This week’s article is from The New York Times about the budgets of 4 middle-class families.
There’s no single takeaway in it. It does not contain advice on how to manage finances. It does not offer value judgments on different expense categories. Quoting from the article, the stated goal is:
Their stories help illustrate how a middle-class existence has fundamentally shifted over a generation.
The article is really well done. However, if you need some gentle nudging, here are some points that I found interesting:
- working hard is important, but so is having fortunate circumstances;
- it seems too easy to acquire upper 5 digit study debt in the U.S.;
- deliberate financial management is hard.
Work Hard and Be Lucky
One of the better-off families, unsurprisingly, are deliberate about their financial management:
They made deliberate financial decisions that have worked out well.
So far, so good. Work hard and reap the rewards. It’s a parable. The article, however, also emphasizes the other side of the coin.
It wasn’t just the hard work. It was also a bit of being at the right place, at the right time, surrounded by the right people:
- they were ready to buy a home in 2008, and benefitted from depressed prices;
- their employers provided “spectacular” retirement and health benefits; and
- their parents contributed to their tuition payments.
U.S. Student Loans
This part might be a bit boring to U.S. readers who - presumably - have a good grasp on this already. I was surprised, though, at the amounts going towards repaying student loans. One of the families reports owing $70,000 for unfinished education.
It is already a lot of money to spend on education. But unfinished education? Ouch!
Interestingly, while you do hear a lot about the 5-to-6 digit student loans:
- on average, it is around $20,000 (still a lot!); and
- people who are most likely to default, owe closer to $5,000.
So it’s not all that bad?
On the other hand - in the U.S. you can not easily default on study debt. Only 0.04% of people that file for bankruptcy, can succeed in getting their student loans discharged. This seems… not a lot?
Sure, it shouldn’t be super easy to cancel your obligations. But the option to file for bankruptcy exists for a reason, and 0.04% is an abysmal rate. It seems like one of those services where you can sign up with 1-click online, but to cancel membership you need to send a handwritten letter by mail.
For further reference, here’s what higher education costs around the world.
Something Always Comes Up
One family is retaining -4% of their monthly income. They commented, “something always comes up.” Their income never seems to go as far as it needs to.
I said something similar to my wife on September 20th. “Hey honey, something came up.”
I’m kidding, though. It is a very relatable position. Anticipating “things that come up” is hard. Being methodological about financial management is an unsolved problem. We don’t really have great tools to help people form better financial habits.
Overall, the article explores middle-class family expenses and puts them in context historically. It does a really good job at it. Read it here: https://www.nytimes.com/interactive/2019/10/03/your-money/middle-class-income.html