The Middle Class Life Style Is Putting You In Debt?

[Singuy]

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/middle-class12-13.html

[LivingAlmostLarge]

That's not middle class the mortgage is way too high and the car expenses are out of line. Also property taxes are not usually that high only in high property tax states like NJ/NY/CT/MA maybe TX, FL, etc. And paying that much on a $200k home is unusual. And I don't think people making less than $100k are going to be buying mostly homes $300-400k. Plus most of those price homes are in higher cost of living areas.

But I could be wrong. But looking at what most people post here for mortgage payments is not $2k/month.

[Singuy]

I look around my area which is a middle class city in FL and it looks like most new constructions are 250k-400k. Also the author believes in 15 year mortgage because he wants the middle class family to have equity in the home. Lastly I feel that most people I know consider 150k or less house in my area to be lower middle class houses(less than 1300 sqft in a not so good community).

I think that middle class dream is a 2500 sqft house in a "middle class" community with good schools..which is mostly 250k+ around here.

15 years ago, you can definitely buy a decent house for under 150k. My parents house was 135k for a 2400 squareft in a very good location..this house is now worth north of 270k today.. And yet the median household income is not much more today.

[pflyers85]

Some of it has to do with the way that in our society the middle class has collectively bought into the credit and financing game. Obviously prices of commodities and other raw materials have gone up so prices for goods will adjust as well. However, the higher utilization of credit and financing for goods like TV's, major electronics, furniture, appliances, even clothing, etc also causes prices to rise. They know they can charge more so long as they create a slowly bleeding payment process that appears less painful than parting with a large sum of cash in one shot.

Car payments and most specifically leasing is another bad deal where many middle income folks squander their limited income and kill any chance they have to build wealth. Look at health insurance. Personally I would love it if people would collectively come to the realization that health care would be significantly less expensive if basic doctor visits and common care was paid for out of pocket instead of utilizing health insurance. Insurance is a product to hedge against less likely, costly events that would otherwise cause a major financial hardship or inevitable bankruptcy. When you use insurance to cover almost certain or near universal medical procedures the price is going to be distorted.

A lot of the problems today for middle class families can't be fixed with spreading wealth and/or forcibly raising wages. There is just a poisonous collective mindset fueled by government, business, media, etc that is just so hard to break and since so many are going along the same way it affects those of us that don't want to go along with it. I don't want to use credit and go into debt to buy furniture, TV's, appliances. However, because so many do the cost is higher and while I'm better off for not being in debt I'm still negatively impacted because of those that play the game.

Sorry for the long winded, preachy rant but this stuff just hits a raw nerve with me.

[Singuy]

Look at health insurance. Personally I would love it if people would collectively come to the realization that health care would be significantly less expensive if basic doctor visits and common care was paid for out of pocket instead of utilizing health insurance. Insurance is a product to hedge against less likely, costly events that would otherwise cause a major financial hardship or inevitable bankruptcy. When you use insurance to cover almost certain or near universal medical procedures the price is going to be distorted.

A lot of the problems today for middle class families can't be fixed with spreading wealth and/or forcibly raising wages. There is just a poisonous collective mindset fueled by government, business, media, etc that is just so hard to break and since so many are going along the same way it affects those of us that don't want to go along with it. I don't want to use credit and go into debt to buy furniture, TV's, appliances. However, because so many do the cost is higher and while I'm better off for not being in debt I'm still negatively impacted because of those that play the game.

Sorry for the long winded, preachy rant but this stuff just hits a raw nerve with me.

I am having a very hard time understanding or believing in this mindset of forgoing health insurance and paying out of pocket to reduce cost.

U.S has the highest cost of health care in the world and our outcome is not even close to first. There are no countries out there that tried to REDUCE the cost of healthcare by providing citizens with NO health insurance.

Most countries with reduced healthcare cost comes from single payer systems in which the government bargains for the people as a whole. The private sector will try to seek for these large government contracts by reducing their prices and be as equally competitive when it comes to efficacy.

