
Families go deep in debt to maintain a middle-class lifestyle - mjirv
https://www.wsj.com/articles/families-go-deep-in-debt-to-stay-in-the-middle-class-11564673734?mod=rsswn
======
vorpalhex
This article has me shouting at my screen. I'll try to condense to one point:

> Earlier this year, Mr. Guzman put his credit cards in a Ziploc bag with
> water and placed it in the freezer. In May, however, they went to two
> weddings, and needed a card to cover the cost of a gift and a rental car.

1\. You're never required to attend a wedding 2\. You can give gifts with
minimal cost

When I got married, I had a friend who was unemployed at the time. Didn't
expect a gift, but they still took the time to go out of their way and provide
baked goods they homemade for the wedding party. Can't bake? Write a nice
letter or compose a song.

You can't mismanage your money, go into debt, and point your finger at anyone
but yourself. Can't afford a new car? Don't buy one - buy a used one instead.
Can't afford to travel to a wedding? Don't go, send the appropriate cards and
letters and niceties. Buried under credit card debt? Don't have a kid yet,
don't go get a dog, stop buying on credit.

Yes there are some terrible woes around medical debt, and that's a serious
problem we should evaluate and fix, but you can't blame "the economy" or
"society" for what is just an inability to manage your money.

~~~
timerol
I was similar shouting, especially at the end. My point:

> Growing up, Mr. Young says, he was taught to work hard to get a nice house
> and a reliable vehicle. Now he realizes how easily borrowing too much can
> undermine this plan.

> “Things we were taught could be assets aren’t really assets,” he said.
> “They’re liabilities.”

Houses appreciate, cars depreciate. Spend the minimum possible amount on
transportation if you want your net worth to go up.

~~~
viklove
> Houses appreciate

Don't rely on this

~~~
dahfizz
Worst case scenario, you get to retire and live rent free. Even if it doesn't
appreciate, you still own a house.

~~~
shoo
Worst case scenario? It's probably closer to this: buy way more house than you
need and can sensibly afford. Buy heavily leveraged at market peak. Housing
market tumbles. Have a bit of bad luck and lose your job and your income. Be
in a position where you can't keep up with mortgage repayments and be forced
to sell when the market price for the house is less than the amount of debt
you still owe the bank...

Or even grimmer: as above, but start renovations before the market crashes and
losing your job. Discover there are major structural problems so it costs 3x
more than expected to put the house back into a sellable state. Then, before
construction is finished, be forced to sell an unfinished house with negative
equity....

------
sarcasmatwork
We have been told to get a good education, to get a good job and to live
happier every after. For most, this is far from the truth. Wages have not
increased in decades, while everything else is more expensive. Corps would
rather hire you as a contractor, to pay you less so they make more. There are
not enough jobs, because there is no process for teaching about free
enterprise in America. Its jobs jobs jobs, but you need people to create those
jobs. When H1Bs take your jobs, its hard to compete when they are paid less
and willing to take less. So many issues, but we have an inept Congress and
elected officials that care for more their power, and their greed that the
American people. </rant>

~~~
Havoc
>We have been told to get a good education, to get a good job and to live
happier every after.

This sentiment seems very US specific (maybe 1st world). My background is ahem
classic western 1st world culturally, but grew up in a 3rd world country. And
for me that cliched recipe worked exactly like it says on the tin. Even with a
3rd world university name on my CV I'm comfortably competitive globally. So
when I read the US guys struggling I'm left a little puzzled. Not arrogant
enough to assume I'm better so this smells like a country-structural issue.

Which to me suggests the 1st world countries have moved into a post uni-edu
era if that makes sense?

