Before going on, make a note of your income, and answer the following statements as true or false for your life: “I cannot afford to buy everything I really need” and “I spend nearly all my money on the basic necessities of life.”
I’m not one of those “This Great Recession will get us in touch with the things that really matter” kinds of people. But there are going to be a lot of stories like this that we’ll have to document in hindsight:
It’s commonplace to find families earning more than $250,000 a year in places like New York and San Francisco who don’t consider themselves to be rich. But the WSJ has found solid gold in Ellen and Donald Parnell: they’re earning $260,000 a year in Tennessee and still claim that they “don’t have a load of cash” to cover the things they might want to buy.
The numbers belie their claim, despite the WSJ’s best efforts to paint the Parnell’s plight sympathetically:
For the Parnells, their perception of themselves is based on the math. The value of their house is down $60,000. Ms. Parnell says the couple’s gross income last year was about $260,000. Taxes, premiums for medical care and deductions for Social Security and their 401(k) contributions cut the gross to about $12,000 per month. The family tithes $1,300 a month at their church. Their mortgage, second mortgage and payment on land they bought is nearly $4,000 a month. Other expenses, including their family car payment, insurance and college funds, as well as basics like food, utilities and donations to charities, leave them with about $1,200 left over each month.
I completely believe this. And if people did hard research and polling into it, I’m sure we’d be even more shocked. It reminds me of this excellent book by Juliet Schor, The Overspent American, from the late 1990s. In it, she includes this interesting poll result:
So in 1995, one out of five people making over $100,000/year felt that they could not afford the necessities in their lives. Her whole point is that as we make more money, our mental cues for what is necessary expands right alongside our checkbook. But the idea that $100,000 a year just isn’t cutting it for 1/5th of the group strikes me as a very scary thought – how much money would you need to feel as if you have you necessities?
And that was in the 1990s. Before the Get-Rich-Or-Die-Tryin’ Economy, before a brutal tournament mindset began taking over more and more of our labor market, before offshoring and outsourcing and gated communities, before the rapid increase in the price of education and health care, etc. I’d bet these numbers are much, much higher.
If you want to see inequality in action, note that although $1 in 1995 has inflated to about $1.40 now, our mental high category has gone from $100,000 to $250,000. However the rest of the columns feel just about right to divide up the population. $35K – $50K, $50-75K. Yup, just about right.
One question she tries to answer is how television impacts how we save and spend. Does it increase spending, because of advertising and new peer reference groups? Or does it decrease it, since TV is free and an alternative to shopping, and the ads are more competition between things you were going to buy anyway (detergent, milk, paper towels)? Here’s a study she did with a group of middle class telecom industry people from the southeast, on their consumption and spending patterns. Fascinating stuff:
Note that if you watch 15 hours of television a week, you spend an additional $3,000 a year (and save about 15% less) than you would, controlling for all other factors. One factor she finds from more in-depth interviews with the subjects is that TV provides a new reference group. There’s a classic behavioral economics example. If you have a wine menu given to you with a $10, $20, and $30 bottle of wine listed, you’ll pick the $20. However if there is a $10, $20, $30 and $80 bottle of wine, you’ll pick the $30. If your peer group is your family, friends, and community, who are all probably educated at the same level and work the same kind of job you do, that’s one consumption basket. If your peer group is the same, plus the crew at Sex and the City and Entourage, it is likely you are going to be spending more on clothes, housing, travel and leisure. You’ll also have a twisted idea of how much people earn and how much they spend. This works even before we get to the idea of consumption as competition between social groups (which I find more fascinating).
So now that television appears to be dying in a massive way, what will happen to our consumption reference groups? Will it all be segmented cable channels, with a gay channel and a frat guy channel and a housewife channel, etc? Will we get it from the internet? I rarely am moved by the internet to purchase something the way I can be with televised consumption. What do you think?