Another way to reduce healthcare spending is by providing MDs and other health professionals with FREE schooling so they wouldn't come out making 400k/year (to compensate for their massive amount of student loans)..these MDs will only make 70k/year.

So no, there's NO SUCH THING as the "free market will lower the cost" for healthcare because demand ALWAYS outstrip supply! If one company makes a magic bullet, they will charge whatever the heck they want because you either take it or die (proven by our recent 700x or whatever price hike for the antibiotic for HIV pt)..medications/surgeries/office visits are NOT luxury goods. They are as crucial as clean water. Can you imagine if clean water is given to the private sector?

My point above is about median household income vs house pricing.
The median household income DID NOT DOUBLE or TRIPLE in the last 20 years but house prices have. The median household income for 1998 is 38,885 (unadjusted for inflation)..the median household income in 2014 is $51,939. Houses were priced at around 120-150k for a new construction in 1998 now cost 250-350k today. It's a totally different beast when the household income only went up by 13k, but the house prices went up by 130-200k. This may be the very reason why people are in so much debt today than before...and the American (middle class) dream is dying.

[Fishindude77]

I think this term "middle class" gets thrown around way to freely, and it's really something that isn't very clearly defined, and probably won't ever be.

Chances are, if you were to ask almost anyone you work with or associate with they would tell you that they are "middle class". They might also feel that anyone making 50% more than them is "wealthy", and that anyone making 50% less than them is "poor".

Biggest financial problem I see most struggling with is living beyond their means to "keep up with the Jones". If someone else in their group has a home, car, goes on nice vacations, etc., then they think they will be looked down on if they can't do the same, so they bury themselves in debt to make it happen. This mentality seems to be worse now than ever.

Growing up, I don't remember seeing as much of this. The folks who earned their living as; factory workers, firemen, railroaders, construction workers, truck drivers, nurses, deliverymen, etc. (the backbone of America) were content to live and raise their families in small homes on city blocks in town.

Many had only one car per family, everyone didn't have air conditioning, no cell phones, computer or cable TV bills, they painted and roofed their own houses, cut their own grass, kids walked to school and packed their lunches. If the kids wanted a car or expected college, they got a job and paid for it themselves. A vacation might have been a three day camping trip on a holiday weekend.

So many of these luxuries today are perceived as NEEDS, and it's putting people earning very livable incomes in the poor house.

[LivingAlmostLarge]

Actually two big changes have occurred in the past 50 years that makes middle class disappearing. Lack of pensions along with unions and skyrocketing health care costs. Cost of premiums along with cost of care, prescriptions, etc and living longer and end of life care is a huge reason why people are going bankrupt.

We already have a single payer system in this country it's called medicare. Dr hate the fact that medicare forces them to accept what they medicare deems worthy of compensation. Pharmaceutical companies do as well. Many dr try to not accept medicare or medicaid. But the truth is if we were under a single it'd be cheaper. Multiple articles have been written that the excess waste our system creates would pay for a single payer in a heartbeat.

FWIW the guy who bought the HIV drug and then raised it from $13.50 to $700, imagine if all drug companies keep doing that. I certainly can't afford prescriptions if that's what they want to charge. But in what other country is it allowed that a company can do that? Prescription drugs in all other countries cost substantially less. It's a fact that prescription drugs cost the most in the USA and that pharm companies look at the US market as their money MAKER. There was a book about it talking how the Pharma companies only care about profits in US because everywhere else is regulated. There even was a book written by a pharma sale rep about this.

So sounds good let everyone pay their own way. But in the HDHP prescriptions aren't covered. And anything major you still end up shelling out the $6.5k deductible and then some.

[pflyers85]

I am having a very hard time understanding or believing in this mindset of forgoing health insurance and paying out of pocket to reduce cost.

U.S has the highest cost of health care in the world and our outcome is not even close to first. There are no countries out there that tried to REDUCE the cost of healthcare by providing citizens with NO health insurance.

