The Middle Class Life Style Is Putting You In Debt?

[Singuy]

This is a very faulty comparison because you aren't comparing apples to apples. The average size of a new home has increased significantly even though the average family size is actually smaller. So yes, a new home today, on average, costs more than it did 20 years ago, but that new home 20 years ago wasn't nearly as big.

It's pretty much impossible to do a fair comparison because of this. I suppose you could do it based on cost per square foot although even that is flawed because you'd be comparing Formica countertops to granite, carpet to hardwood, linoleum to ceramic tile, etc.

This is kind of what I was getting at. All these extra luxuries are considered NEEDS by many.

My grandad was a home builder in the 50's and 60's. He built hundreds of simple, 900 - 1500 SF homes and people raised families quite successfully in them. You can still get into homes like these pretty cheap. My son just bought a nice one for $62,000.

Maybe not apples to apples

The average new construction home size in 1998 is 2190sqft
The average new construction home size in 2014 is 2600 sqft
The average home prices of 10 cities index in 1998 was 140k
The average home prices of 10 cities index in 2014 is 281k

The Average Household Income in 1998 is $38850
The Average household income in 2014 is $51939

I see that the home sizes increased by 400sqft, but the price more than doubled.

In 1998 using a down payment of 10% and a loan interest of 4.5% with no other debt.
With an income of 38850/year, you can qualify for a house that cost up to 139k

In 2014, using a down payment of 10% and a loan interest of 4.5% with no other debt
with an income of 51939, you can qualify for a house that cost up to 191K

Too bad the average American will need to pay 50-60k MORE just to get the same "middle class" house today than in 1998.

The point is not to tell these Americans to buy smaller rundown homes. The point is, a lot of kids that are my age(early 30s) who grew up in the 90s living in a 2000+ squareft house will attribute that lifestyle as "middle class". This is why I think I see people my age buying houses way beyond their means because they think anything less than that means failure(stepping to a lower "class").

Now if I grew up in the 70s, then yes I would think 1200 sqft houses are "middle class". But my generation thinks differently because our parents most likely bought a much bigger house (without struggling financially and made average money).

http://www.economist.com/blogs/graphicdetail/2014/02/us-house-prices

https://www.census.gov/const/C25Ann/sftotalmedavgsqft.pdf

Also I saw some articles that stops their stats reporting on house prices in 2010, which is a poor indicator since 2010 is practically 1998 prices adjusted for inflation.

[Jluke]

My example for homes would be the one I grew up in. I live nearby in a home built in 1998; and by no means is the neighborhood upscale.

My parents purchased the home in 1980 for probably around $60k - new construction. 3BR, 2.5BA, 1 car garage. basement. 1800 sq ft or so.

In 2003 they sold it for $135k

In 2015 the house sold for $175k

Homes in nearby neighborhoods that were built in the 50's or so are going for 150K+ as well.

In general,
Life is generally more expensive nowadays.. Wants and Needs are confused by many, so much so that Wants are becoming a societal norm as a need.

Everybody is out to make money and separate the fool from his earnings.

Most people cannot get by on one income but with 2 people working added expenses are incurred: 2 vehicles, daycare, etc....

[Weird Tolkienish Figure]

The healthcare system is pretty much running on a free market freight train in the U.S..and what do we get for it? Ultra expensive healthcare with poor outcomes and ranked middle of the pack compared to other countries.

Actually US outcomes are near the top... most of our health issues are diseases of affluence. Our cancer and heart attack survivability rates were near the top or number one in the charts I saw.

[Weird Tolkienish Figure]

I came across an article today claiming that it costs 113k/year to live a "middle class" life style. Now I know the reason why people live above their means.

The calculation consists of
mortgage, property tax, health insurance, 2 cars, 6% retirement savings, all payroll/federal taxes, and misc spending.

Looks like we are not talking about a very lavish house or new cars here..just your everyday normal stuff even I would consider "middle class".

The problem is most people who consider themselves "middle class" doesn't make 113k. When you hit 100k+, most people consider themselves to be "upper middle class" which means they probably live a 150k-200k+ lifestyle to distinguish themselves from the 113k lifestyle.

It's funny how this classification can put you in debt forever. I know people who makes 35k/year looking for the same classes of houses as people making 100k/year.



http://www.oftwominds.com/blogdec13/...lass12-13.html

Ridiculously stupid article. "Middle class" people get into trouble in the US mostly because they buy stuff they do not need and cannot afford.

