Ask HN: Upper Middle Class Crunch?
7 comments
1) Why do you need to go to a private institution? Is there evidence to suggest that it's superior to a public institution?
2) Affordability of housing is definitely a problem, but it's not just isolated to the upper middle class. Look at teachers, for instance, many of whom can not afford to live in the wealthy districts that they teach in. Or look at teachers in Oklahoma and WV and AZ, they can't afford their cheaper locales.
3) The upper middle class have it much, much better than low-wage workers, many of whom may be fired if they need to take a day or two off for an emergency. Nevermind paid time off, that's a rarity for many below the upper middle.
4) Yes, costs do scale with higher salary. It's not true to say that ownership vs rent is definitely "net losing", it's entirely situational based on interest rates, property taxes, local rents, and many other factors.
Overall: The larger problem is this: everyone outside of the corporate top echelons is getting squeezed. It's less about which non-top-tier you're in, but if you're not a millionaire or billionaire, you're getting a much less good deal. To say the upper middle class have it particularly bad is not fair at all to everyone below them, who have it far worse.
You might counter that these people do not have the skills the upper-middle does. But developing those skills is probabilistic and is aided by a good home life, strong schools, and an environment conducive to learning. Many poor individuals simply do not have the life setup they need to gain top level skills over the years.
I taught in public schools in Chicago's warzones, the South and far-West sides. It's hard for a kid to pick up a STEM career when their cousin just got gunned down, when they need to join a gang based on what block they are on, lest they be jumped by a rival block's gang on the walk to school. It's hard for them to skill up and get ahead when their father is incarcerated and their single mother is struggling to pay the bills. If their classmates and cousins are getting gunned down due to some cycle of pointless violence, how likely are they to learn their way to the top 95%?
2) Affordability of housing is definitely a problem, but it's not just isolated to the upper middle class. Look at teachers, for instance, many of whom can not afford to live in the wealthy districts that they teach in. Or look at teachers in Oklahoma and WV and AZ, they can't afford their cheaper locales.
3) The upper middle class have it much, much better than low-wage workers, many of whom may be fired if they need to take a day or two off for an emergency. Nevermind paid time off, that's a rarity for many below the upper middle.
4) Yes, costs do scale with higher salary. It's not true to say that ownership vs rent is definitely "net losing", it's entirely situational based on interest rates, property taxes, local rents, and many other factors.
Overall: The larger problem is this: everyone outside of the corporate top echelons is getting squeezed. It's less about which non-top-tier you're in, but if you're not a millionaire or billionaire, you're getting a much less good deal. To say the upper middle class have it particularly bad is not fair at all to everyone below them, who have it far worse.
You might counter that these people do not have the skills the upper-middle does. But developing those skills is probabilistic and is aided by a good home life, strong schools, and an environment conducive to learning. Many poor individuals simply do not have the life setup they need to gain top level skills over the years.
I taught in public schools in Chicago's warzones, the South and far-West sides. It's hard for a kid to pick up a STEM career when their cousin just got gunned down, when they need to join a gang based on what block they are on, lest they be jumped by a rival block's gang on the walk to school. It's hard for them to skill up and get ahead when their father is incarcerated and their single mother is struggling to pay the bills. If their classmates and cousins are getting gunned down due to some cycle of pointless violence, how likely are they to learn their way to the top 95%?
Lots of good points here. I think the key takeaway is that there are really two classes: the labor/wage class and the capital class. As long as you’re in the labor class, you’re trading your time for money and by definition will never see more than marginal gains over your wage class peers. The only way to truly pull away from the pack is to join the capital class, otherwise you’re stuck in a hamster wheel, even if does have a golden track.
I would never think to deny anything you're saying. The 2000 word character limit on submissions prevented me from being more explicit in what I was decrying, which is that wellbeing does not seem to scale commensurately with salary/wealth/effort, and in fact there are non-obvious penalties. It seems you agree with that point.
