages and healthcare costs and student loan debt.

While there is a lot of truth do this. I suspect it is a convenience/not wanting to grow up in a quite a few cases. Very similar to the mama's boys who make good incomes who live it at home in Italy. There were a couple of 60 Minutes shows about them.

One thing to keep in mind is the 2010 census showed that there 11 million new households formed in the 2000, despite the Great Recession. The average household size continues to shrink down to 2.58 person/household down considerable from the 3.29 in the 1960. This despite the average family size remaining constant at 3.14. A smaller household size means that even with modest growth in the median household income that means there is more money per person to spend.

[Walt34]

Quote:

Originally Posted by purplesky It sounds like everyone on here is a millionaire.

No, only half of one, but if you include the future value of the pension and SS, then yes several times over.

[purplesky]

Quote:

Originally Posted by clifp While there is a lot of truth do this. I suspect it is a convenience/not wanting to grow up in a quite a few cases. Very similar to the mama's boys who make good incomes who live it at home in Italy. There were a couple of 60 Minutes shows about them. One thing to keep in mind is the 2010 census showed that there 11 million new households formed in the 2000, despite the Great Recession. The average household size continues to shrink down to 2.58 person/household down considerable from the 3.29 in the 1960. This despite the average family size remaining constant at 3.14. A smaller household size means that even with modest growth in the median household income that means there is more money per person to spend.

Well if my son lives at home in his 20s he will definitely be saving big money to buy a house while living in my basement.

[daylatedollarshort]

Quote:

Originally Posted by purplesky Many people in their 20s and early 30s now live with their parents due to this "race to the bottom economy". So they are getting married later and not having kids because of the economy. The entry level new home housing market is terrible because of lower wages and healthcare costs and student loan debt.

I do think the middle class overall is stressed but some of it is simply poor decision making, like borrowing 6 figures to get a degree from a private school for an unmarketable major. When has that ever been a good idea. Students now get more financial rope to hang themselves with, but some of the blame has to be on the students and their parents.

I don't see a lot of our kids' friends with accounting, engineering or IT majors from public schools back at home and unemployed. Mike Rowe has a foundation to close the skills gap between the jobs that exist and what kids are studying:

"It’s not about this is bad or this is good. This is a skills gap. […] It’s another inconvenient piece of the narrative that nobody ever talks about. There are three million jobs available right now. Companies like Caterpillar are struggling to find, for instance, heavy equipment mechanics.”

The bottom line, Rowe said is that, “We are lending money we don’t have to kids who can’t pay it back to train them for jobs that no longer exist. That’s nuts.”

Mike Rowe: The 'Dirty' Jobs Alternative to a College Degree | Fox News Insider

[EastWest Gal]

Quote:

Originally Posted by daylatedollarshort I read her book Two Income Trap years ago and would put it on my top ten of all time best financial books list. As far as the video, I agree with many of her points, but house size is one variable the middle class still has control over. House sizes have crept way up over recent decades, it is not just buying schools: "According to the National Association of Home Builders, the average size of a new single-family American residence in 1950 was 983 square feet. Today, it is nearly 2500 square feet." The Righteous Small House: Challenging House Size and the Irresponsible American Dream by Jason McLennan — YES! Magazine This is not something I thought a lot about when we were younger. If we had, we would have gone smaller - lower home prices, insurance, taxes, upkeep, utilities, etc.

She also addresses a problem that families with children face: Buying a house in a decent school district, (and reasonably near your place(s) of employment). When we bought our first house, a townhouse in Silicon Valley, everything was marked up about $100K if the residence was in the Cupertino School District. Just checked a few houses on Zillow and found that it is still true. A 1000 square foot older house in Cupertino is listed at $1.8 million ($1700/sq ft) and a similar size house, quite a bit newer, is listed at $725K, or about $700 sq/ft. However, the lot was 80% larger in the Cupertino house. Just trying to find anything affordable in certain parts of the country is insane. The same is true in our area in PA, but not to that extreme.

Also, in some areas, the smaller houses are atrocious with out of date wiring and fixtures. Older homes also have the problem of lead in the pipes and the paint, which again limits one's options. The point is that there is so much outflow for housing and transportation and that two incomes are needed to make it work. If anything goes wrong, some families do indeed go bankrupt.

[daylatedollarshort]

Quote:

Originally Posted by EastWest Gal She also addresses a problem that families with children face: Buying a house in a decent school district, (and reasonably near your place(s) of employment). When we bought our first house, a townhouse in Silicon Valley, everything was marked up about $100K if the residence was in the Cupertino School District. Just checked a few houses on Zillow and found that it is still true. A 1000 square foot older house in Cupertino is listed at $1.8 million ($1700/sq ft) and a similar size house, quite a bit newer, is listed at $725K, or about $700 sq/ft. However, the lot was 80% larger in the Cupertino house. Just trying to find anything affordable in certain parts of the country is insane. The same is true in our area in PA, but not to that extreme.

San Francisco is the least affordable housing market in the country:

Is Tech Money Good For San Francisco’s Middle Class? An Economist’s Perspective | TechCrunch

If I had a middle class income I wouldn't expect to be able to live in Cupertino. I am not sure that housing market is indicative of the problems of the middle class in he U.S in general. Home prices there have been bid up due to tech worker salaries, lack of buildable land due to the geography, investors from outside the U.S., the climate, the scenery, and building laws.

Robert Shiller said last August on U.S. housing in general:

"Affordability is still good compared to any time over the last 50 years. Mortgage rates are still around 4½ percent; that's not high. Homes are still roughly, in real terms, where they were 25 to 50 years ago," he said."

[growing_older]

Quote:

It sounds like everyone on here is a millionaire.

Maybe as we get close to retirement, but many of us got there from middle class income. As consumers, we bought a smaller house than the bankers said we could "afford" if we took a maximum mortgage. When the old car wouldn't go, we bought a new-to-us car (used), so we could be sure to avoid new debt and pay off the student loan. We were able to afford vacations by camping or staying with friends. I don't believe it is accurate to say all these things are now so expensive that middle income people cannot afford them. I think it is still the case that people who LBYM can make choices and have all these things. Maybe there are more temptations with expensive cable, cellphone, latte and "upscale" everything, so maybe it's harder to make LBYM choices, but I know plenty of people who are being responsible with middle incomes and will likely retire millionaires as well, and plenty who are not. But the ones who are not aren't trapped because they cannot afford the same choices their same income peers, they are trapped because of the choices they make.

Low income people may be "trapped" and unable to afford these seven things, but middle income people can still make the same choices that middle income people used to make. Middle income people could never live upper middle lifestyles without overspending their means, and they still can't.