[Singuy]

Actually US outcomes are near the top... most of our health issues are diseases of affluence. Our cancer and heart attack survivability rates were near the top or number one in the charts I saw.

You have any sources? I see nothing but "dead last" and #37th if you do a quick google search.

[Singuy]

Ridiculously stupid article. "Middle class" people get into trouble in the US mostly because they buy stuff they do not need and cannot afford.

We are discussing about what it is required to be "middle class" or to live the "middle class" lifestyle. We are not talking about what is needed to survive..which is definitely a lot less than the middle class criteria.

Maybe it's easier to put it this way

in 1998, your typical middle class household has a brand new house that is 2000 squareft and a household income of about 40k/year.

In 2015, your typical middle class household has an old 1980s 1800 squareft house with a household income of about 50k.

A lot of people wants the 1998 middle class in 2015..so they may go into debt to try to obtain it is merely my point.

[Weird Tolkienish Figure]

You have any sources? I see nothing but "dead last" and #37th if you do a quick google search.

I will try to find the heart attack info if I can. That the US health care system is universally horrible is a ridiculous myth and unfortunately idiotic people bought into it.

Here some more info:

https://en.wikipedia.org/wiki/List_of_OECD_countries_by_health_care_outcome

The US is at or near the top in most factors.

http://www.forbes.com/sites/theapothecary/2011/11/23/the-myth-of-americans-poor-life-expectancy/

[Weird Tolkienish Figure]

We are discussing about what it is required to be "middle class" or to live the "middle class" lifestyle. We are not talking about what is needed to survive..which is definitely a lot less than the middle class criteria.

Maybe it's easier to put it this way

in 1998, your typical middle class household has a brand new house that is 2000 squareft and a household income of about 40k/year.

In 2015, your typical middle class household has an old 1980s 1800 squareft house with a household income of about 50k.

A lot of people wants the 1998 middle class in 2015..so they may go into debt to try to obtain it is merely my point.

No evidence of the this from what I can see. Houses get bigger and bigger.

[Singuy]

I will try to find the heart attack info if I can. That the US health care system is universally horrible is a ridiculous myth and unfortunately idiotic people bought into it.

Here some more info:

https://en.wikipedia.org/wiki/List_of_OECD_countries_by_health_care_outcome

The US is at or near the top in most factors.

http://www.forbes.com/sites/theapoth...fe-expectancy/

And 3 years later, Forbes report that the US healthcare system is ranked dead last so????

http://www.forbes.com/sites/danmunro/2014/06/16/u-s-healthcare-ranked-dead-last-compared-to-10-other-countries/

[Weird Tolkienish Figure]

And 3 years later, Forbes report that the US healthcare system is ranked dead last so????

http://www.forbes.com/sites/danmunro...her-countries/

Who you going to trust? Actual outcomes or an arbitrary list?

US healthcare is very good, but it's also very expensive.

"The Commonwealth Fund is a private U.S. foundation whose stated purpose is to "promote a high performing health care system that achieves better access, improved quality, and greater efficiency, particularly for society's most vulnerable" and the elderly. It is active in a number of areas related to health care and health policy."

Sounds like some group that drastically wants to push socialized medicine.

[snafu]

Back to initial post...What I'm seeing on SA are new individuals wanting to get out of debt but seemingly unaware of interest rates they are paying. Nearly 20% on CC is outrageous to me since various short term savings streams earn less than 1%. Those 0% interest CCs are terrific for those disciplined enough to pay in full before the term expires but hideous for those who step in unaware of the danger. Those chasing 'cash-back' or points miss paying in full and pay higher than normal rates of interest no matter their FICO score.

Those asking about buying a house are unaware of how a mortgage amotorization schedule works, pre loaded to pay primarily interest for the first decade. After moving in they don't seem to understand that nearly all of their monthly payment is distributed to mortgage insurance, regular insurance, municipal property tax, interest and the tiny bit to principal.

[Singuy]

Back to initial post...What I'm seeing on SA are new individuals wanting to get out of debt but seemingly unaware of interest rates they are paying. Nearly 20% on CC is outrageous to me since various short term savings streams earn less than 1%. Those 0% interest CCs are terrific for those disciplined enough to pay in full before the term expires but hideous for those who step in unaware of the danger. Those chasing 'cash-back' or points miss paying in full and pay higher than normal rates of interest no matter their FICO score.