I'm also addressing the HN demographic specifically. Our options don't tend to be low-wage service worker vs high-salary tech employee. Many of us could in theory trade away a high salary for a lower one that yields a dramatically better lifestyle. What I'm trying to point out is that making that decision may in fact be a more optimal strategy and worth considering.
Look, I'm someone who definitely empathizes with all of the pain in this world, but please permit me the opportunity to be momentarily a bit more selfish and consider my own situation, which parallels that of a lot of people in this community.
Side note: buying is much more often a bad proposition vs renting than people think. Even if you have a net positive ROI, it still likely does not compensate for the increased time loss + stress involved in home ownership. https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
Other side note: private institutions on balance don't offer a better education, but are superior for networking and credentialing (here I mean the top 25ish; not the scumbaggy student loan black holes), which (sadly) are among the most important levers for value creation in life. Of course that only matters if value creation is an important goal for your kids.
I'm also addressing the HN demographic specifically. Our options don't tend to be low-wage service worker vs high-salary tech employee. Many of us could in theory trade away a high salary for a lower one that yields a dramatically better lifestyle. What I'm trying to point out is that making that decision may in fact be a more optimal strategy and worth considering.
Look, I'm someone who definitely empathizes with all of the pain in this world, but please permit me the opportunity to be momentarily a bit more selfish and consider my own situation, which parallels that of a lot of people in this community.
Side note: buying is much more often a bad proposition vs renting than people think. Even if you have a net positive ROI, it still likely does not compensate for the increased time loss + stress involved in home ownership. https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
Other side note: private institutions on balance don't offer a better education, but are superior for networking and credentialing (here I mean the top 25ish; not the scumbaggy student loan black holes), which (sadly) are among the most important levers for value creation in life. Of course that only matters if value creation is an important goal for your kids.
A lot to unpack in your post, but some things worth mentioning:
A. Savings rate is everything. How much can you save and get compounding?
If you're high earning early in your career and can keep your costs of living down, you come out way ahead. This is much easier said than done. Also a big deal in college savings—being able to put away $5k / year in a tax advantageous account for your kid(s) makes a huge difference if you can do it when they're infants. If you're not a high earner until they're in high school, it's a different scenario.
2. Have seen a lot of friends (particularly engineers) go freelance and build up consulting work while in a city like NY or SF—and then once they have stable income they move to a cheaper location.
Kingston, NY in the Hudson Valley is a really interesting example of this. A small but steadily growing community of technical talent that works remote, but knows each other—making 90%+ of what they'd made in a major city and only two short hours to NYC by train or bus to meet clients, etc. And very nice housing stock in the $200-300k range. I would expect to see even more of this as we move into an age of autonomous vehicles, etc.
3. Cities. It's not clear that the party line of cities for the past decade is true. The 2008 crash did a number on younger people's ability to buy homes and finance them. They opted to stay in cities and rent instead. That trend seems to be reversing quite quickly.
https://www.bloomberg.com/view/articles/2018-04-18/growing-m...
https://www.bloomberg.com/view/articles/2018-04-03/millennia...
A. Savings rate is everything. How much can you save and get compounding?
If you're high earning early in your career and can keep your costs of living down, you come out way ahead. This is much easier said than done. Also a big deal in college savings—being able to put away $5k / year in a tax advantageous account for your kid(s) makes a huge difference if you can do it when they're infants. If you're not a high earner until they're in high school, it's a different scenario.
2. Have seen a lot of friends (particularly engineers) go freelance and build up consulting work while in a city like NY or SF—and then once they have stable income they move to a cheaper location.
Kingston, NY in the Hudson Valley is a really interesting example of this. A small but steadily growing community of technical talent that works remote, but knows each other—making 90%+ of what they'd made in a major city and only two short hours to NYC by train or bus to meet clients, etc. And very nice housing stock in the $200-300k range. I would expect to see even more of this as we move into an age of autonomous vehicles, etc.