~~~
commandlinefan
> Even with a 3rd world university name on my CV

Actually I think that works to your advantage. There’s a class of hiring
managers who figure that if you went to college in America but didn’t go to
Harvard, Yale or MIT, you’re not qualified to tie your own shoes. They don’t
know anything about foreign universities, though, so they figure one is as
good as any other.

~~~
Havoc
haha...well this is an African university so I'd imagine there are some
preconception there. As I said - I'm thankful.

Fortunately I picked a niche where my countrymen dominate so all worked out
fine.

>They don’t know anything about foreign universities, though, so they figure
one is as good as any other.

I've literally seen directors grab a senior manager in the hall with "I'm
supposed to interview this person who is from same country as you - look at
this CV and tell me does this look solid"

------
neogodless
How does this math work?

They take home $8070 [0].

The mortgage might be $2130 (assuming $360k house, $300k initial mortgage @
5%) [1].

Credit cards of $50k - if they put $1000 on it each month @ 12% that's 70
months to pay off [2].

For $51k of student loans, lets say they are paying $985/month (which would
take 5 years [3].)

So far I've used up $4115 and have $3955 left. Let's assume they pay $2000 for
childcare and $1000/month for groceries for a family of three. They'll also
have utilities and insurance payments to make. These are all insane number in
my opinion, and I was already generous with overpaying on the credit cards and
rapidly paying towards the student loans. Now they've only got $955/month left
(which some people are actually able to live on.) What did I miss from their
budget and which of the numbers did I get wrong?

I'm not saying the article is wrong. I'm saying what was the point of their
example household?

[0] [https://smartasset.com/taxes/connecticut-paycheck-
calculator...](https://smartasset.com/taxes/connecticut-paycheck-
calculator#vm51vOqdhz)

[1] [http://www.calcxml.com/do/mortgage-
calculator?skn=292#calcou...](http://www.calcxml.com/do/mortgage-
calculator?skn=292#calcoutput)

[2] [https://www.bankrate.com/calculators/credit-cards/credit-
car...](https://www.bankrate.com/calculators/credit-cards/credit-card-payoff-
calculator.aspx)

[3] [https://www.bankrate.com/calculators/college-
planning/loan-c...](https://www.bankrate.com/calculators/college-
planning/loan-calculator.aspx)

~~~
j79
You forgot to factor in UberEats, Disney trips, and other one off expenses
that end up easily being $75+ a pop. Expenses that some people would budget
for a week or two (or longer), people are easily spending on a single event.
That hefty $4000 in your checking account quickly dwindles down to nothing
because they spent $500 bucks over the weekend on multiple UberEats and a
quick run to the mall.

~~~
thephyber
I think this is the right response to the gp's budget item enumeration.

People don't naturally pay the minimum for each necessary bill and never buy
anything else. They have a stream of money and tend to spend it on what they
see their costs are now.

 _Some_ adults are cognizant of future planning and are detailed with their
budgets (past, present, and future), but I suspect most are too tired from
working + raising kids to spend the extra mental effort to budget carefully
and stick to it.

------
nostromo
I've actually seen the opposite. Most people who get to the upper-middle class
do so by smartly using debt.

Beyond the obvious examples of borrowing to get an in-demand education and
buying real estate in an in-demand location -- there are other smart times to
borrow as well, like to expand a business.

It's quite difficult to really get ahead without at least a little leverage.

The irony is that the poorer you are, the more likely you are afraid of any
and all debt -- which can be a very bad thing. In philanthropy I've seen many
stories of young people who refuse to go to college due to a cultural fear of
debt -- which often gets them stuck with a lifetime of low earnings. Or folks
avoid taking on a mortgage only to find that rent inflation makes it difficult
for them to retire later in life.

(I realize that the article is much more focused on "bad" debt: car loans and
running up credit cards to buy consumer goods.)

~~~
basch
The way I see it 0% APR is getting paid to take out debt. 2% APR is breaking
even. Inflation is 2% and Cash pays 2% in the right places.

Any time you have a chance to stash spending you were already making into 0%
debt, you are coming out ahead.

------
sremani
The Credit Card interest rates are at all time high, in spite of the fact the
PRIME interest rates at historic lows. This is something no one is talking
about.

The Corporate Debt is going to BITE so hard in the next recession -- I say,
bring them the pitch forks and every person who had a C in their title be
prepared for clawbacks!

~~~
phil248
Credit interest rates are low for those who have access and the ability to
carefully utilize credit. Balance transfer and introductory offers are as low
as they've ever been and you can get away with paying 4% interest annually,
occasionally even 3%. That's competitive with the best mortgage rates!

But "Standard APRs" are crazy high at around 14-18%. I have never understood
why credit rates are so high compared to literally any other type of
borrowing. I also don't understand how standard rates are sky high while
promotional rates are near the rock bottom.

It's baffling. But it's helped me manage big sums of debts during a couple of
professional transitions I've gone through over the years. Without those 3-5%
balance transfers I would still be deeply in debt today.

~~~
whatshisface
They're high because there's no collateral. When people default on credit
cards the money is just gone, when people default on mortgages it's as if the
bank owned the house and was renting to them.

------
40acres
Rule #1: Do not use debt to fund consumption or purchase assets that
historically are not expected to appreciate within 5 years.

