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The Poor Have Less Debt in High Cost of Living Areas

By , May 16th, 2007 | One Comment

According to a study done recently by, low-income families in higher cost of living areas had less debt (including mortgages) than their poor counterparts in areas with lower costs of living. There was a very clear inverse relationship here between debt and cost of living, which seems to be counter-intuitive.

Though the researchers noted some surprise, I was not surprised in the least. I grew up in the San Francisco Bay Area, which has the highest cost of living in the entire nation. We moved to Sacramento, to enjoy a much lower cost of living, a few years back.

I initially experienced quite a huge culture shock when it came to spending and debt here. I get the impression that with so much more disposable income, that people in Sacramento spend a lot more, feel more entitlement and find it easier to justify debt. Back in SF, most of the people I know are scraping all their money together for rent or a mortgage, which doesn’t leave much room at the end of the day for anything, let alone debt payments. Plus, such a basic necessity as shelter is so cost prohibitive that people back in the Bay Area seem to take little for granted. I notice, in comparison, being able to own a nice home is really taken for granted in Sacramento.

Granted, my experience is more middle income, but it is definitely true that as a whole, consumer debt and equity lines are not used so much in the Bay Area because mortgages alone eats up such a large percent of salary. It’s the same with rent, so it is quite easy to have no debts.

It was actually quite shocking for me to move somewhere where a starter home was more like a McMansion. Many people in Sacremento have a sense of entitlement to large homes where debt is used to purchase every day items and home equity lines are used to buy new cars every few years.

When I discuss what I notice with family and friends back in the Bay Area, they just think I am crazy. Anyone who lives in the Bay Area knows it is the land of wealth — there is a lot of bling and trying to keep up with the Joneses going on. A lot of the bling comes from the multitude of high-paying jobs in the area, but I certainly don’t notice that with any of my peers.

I think the difference truly becomes clear in my generation. The younger generation, back in the Bay Area, are living with family well into their 30s to save up down payments on homes, working multiple jobs, driving modest cars, etc. They are just struggling so hard to simply pay the rent!

Out in Sacremento I notice quite the opposite. The bling is put on by those who don’t have much of an income or much in assets, especially those in the 20-something crowd. When I think of similar demographics back home, young college grads and poor college students, the difference in spending habits and lifestyle is just night and day.

On the other hand, the answer might be much simpler. Hardly anyone in a low-income range can afford a house, a condo or anything, so the low-income are less likely to have a mortgage. I think this is really the key here. The conclusion that these people are better off because they have less debt is probably not the greatest conclusion. They may have less debt, but they have some pretty hefty rent payments unless they have gone to some extreme measures to find affordable housing. Their counterparts in less expensive areas might have modest mortgages and more assets, in comparison.

Then again, maybe the biggest factor is that job opportunities abound. Steady, gainful employment, with higher wages than the rest of the country, are the norm. Whereas mortgages and lack of job opportunities may be bigger burdens on those in lower cost of living areas.

I have always credited the fact that we grew up in such an expensive area for making us super savers. I really felt like we had no choice, as a matter of survival, and I really have little sympathy when people complain about the expense of moderate cost of living areas. It really all comes down to a matter of perspective.

I think the perspective for many in higher cost areas is usually drastically different than those in low cost of living areas. Then again, if we chose to live in such an expensive area the rest of our lives, being super savers wasn’t really going to get us very far. I think with little choice, the poor in more expensive areas rein in the rest of their costs so they can afford a roof over their head, but I don’t think this is really an indication that they are any better off. The results of the study are interesting, however, and make you think.

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