Most countries with reduced healthcare cost comes from single payer systems in which the government bargains for the people as a whole. The private sector will try to seek for these large government contracts by reducing their prices and be as equally competitive when it comes to efficacy.

Another way to reduce healthcare spending is by providing MDs and other health professionals with FREE schooling so they wouldn't come out making 400k/year (to compensate for their massive amount of student loans)..these MDs will only make 70k/year.

So no, there's NO SUCH THING as the "free market will lower the cost" for healthcare because demand ALWAYS outstrip supply! If one company makes a magic bullet, they will charge whatever the heck they want because you either take it or die (proven by our recent 700x or whatever price hike for the antibiotic for HIV pt)..medications/surgeries/office visits are NOT luxury goods. They are as crucial as clean water. Can you imagine if clean water is given to the private sector?

My point above is about median household income vs house pricing.
The median household income DID NOT DOUBLE or TRIPLE in the last 20 years but house prices have. The median household income for 1998 is 38,885 (unadjusted for inflation)..the median household income in 2014 is $51,939. Houses were priced at around 120-150k for a new construction in 1998 now cost 250-350k today. It's a totally different beast when the household income only went up by 13k, but the house prices went up by 130-200k. This may be the very reason why people are in so much debt today than before...and the American (middle class) dream is dying.

I'm not suggesting that health insurance is completely eliminated. I think it should be in place for less common, catastrophic care. Your example of the $700 increase of this HIV pill is now a poor example. A company called Imprimis Pharmaceuticals will release a similar drug and sell it for $1/per pill. Again an example of a private sector solution to a problem instead of relying on government. http://time.com/4084455/aids-drung-martin-shkreli/

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.

"Another way to reduce healthcare spending is by providing MDs and other health professionals with FREE schooling so they wouldn't come out making 400k/year (to compensate for their massive amount of student loans)..these MDs will only make 70k/year."

Student loans have little to nothing to do with why doctors are paid a significant salary. Doctors earn a lot because they have acquired a skill set that very few people have the capacity to obtain and there is constant demand for their services. Also I'm not sure where you are getting that $400K salary from. I'm seeing less than 1/2 of that figure as the average earnings for a physician.

[Singuy]

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.

"Another way to reduce healthcare spending is by providing MDs and other health professionals with FREE schooling so they wouldn't come out making 400k/year (to compensate for their massive amount of student loans)..these MDs will only make 70k/year."

Student loans have little to nothing to do with why doctors are paid a significant salary. Doctors earn a lot because they have acquired a skill set that very few people have the capacity to obtain and there is constant demand for their services.

The free market works with some things (like luxury goods), but are terrible at needed goods. I wouldn't trust the free market handling the police, firemen, the military, and of course health care. Many drug companies price gouge because they can. There's a reason why they make billions in profits off sick people.

Also everything is risk vs rewards. An MD can charge pt whatever they want because their education was NOT free (and stupid expensive!) If the government gives MDs free education, they can then regulate how much they get paid. Look at France, #1 in healthcare with MDs making 50% of those in the U.S and their education was practically FREE. Are you saying there's a lack of demand of MDs in France because people are healthier? I doubt it. Hey maybe giving MDs free education can increase supply for you free market junkies.

http://www.kevinmd.com/blog/2014/05/pay-french-doctor.html

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.

[disneysteve]

An MD can charge pt whatever they want

How I wish that were true!

Doctors have zero control over the price they charge for their services. Those prices are completely regulated by the government and insurance companies. That's why so many doctors are struggling, especially independent doctors who aren't part of a big healthcare system. Our expenses keep going up but our income stays the same (or drops) because we can't raise prices to compensate for costs like most businesses can.

[pflyers85]

The free market works with some things (like luxury goods), but are terrible at needed goods. I wouldn't trust the free market handling the police, firemen, the military, and of course health care. Many drug companies price gouge because they can. There's a reason why they make billions in profits off sick people.