3. Cities. It's not clear that the party line of cities for the past decade is true. The 2008 crash did a number on younger people's ability to buy homes and finance them. They opted to stay in cities and rent instead. That trend seems to be reversing quite quickly.
https://www.bloomberg.com/view/articles/2018-04-18/growing-m...
https://www.bloomberg.com/view/articles/2018-04-03/millennia...
Speaking from a personal standpoint, not from the entrepreneurial I-must-work-hard-to-change-the-world-for-the-better standpoint, I've often felt that the best way to take advantage of the current trends is to work in your standard high pay, high cost area (SF, Silicon Valley) when you're young, all the way up until you have children, and your children start school. I would aim to live in ways that allow you to save as much money as possible. Rent or buy in cheaper areas and brave the commute, cook meals most of the time instead of eating out, don't waste money on drinks at bars. When you're in your mid-30s or early 40s when your children start school, ideally you will have saved $1m or close to it, from 15-20 years of high pay work. This requires discipline of not spending extravagantly even while you're making good money, so it might mean not buying that Tesla even though you could afford it. At this point you have the means of relocating to a much lower cost of living city, buying a house there (maybe even with cash), and hopefully landing a job that pays lower but have much lower stress, and have a short commute. Then you get to enjoy family time, have low stress from commute, low stress from work, and maybe even solve that financial aid issue by the time college time for children comes, because you will have been making $30-50k/year for a while now instead of $150-200k.
Of course, this "way to hack around it" isn't for everyone; for one thing, it most likely means you shouldn't take your chance at building that startup, and just work in a GoogFaceAmaAppleSoft (or any other established companies) for many years; and then you will have to be OK with living in a low cost city when you have a family, meaning giving up the city life of SF (and the like), which perhaps not everybody wants. Finally, not everyone is ok with "going down the career ladder", both in status and monetary values. For some, their ego might simply not allow it.
Of course, this "way to hack around it" isn't for everyone; for one thing, it most likely means you shouldn't take your chance at building that startup, and just work in a GoogFaceAmaAppleSoft (or any other established companies) for many years; and then you will have to be OK with living in a low cost city when you have a family, meaning giving up the city life of SF (and the like), which perhaps not everybody wants. Finally, not everyone is ok with "going down the career ladder", both in status and monetary values. For some, their ego might simply not allow it.
On the one hand, if you're making that much then you are fortunate enough to be generally insulated from a whole range of problems/stressors that most of the nation doesn't have. On the other hand, it really does feel like barriers are raising to maintaining that level life or being able to use that level of compensation to finance a way to the next level of stability. Especially if you're new to that socioeconomic level, and have a family and want to do responsible financial planning for their futures (college) while maintaining some quality of life and involvement with that family.
You get the harder burden of higher expected contributions for college (as it should be), but there's a valley where it hits upper middle class harder than the next economic class strata up while taking away supports that the low/middle financial levels receive. I joke (and cry) that the college pricing is one of the only negotiations where the other side gets to look at exactly where the buyers are coming from financially, and then dictate their price. It sets up a mechanism where families have a lot of potential wealth basically siphoned off by colleges and student loan arrangements - upper middle, middle, or lower economic class. (and btw the college financial formulas in the US heavily favor income over assets as inputs to ramp up expected contributions - another way that the capital wealthy, vs income wealth classes win out...)
The recent tax changes also seem to hit hard to if you're already a homeowner and might sell and buy to relocate for a job. So that's an special added mobility dampener if moving to places like silicon valley where the home cost might go up - but now the tax advantages for mortgage interest hit limits much earlier, taking away more of the salary bump from moving.
Oddly enough, if you have the resources, starting up a business a year or so before kids applying for college is an interesting thought - one that I doubt I'd try due to the risk. But potentially then, you get a big drop in the income input in the college expected contribution calculation which can come back as an investment if you later make good on the business. But again, it's an approach that is much more available to the capital wealthy, and more difficult and risky for high-income earners to employ.
Edit: on the college thing: I've had friends in the same economic class seriously run trade-off analysis on wether they should pay for college for their kids or use that same amount to offer their kids a startup/personal-investment fund thinking if they get the same or better value on experience + potential payoff vs the non-college option.
