Posted on 04/13/2010 6:59:30 AM PDT by SeekAndFind
While the market cheers on the fantastic job “growth” of March 2010, the more astute of us are concerned with a growing tide of personal bankruptcies. March 2010 saw 158,000 bankruptcy filings. David Rosenberg of Gluskin-Sheff notes that this is an astounding 6,900 filings per day.
This latest filing is up 19% from March 2009’s number which occurred at the absolute nadir of the economic decline, when everyone thought the world was ending. It’s also up 35% from last month’s (February 2010) number.
Given the significance of this, I thought today we’d spend some time delving into numbers for the “median” American’s experience in the US today. Regrettably, much of the data is not up to date so we’ve got to go by 2008 numbers.
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.
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.
This analysis covers all of the basic necessities of the average American household: mortgage payments, food, energy, gas, driving expenses, and medical insurance. It also assumes that Joe:
1) Didn’t overpay for his house 2) Made a 20% down-payment of $45K on his home purchase 3) Has no debt aside from his mortgage (so no credit card debt, student loans, etc) 4) Only has one car in the family and drives 15,000 miles per year 5) Keeps his energy bill reasonable 6) Does not eat out at restaurants ever/ keeps food expenses moderate 7) Has no pets 8) Pays for health insurance but has no monthly medical expenses (unlikely with two kids) 9) Keeps his personal budget under control regarding cable TV, Internet, and the like 10) Doesn’t spoil his kids with toys, gadgets, trips to the movies, etc. 11) Doesn’t take vacations.
Suffice to say, I am assuming Joe maintains EXTREMELY conservative spending habits. Personally, I know NO ONE who meets all of the above criteria. However, even if the above assumptions applied to the average American, you’re still only looking at $100-200 in “wiggle” room for spending per month!
If Joe:
1) Overpaid on his house 2) Didn’t have a full 20% down payment 3) Owns two cars 4) Eats at restaurants 5) Splurges on heating & A/C bills 6) Has any medical expenses aside from monthly premiums…
… he is running into the red EVERY month.
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.
Does this mean the market is about to tank? Not necessarily, stocks have been disconnected from reality since November if not July. Bubbles (and we ARE in a bubble) take time to pop and this time around will be no different.
Best Regards,
Graham Summers
Add to the really good life, quality museums, being able to see the stars at night, knowing your neighbors, much less crime, quality medical services, good schools...the list goes on and on and then on.
Oh yeah- then there is that little thing like knowing milk does not magically appear on the grocery shelf out of the air....
Hmmm. Your plan may have merit. You should attend some small-town city council meetings and you can tell them your plan about getting the state to relocate a bunch of low income, inner-city people into their town.
Look I’ll be straightforward. I think you have no sense at all that “there but for the grace of God go I.” I don’t like your condescending attitude or your arrogance and my experience is that trouble finds us all. I also think that your type of attitude gets used by liberals over and over again to minimize conservative appeal by claiming arrogance and lack of understanding for real problems that happen to people on the part of conservatives. When we are taxed to bail out the banks and the wealthy, no handouts are needed. Just get the government out of the way and those who are not addicted will do fine.
Best luck and I hope this thread is an abberation and not the norm for you.
I don’t think the apartment complex will allow me a pellet stove. Bad enough I have one cat too many. But thanks for the advice.
You a homeschooler? That takes some income out of the family as well.
I don’t understand the arrogance. Congratulations for having a husband “who makes lots of money”.
Consider that many poor people have been thrust into that situation due to unemployment, divorce, abusive relationships, etc., to say nothing of the deceitful practices of the credit/banking industries. Also it is exceedingly difficult for families to climb out of debt in today’s fabulous economy.
I am currently poor and underemployed. That being said, I will begin attending classes in June and will be licensed in Massotherapy by next summer. Aside from being a single (due to divorce) parent of two daughters, I also help run a non-profit K-8, local independent school.
The lesson here: not all poor people are lazy and shiftless. Some of us deal with much hardship, take care of our children and still manage to volunteer time and energy to bigger things.
Your snobbery is not appreciated.
Your posts are worthless without pics on your profile!
We have rules around here!
It seems each day that goes by it gets harder and harder to live in this country. It is very bad. I pray to god it ends in November and we get some relief from Satan.
2jedismom is a very successful homeschooler.
I am desperately trying to get out of debt. Right now, that means living within my means. It’s surprising the things I don’t need.
Thanks for that wise, respectable, and refreshingly honest post. I wish you well here.
I know we are in the same boat. We have a teen going to private school and that means no vacation for us this year. That is fine with me we can vacation in our backyard. Hubby also traded in his Cadillac for a Toyota, better on gas. We both work full time and can’t seem to get ahead, it is very depressing. I feel I will die poor.
I agree with your opinion here....like others, I sensed your earlier posts to be a bit shallow with the emphasis on money placed in your life. I think you understood my point wrt how money should place in the Judeo-Christian value system, and I understand yours. Welcome.
Israel is getting a very raw deal.
Welcome to Free Republic. If you have lurked for any length of time, you probably noticed that we have something akin to a “family” mindset here. New posters more or less have to “prove” themselves, much like a newcomer would have to do when moving into a new neighborhood. We are good people here, but we have gotten burned a few times by impostors. Trolls also find this a convenient target. So, again, welcome to the neighborhood.
Me, too.
I also have to warn you about a major danger here on FR. Watchh out for the moose, it will bite your sister!
I’m series, it is hugh!
as a depression baby and WW2 survivor
You are so right on track. I have no idea how so many frivilous things can be considered necessary today. The learning how to do, how to make do, when to do that and when to buy, how to be content with what one has, is critical to having quality of life no matter when/where one lives. Those that have never learned this concept are in for quite a ride with the way this country is going.
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