Tuesday, April 20, 2010

Can't make ends meet? Few can.

I had bookmarked this article to look at more closely when I got back to town, and today I have read it carefully. It is essentially similar to an article I wrote a couple of years ago where I gave a breakdown of our personal expenses regarding health insurance and taxes, but on a less personal and more broad scale. This article takes the Median US Income and compares it to Median expenses of various kinds - the result is before the month is over, the median income is out of money and has to rely on credit of some sort to keep going until the next month's paychecks.

A Jewish man, of course, has several expenses above and beyond the Median US fellow. He can only buy food, especially meats, that are kosher certified. In most communities his kids have to attend private dayschool or his family will be outcast by their Rav and neighbors. To live within walking distance of a shul means housing costs are higher than median, also - yet due to the schooling situation most Jewish families have more than one car instead of being able to rely on public transit. Though women make only 65% or so of what a man makes due to maternity leaves and other family responsibilities, many Jewish homes have only a woman's income since their husbands are in kollel, meaning she brings home even less than the US Median income. Those families where both husband and wife work face a higher tax bracket and less eligibility for tuition assistance or reduced lunches, not to mention the other penalties involved in the Two Income Trap (as we have discussed many times previously). In short, things are worse for Jewish families than Mr. Median Income's family.

This is why so many are caught up in terrible credit card debt, second mortgages, equity lines of credit, consumer and auto loans, and high mortgages. Something's got to give, class. This simply can't go on.

Zero Hedge Online
Guest Post: It's Impossible To "Get By" In The US
Submitted by Tyler Durden on 04/12/2010 11:14 -0500

...In 2008, the median US household income was $50,300. Assuming that the person filing is the “head of household” and has two children (dependents), this means a 1040 tax bill of $4,100, which leaves about $45K in income after taxes (we’re not bothering with state taxes). I realize this is a simplistic calculation, but it’s a decent proxy for income in the US in 2008.

Now, $45K in income spread out over 26 pay periods (every two weeks), means a bi-weekly paycheck of $1,730 and monthly income of $3,460. This is the money “Joe America” and his family to live off of in 2008.

Now, in 2008, the median home value was roughly $225K. Assuming our “median” household put down 20% on their home (unlikely, but it used to be considered the norm), this means a $180K mortgage. Using a 5.5% fixed rate 30-year mortgage, this means Joe America’s 2008 monthly mortgage payments were roughly $1,022.

So, right off the bat, Joe’s monthly income is cut to $2,438.

According to the US Department of Agriculture, the average 2008 monthly food bill for a family of four ranged from $512-$986 depending on how “liberal” you are with your purchases. For simplicity’s sake we’ll take the mid-point of this range ($750) as a monthly food bill.

This brings Joe’s monthly income to $1,688.

Now, Joe needs light, energy, heat, and air conditioning to run his home. According to the Energy Information Administration, the average US household used about 920 kilowatt-hours per month in 2008. At a national average price of 11 cents per kilowatt-hour this comes to a monthly electrical bill of $101.20.

Joe’s now down to $1,587.
Now Joe needs to drive to work to make a living. Similarly, he needs to be able to drive to the grocery store, doctor, etc. According to AAA, the average cost per mile of driving a minivan (Joe’s a family man) in 2008 was 57 cents per mile. This cost is based on average fuel consumption, tires, maintenance, insurance, license and registration, and average loan finance charges.

Multiply this cost by 15,000 miles per year and you’ve got an annual driving bill of $8,550. Divide this into months (by 12) and you’ve got a monthly driving bill of $712.

Joe’s now down to $877 (I’m also assuming Joe’s family only has ONE car). Indeed, if Joe’s family has two cars (one minivan and one sedan) he’s already run out of money for the month...

And so most people have. But wait! There's more!

...Now, assuming Joe’s family is one of the lucky ones (depending on your perspective) they’ve got medical insurance. Trying to find an average monthly medical insurance premium for a family in the US is extremely difficult because insurance plans have a wide range in deductibles, premiums, and co-pays. But according to eHealth Insurance, the average monthly premium for family policies in February 2008 was $369.

So if Joe has medical insurance on his family, he’s now down to $508. Throw in cell phone bills, cable TV and Internet bills, and the like, and he’s maybe got $100-200 discretionary income left at the end of the month...

And that certainly isn't going to pay dayschool tuition for 5 kids, or even one for that matter. Nor do I think this writer's figure for health insurance premiums is correct - it probably includes college campus "health plans" at the university clinic, insurance for young singles or couples without kids. Out here in real life land a family with kids pays a minimum of around $700 a month for insurance. We have one of the cruddiest Humana HMO's available and this is now the monthly cost for us - not including co-pays, etc. - and that's at a group rate.

...I also wish to note that my analysis didn’t include real estate taxes and numerous other expenses that most folks have to pay. So even if you are extremely frugal and careful with your money, it is impossible to “get by” in the US without using credit cards, home equity lines of credit or burning through savings. The cost of living is simply TOO high relative to incomes.

This is why there simply cannot be a sustainable recovery in the US economy. Because we outsourced our jobs, incomes fell. Because incomes fell and savers were punished (thanks to abysmal returns on savings rates) we pulled future demand forward by splurging on credit. Because we splurged on credit, prices in every asset under the sun rose in value. Because prices rose while incomes fell, we had to use more credit to cover our costs, which in turn meant taking on more debt (a net drag on incomes).

And on and on...

It is true that even in Jewish communities, many families live beyond their means - feeling that they MUST have amenities that everyone else has, even if they personally cannot afford it. In reality, people don't NEED a lot of the things they buy, it's true. But they think they do. The community standard is simply set too high and the Ravs and leaders in the community do nothing about that. Many actually encourage debt! Something has to give, though. We are all out of money, and things simply cannot go on the way they have been. A lot of time has been spent on this blog making suggestions but the leaders aren't interested. They can't understand that just because things have "always" been a certain way (and in reality, they certainly haven't!), that they can continue now and into the future.

We have to adapt to the newly emerging paradigms, and that means discarding old expectations and living within our means. Lots of things can be done - daycare co-ops, homeschool co-ops, eldercare co-ops, and numerous ways households can downsize, reconfigure, jettison non-essentials, spread out costs over more working adults, and so on and so forth - we've discussed dozens of things here. But right now, people just aren't willing to do anything differently, no matter how insane it is to keep doing the same things over and over again and expect different results. Until people are actually willing to implement such ideas, they are just a ghost in the machine. What will it take to get us to take this problem seriously? I don't know. By the time you're flat broke it's often too late to make meaningful transitions in an orderly and acceptable manner. This goes for communities as well as individual households. But we seem determined to make sure anything we will do in the future will be too little, too late.

I can only shake my head and sigh. You can lead a horse to water, but you can't make him drink - until he's dying of thirst, of course. Then he'll drink anything, even if it's poisonous. That, I'm afraid, is where we are heading.

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