You get the harder burden of higher expected contributions for college (as it should be), but there's a valley where it hits upper middle class harder than the next economic class strata up while taking away supports that the low/middle financial levels receive. I joke (and cry) that the college pricing is one of the only negotiations where the other side gets to look at exactly where the buyers are coming from financially, and then dictate their price. It sets up a mechanism where families have a lot of potential wealth basically siphoned off by colleges and student loan arrangements - upper middle, middle, or lower economic class. (and btw the college financial formulas in the US heavily favor income over assets as inputs to ramp up expected contributions - another way that the capital wealthy, vs income wealth classes win out...)
The recent tax changes also seem to hit hard to if you're already a homeowner and might sell and buy to relocate for a job. So that's an special added mobility dampener if moving to places like silicon valley where the home cost might go up - but now the tax advantages for mortgage interest hit limits much earlier, taking away more of the salary bump from moving.
Oddly enough, if you have the resources, starting up a business a year or so before kids applying for college is an interesting thought - one that I doubt I'd try due to the risk. But potentially then, you get a big drop in the income input in the college expected contribution calculation which can come back as an investment if you later make good on the business. But again, it's an approach that is much more available to the capital wealthy, and more difficult and risky for high-income earners to employ.
Edit: on the college thing: I've had friends in the same economic class seriously run trade-off analysis on wether they should pay for college for their kids or use that same amount to offer their kids a startup/personal-investment fund thinking if they get the same or better value on experience + potential payoff vs the non-college option.
Thanks for the answer! It's disappointing to find someone else who clearly appreciates the problem, but also doesn't have great ideas about how to mitigate.
Sheltering wealth in a business doesn't work, unfortunately. My dad is an SMB owner and his business' financials were included in the financial aid calculation, including the value of all its assets like real estate.
Sheltering wealth in a business doesn't work, unfortunately. My dad is an SMB owner and his business' financials were included in the financial aid calculation, including the value of all its assets like real estate.
It's a side option, but have you shopped overseas public universities? Depending on what the major interest is and where you're comfortable going, even the out-of-nation rate can be competitive with private universities in the US.
I've heard as much. For context, I'm only 27, unmarried without kids, and just trying to think ahead :)
Ah, good for you for planning ahead! Then my advice is save early and consistently, and look into Bernie Sanders or other progressive politicians. I'd rather be paying higher taxes for very low cost to free public universities than the current system - I think that's much more economically efficient. The current structuring of public universities is actually a drag on our economy. It's a financialized extraction of wealth from most income-earning people of any class, and reduces economic activity by pulling working cashflow out of the real value-producing portions of our economy and into the banking/finance sector.
This is said as a parent with a kid going into college soon. None of what I've advocated for there probably lands soon enough to make a bit of financial difference for me, but maybe for you.
This is said as a parent with a kid going into college soon. None of what I've advocated for there probably lands soon enough to make a bit of financial difference for me, but maybe for you.
Haha I wish I was a less cynical person when it comes to political reform.
I don't quite agree with Sanders' approach because I think it's very hard to make his numbers work without meaningfully detracting from aggregate economic performance.
But I also think there are far better measures that can be taken and I'm not sure he ever mentioned (some) of them: (1) adjust federal student aid/loan programs to prevent manipulation; that unregulated money has actually done more than to inflate college costs than almost anything else, (2) eliminate medical industry price gouging through regulation, particularly around Medicaid, Medicare, and ACA spend and perhaps more directly if legally viable, (3) incrementally (as opposed to wholesale) widen the social safety net from the bottom up in a fiscally responsible way, which is precisely how ACA was structured and deployed imo, (4) cut military spending dramatically. Maybe one day we can get to a place where this is possible.
Of course none of that helps any of us in this particular wealth/income gray zone :)
Good luck with the college financing though! Hope you figure out something that works.
I don't quite agree with Sanders' approach because I think it's very hard to make his numbers work without meaningfully detracting from aggregate economic performance.