Those asking about buying a house are unaware of how a mortgage amotorization schedule works, pre loaded to pay primarily interest for the first decade. After moving in they don't seem to understand that nearly all of their monthly payment is distributed to mortgage insurance, regular insurance, municipal property tax, interest and the tiny bit to principal.

I attribute a house purchase to be the single biggest expenditure that comes with many attached costs which yields the home owner nothing in return(property tax, interests on a huge mortgage, PMI, and upkeep).



I feel like there's a small window of opportunity in an individual's early 20s to have the "middle class" lifestyle without debt if smart decisions were made(no CC debt, sensible student loans with a good job outlook, not have any kids, not drag college on for 10 years). You screw this up and it's hard to turn back and amend your mistakes.

[JoeP]

This is how the free market should operate. Instead pharm companies and the government create complex laws and regulations to make competition much more difficult. I'm not saying that I think the medical/pharmaceutical industry should be left unregulated but there has to be a more efficient process that allows new drugs to be tested and released to the market. The pharm companies want less competition so they can charge more than the government wants a political football they can use to buy votes from the public.

I'd be totally OK if the government took over all pharmaceutical research and manufacturing. When profitability is a factor for life-saving and even maintenance drugs, then we have a problem. This industry, with collaboration with universities, could provide stable jobs and cut some of the red tape associated with clinical trials and prioritization (not always going for the biggest financial return, but factor in actual patient wellness). Plus we wouldn't have to tolerate drug commercials.

I always cringe when people look to insurance companies to relieve the financial stress of expensive medications and treatment. My son needs 4 wisdom teeth extracted, and the estimate came to something like $1500. Out of pocket will be ~500, which still seems high to me. But the root (no pun intended) problem is that initial cost...it has not been affected by consumer push-back; it is priced at a level that is considered "fair market value" with only the insurance companies there to apply downward price pressure. There is little doubt that if insurance companies did not exist, then the patients would not be voluntarily paying $1500 for 4 extractions. Personally, I think $300 is fair for the 20 minutes it takes, and will go higher if complications arise (the dentist said it happens only 5% of the time).

[jeffrey]

Friendly reminder to all that personal attacks aren't allowed in these forums.

[disneysteve]

The average new construction home size in 1998 is 2190sqft
The average new construction home size in 2014 is 2600 sqft
The average home prices of 10 cities index in 1998 was 140k
The average home prices of 10 cities index in 2014 is 281k

The Average Household Income in 1998 is $38850
The Average household income in 2014 is $51939

I see that the home sizes increased by 400sqft, but the price more than doubled.

In 1998 using a down payment of 10% and a loan interest of 4.5% with no other debt.
With an income of 38850/year, you can qualify for a house that cost up to 139k

In 2014, using a down payment of 10% and a loan interest of 4.5% with no other debt
with an income of 51939, you can qualify for a house that cost up to 191K

Too bad the average American will need to pay 50-60k MORE just to get the same "middle class" house today than in 1998.

You're still comparing apples and oranges, though.

First off, why is the "middle class" home assumed to be new construction? As the country gets more and more built up, new construction is less and less likely to be what people buy. In my town, new construction is virtually non-existent. If you are moving in today, you are buying an existing home. We moved here in 1994 and bought an existing home because even then, there was very little new construction and the few new homes there were were way out of our budget. At that time, and even today for that matter, very few of my peers have purchased new construction when buying their homes. The only people I really know who did buy new are folks I would not classify as middle class.

Next, your numbers aren't realistic. The average mortgage rate in 1998 wasn't 4.5%. It was 7%. Today it is below 4%. So your money goes a lot farther today.

And again, there is more to home prices than just the price. If the 2015 house has all kinds of luxury amenities that the 1998 house didn't have, of course the price is going to be relatively higher.

A big part of the problem, as mentioned, is people blurring the line between wants and needs. You need a kitchen. You don't need granite counter tops, stainless steel appliances, hands-free sinks, induction cook tops, etc. You need a bathroom. You don't need Italian marble tiles, radiant heated floors, multi-directional rainfall shower heads, etc.

And it isn't just houses that are an issue. I'd be willing to say TV is a need (it's not, of course, but let's say it is). But you don't need 250 channels, a DVR, and a 72" HD TV with surround sound and movie theater seating.

People want a lifestyle that simply doesn't match their income. They expect to be able to afford things today that somebody in 1998 earning a comparable income couldn't (and didn't expect to) afford then.