People are getting into debt to buy cars and go on vacation, this is
ridiculous. Buying a house, even if it's a stretch on your income -- is not
too bad. You can build equity and there is lots of support, you can even rent
out a room. But going into debt to buy a luxury car? Absolute stupidity.

~~~
dnadler
Using debt to buy a depreciating asset is fine in a lot of situations, and
different people are in different situations. For example, I'd rather have
$20k in cash and a 3 year 1% loan for a car than have $0 in cash and no loan.

Making hard rules about debt is what gets people into trouble in the first
place. We need to spend some time teaching/learning how to reason about debt
in order to make these decisions.

~~~
jumbopapa
You can make greater than a 1% return on your cash, so yeah that makes sense.
Debt can be a valuable tool, but most people aren't using it correctly.

------
m0zg
To me "middle class lifestyle" means no debts other than mortgage, a place to
call your own, and a car. With very heavy emphasis on "no debts". Car can be
just about any decent car, doesn't even have to be new. Anybody can get a loan
for a fancy car, so it no longer means what it used to. That's "middle class".

~~~
dsfyu404ed
I agree with you but I think a lot of people have a definition of middle class
that includes whatever Toyota 4Bagger Reddit is fawning over and a few of the
designer whatever's that the Instagram influencers are shilling (i.e. a few
"nice things") and excludes things like Walmart jeans and any lawnmower that
you have to push yourself. You can do all that on middle class money, but you
can't do all that and raise your kids in a good school district and pay down
your student loans, etc. etc.

------
allthecybers
This is an interesting article and much of the discussion points out the
structures in our society that are not optimized for the consumer. For example
student loans, medical debts and high interest on credit cards.

But I would like to highlight that "middle class" is a made up concept and a
fairly arbitrary estimation of class based on net mostly consumeristic
factors.

For instance, to be middle class I should be able to pay for college with
loans, own a home of ample size, have two cars and afford to have a child and
pay for child care while both my partner and I work. I must maintain this
definition of 'middle class' at all costs, even if that that means taking on
$50,000 of credit card debt. Because I am middle class and I have the stuff to
prove it.

Unfortunately, this means the middle class will continue to get poorer and
deeper in debt because yes, wages have stagnated, but we continue to go into
debt to maintain the appearance of middle classism based on consumeristic
targets.

~~~
jammygit
Reminds me of Russian literature where there is almost always some
technically-still-aristocrat who is broke and going into debt to maintain his
status, while scheming to regain his fortune through marriage or else
inheritance

------
rhacker
They need to do a large consolidation loan and cut up the cards. paying 6 or 7
different cards at the mins kills people. I did this myself and my score went
up 70 points. However, it's hard to convince a lender you're worthy of it. I
think a lot of people need to change their ways after getting consolidated.

So now instead of 2100 a month paying mostly minimums and looking at 8 years
I'm doing 1450 and looking at 3 years. The extra 600 I'm "saving" per month
may sometimes go towards the consolidated loan, but often I need to use it -
which is what the credit cards were piling up for.

Debt can be a trap because people are simply not paid enough but their
expenses outweigh their income. If this happens you need to change jobs, ask
your boss for more or change your budget. In my case I asked for $30k more per
year and got $20k more per year.

Other tricks: Go to ting or a cheap MNVO, Stop justifying yet another $10 /
month netflix/prime/hulu - they all add up quickly. Get off the $160/mo cable
plan. Buy your own cable modem and don't rent it from the cable company. They
cost $40 and your cable provider is renting it to you for $10 per month.

Food: Set up a "chipotle" at your house, cook in large batches and think of
ways to make Tacos or Burritos quickly. This is the most complicated area -
people get tired of food quickly. Food can be the most expensive if you just
keep eating out.

And of course, as mentioned many times - budget budget budget. There's no way
to get out of debt if you don't simply have a balance sheet showing income and
expenditures per month. If you don't know then there's no way to stay below
the line.

I'm sure there are some banks out there now that help with this. I'm sure it's
been said elsewhere but you don't owe society anything - you're just here like
everyone else. Stop gifting people, stop xmas shopping, stop going to
weddings, stop having kids. I've done all these things and I'm quite happy. My
parents stopped sending me stuff and there's no expectations either way now,
it's fabulous for everyone.