But I also think there are far better measures that can be taken and I'm not sure he ever mentioned (some) of them: (1) adjust federal student aid/loan programs to prevent manipulation; that unregulated money has actually done more than to inflate college costs than almost anything else, (2) eliminate medical industry price gouging through regulation, particularly around Medicaid, Medicare, and ACA spend and perhaps more directly if legally viable, (3) incrementally (as opposed to wholesale) widen the social safety net from the bottom up in a fiscally responsible way, which is precisely how ACA was structured and deployed imo, (4) cut military spending dramatically. Maybe one day we can get to a place where this is possible.
Of course none of that helps any of us in this particular wealth/income gray zone :)
Good luck with the college financing though! Hope you figure out something that works.
One (1): Direct public university funding would be a mechanism to regulate college costs by putting budget level strings on it which is more of a direct control rather than roundabout via loans. It also puts better market pressure on tuitions at private colleges.
Right now, Harvard for example has a large enough endowment that students could go there free indefinitely, but they still charge a tuition that then gets in-part funded by government backed student loans. That makes no sense to me at all.
The rest of it, I think I'm in agreement with and think that the Progressive side of Democrats and independent groups are the only ones seriously after that...
Right now, Harvard for example has a large enough endowment that students could go there free indefinitely, but they still charge a tuition that then gets in-part funded by government backed student loans. That makes no sense to me at all.
The rest of it, I think I'm in agreement with and think that the Progressive side of Democrats and independent groups are the only ones seriously after that...
Oxford, Cambridge and UCL are relatively inexpensive if you manage to secure some scholarship.
Some Scandinavian, French, Swiss and German universities are excellent. Scandinavian ones are quite inexpensive at foreign rates.
Some Scandinavian, French, Swiss and German universities are excellent. Scandinavian ones are quite inexpensive at foreign rates.
Yeah, poor people have all the same commute and housing problems. Its just called the life crunch. Send your kid to state school.
Don't forget the assets that are going to evaporate when interest rates go up. And, the insane premiums for health insurance since you don't qualify for assistance there either. Oh and don't for get insane day care during the summer and after school.
I deliberately omitted most of those. ROI on appreciating assets depends on allocation and macro factors, not your socioeconomic position. You can also choose to buy cheap health insurance and your employer typically covers it anyway in the US. Costs related to children like day care similarly apply to every strata and you can choose to optimize those expenses no matter who you are.
Your problems can all be solved by giving away your money to charity.
As for how to get around this you could work part time or take a job that paid less but came with benefits.
As for how to get around this you could work part time or take a job that paid less but came with benefits.
(1) There's a gray zone in financial aid, so you could be upper middle in gross household salary (say $150-250k; outside the Bay Area) and be expected to pay full bill at a private college (right now ~$250K).
Costs may keep inflating at a rate multiple % above inflation, implying a worse crunch in the future. Much of the surplus savings people in high-paying jobs are accruing will be garnished by colleges in the form of increased tuition + room and board down the road. In a weird way, you could argue this affects the decisionmaking about the number of kids you can have.
(2) High salary + need enough space => moving away from the city, a massive detractor from wellbeing. The obvious problem is the commute; the less obvious one is becoming disconnected from friends, which is particularly acute in 'transient cities' like SF and NYC. Marginal commuting costs also somewhat offset the marginal gains of a high-paying job that's further away.
(3) High-paying jobs generally mean longer hours, increased stress, and are often higher risk. Vacation in the US tends to be very low. These days there's also an increasing obligation to be 'always on'.
(4) Some costs tend to scale with salary: prop taxes near high-salary regions, insurance. Home ownership itself (arguably unrelated to being upper middle) is usually net losing or poor ROI vs renting.
So it seems like a surprisingly bad game to be upper middle class: you work harder to make not that much more marginal wealth, with less time to live well and (likely) fewer enriching social connections.
What are some ways to hack around this? Save up in the US and then move to France or Germany just before your kids go to college? Squirrel away assets to shield them (legally) from financial aid calculations? What else?