Also everything is risk vs rewards. An MD can charge pt whatever they want because their education was NOT free (and stupid expensive!) If the government gives MDs free education, they can then regulate how much they get paid. Look at France, #1 in healthcare with MDs making 50% of those in the U.S and their education was practically FREE.

http://www.kevinmd.com/blog/2014/05/pay-french-doctor.html

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.

What about needed items like housing and food? Yes I know there is public assistance available for both to those with low incomes but most people are on their own and rely on free enterprise to meet their needs.

I disagree with the notion that our healthcare system is largely free market. I agree that the market is largely private but it is certainly not "free" as it is one of the most regulated industries. Again I'm not saying I want healthcare to be unregulated. Obviously there needs to be protection for the consumer but IMO much of the regulation today that is promoted as safeguarding the consumer is really protection of insurance companies, pharmaceutical companies, providers, etc.

[disneysteve]

Another way to reduce healthcare spending is by providing MDs and other health professionals with FREE schooling so they wouldn't come out making 400k/year (to compensate for their massive amount of student loans)..these MDs will only make 70k/year.

First, very few doctors make 400K/year. Second, the cost of medical school has little to nothing to do with the cost of healthcare (see my earlier post about charges being highly regulated, not something the doctor can control).

The median household income DID NOT DOUBLE or TRIPLE in the last 20 years but house prices have.

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.

[pflyers85]

First, very few doctors make 400K/year. Second, the cost of medical school has little to nothing to do with the cost of healthcare (see my earlier post about charges being highly regulated, not something the doctor can control).



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.

Agreed and it also has a lot to do with suburban sprawl and the location of these homes. Middle income folks are qualifying for mortgages for homes located where only those well off used to live in the 50's-early 80's. I live near Allentown, PA and years ago middle income folks lived in the city in a 1/2 a double home. Now these homes have become apartments for lower income families because middle income folks are buying suburban development homes. They justify it by claiming they want a better school district for their children, however, if most stayed put in these smaller homes they could afford the school district wouldn't be nearly as undesirable. There are just far too many folks who don't want to address the elephant in the room that there is a large portion of modest earning folks using credit to supplement their income to live a life they cannot afford. I'm not saying there aren't legitimate issues caused by government beyond the control of middle income folks but they hurting themselves far more trying to live above their means than any policy enacted by a local, state, or federal gov't.

[Singuy]

First, very few doctors make 400K/year. Second, the cost of medical school has little to nothing to do with the cost of healthcare (see my earlier post about charges being highly regulated, not something the doctor can control).



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.

1. MDs and Hospitals can charge whatever they feel but doesn't mean they get reimbursed for this amount. Insurance companies dictates the amount of reimbursement(therefore I feel that insurance companies are very important vs paying everything out of pocket according to an earlier poster).

ie. My hospital charges 18 dollars for a pill of Tylenol which costs us less than 1 penny to acquire. Are we getting 18 dollars back for the pill? Not if the person has insurance. But a mega rich person with no health insurance will end up paying full price on our inflated services.

I have pts staying here that costs 200k/day due to expensive factor products..each dose costs the hospital 15k and this pt receives 4 doses/day. How can a company justify charging pt 15k/dose on a drug the pt can't live without (bleed to death without the med).

I'm just saying when a company(or say a MD) have came up with a way to save lives like no other company or MD, they can literally charge whatever they want..if you're not happy with it then just die..the MD is not obligated to go to work and the drug company can always say "oh it's the R&D". If the government is in charge of R&D then these life saving drugs can be pennies on the dollar.

Lastly about the houses

I was trying to compare apples to apples. My example of my parent's house was 135k for a 2400 sqft house in a pretty decent neighborhood. You can't find a house like this anymore today that costs 135k. This same house will cost 280k today with substandard upgrades.
In my area, $45-55/squareft was very common in 1998..now you can't even get these pricing in the ghetto.

Now these prices were available when the market crashed 3 years ago, but the prices increased substantially afterwards.

[Fishindude77]

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.