------
40acres
Buisness investment was negative last quarter but consumer spending was
robust, we're a service economy now and people are going into debt to keep it
growing. The next recession will be caused when all these middle class folk
are forced to deleverage or foreclose.

~~~
thephyber
Please let me know 1 month before that starts to snowball. Thx.

------
amzpix
"Earlier this year, Mr. Guzman put his credit cards in a Ziploc bag with water
and placed it in the freezer."

Mr. Guzman literally froze his credit!

------
tehjoker
Two definitions of middle class:

Marx: the section of society that makes their income from a combination of
capital and labor.

WSJ: people that buy more expensive things than Doritos

------
Merrill
If you are deep in debt, you are not middle class.

~~~
phil248
You just expelled every family with a mortgage or a car payment or a student
loan from the middle class. You also radically redefined the concept of
"middle".

~~~
mattferderer
I didn't down vote but I think the clarification for "deep debt" would not
include a low interest home mortgage or a car payment which you can also get
as low as 0% interest on. Also many people have a student loan debt that can
easily be paid off in a few years.

On a side note, I think all the above are excellent ways of debt.

Right now you can get a mortgage for under 4%. Mortgages typically do not
compound interest. So it makes more sense to dump your savings into one of
many savings that pay a similar interest rate or higher & do compound
interest.

Many car dealers have 0% interest if you want to buy your car & not lease.

Of course any education debt that gets you a salary much higher than the debt
makes sense as well.

------
mempko
This is why Bernie's Cancel all Student Debt and make colleges tuition-free
makes really good economic sense. Student Debt is a huge weight on our
economy. Our economy runs on consumer spending and Bernie's policies,
including Medicare for All will increase consumer spending and make starting
businesses a lot easier.

EDIT: Here is an interesting interview from Asher Edelman about the velocity
of money and Bernie.
[https://www.youtube.com/watch?v=a9xSVzdUNqo](https://www.youtube.com/watch?v=a9xSVzdUNqo)

~~~
whatshisface
Can those of us who were terrified of student loans and who scrimped through
on extra hardship to avoid them have some of that money?

~~~
Loughla
I'm genuinely not trying to be hateful, and these next sentences are not meant
to be as shitty sounding as they might sound, but I don't know how else to
phrase this. I have this question when I hear people like you say things like
that:

Why can't you just support policies that help other people without worrying
about yourself?

Is 'I had it bad so everyone else should, too' really where you want to live?

~~~
niij
Because people with personal responsibility paid for themselves AND are now
expected to pay for others through their taxes. Why should I be expected to
pay for your poor financial decisions?

~~~
Accacin
Honestly, this is the big difference I think in American and EU thinking (to
be incredibly general). I am paying back my UK student loan, and if a party
like Labour once again said they were going to make university tuition free
again, I would vote for them in a heartbeat.

I don't care that I'd still have to pay, I want my country to be better. To be
a bit melodramatic, yours and my ancestors sacrificed a lot to be where we are
now. I'm just glad the only thing I'm likely going to need to sacrifice is
some extra tax.

~~~
niij
I see what you mean by trying to improve your own country. But consider this:
college education is not for everyone. If someone doesn't decide to go to
college and still makes a good living as a tradesman or even unskilled worker,
why should they be taxed to subsidize someone else's college?

Why not just tax less and let people make their own decisions with how the
money they've earned is spent. Every time you create a new tax it's one less
choice (freedom) someone has in their life.

~~~
Accacin
Good point. College (university for us!) is not for everyone, and I can't
speak for America but I feel that we look down upon trades in the UK a little
sometimes. Being a tradesman is a completely valid choice that I believe is
equal with a more academic route.

That being said, it's hard to blame the individual going to university if
there career requires that and it's also a fact that a tradesman is probably
going to be earning a lot more than a student for at least the period of time
they're studying.

I also believe (like I said before) that allowing people financial help to
study improves the whole country, especially being that every family can
afford to send their children so for myself I can justify this extra tax.

Your point hasn't swayed me, but it has made me consider the 'other side' at
least so thank you.

~~~
niij
> we look down upon trades in the UK a little sometimes. Being a tradesman is
> a completely valid choice that I believe is equal with a more academic
> route.

Same here in the US, but you're right, it's an honorable job and nothing wrong
with it.

> allowing people financial help to study improves the whole country,
> especially being that every family can afford to send their children

In the US we already have that as a system. See: FAFSA/Pell Grants. Those with
low incomes already do receive free/subsidized college education.

These "new" proposals say that _everyone_ regardless of income can get free
money for college. So in that way it's really just a giveaway for the
middle/upper class. Considering that, the argument that it will help the poor
doesn't hold water for me.

> Your point hasn't swayed me, but it has made me consider the 'other side' at
> least so thank you.

Same here, appreciate debating with someone respectfully even if opinions are
different.

