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
Do median household income figures also exclude households with single people living alone?
And it is that statistic that is used in the article.
So the income statistic does include the non-working poor, and government handouts to the working poor, and my critique stands.
And that is why Joe warehouses his kids in public school, the biggest and most insidious welfare program of them all. The govt babysits them and fails to teach them properly. But Joe gets to live in a house with a big fat mortgage, and think himself successful at keeping up.
There are no buses where I live...
ChocChipCookie has some pretty powerful credentials on and outside of FR. Laugh all you want, but she is a roll model for all women.
You signed up today? Really, you need to be familiar with some of the folks here before you start taking random shots at respected members.
I would advise you to slow down with flame posts before some tags you as a troll.
Otherwise enjoy our community and welcome to FR.
You know people who have children and live well on less than 1K per month? What do they do for a living?
Why not?
Because there’s not... There haven’t been buses for almost 30 years.
The Bible says that debt is slavery. I don’t see an exception for mortgages in there . . .
Again, welcome to FR.
“Are people willing to live in a place that is boring, in exchange for economic stability and solvency?”
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Boring is a state of mind, not a place. Anyone who is bored has only himself to blame. Some people might look at my life and say that I am a boring person but I am never bored.
Years ago Paul Harvey read an on air quotation from someone to the effect that being educated means that a person can spend an hour sitting and waiting for a bus or an airline flight with nothing to read, nobody to talk to and nothing else for amusement (cell phones, gameboys and such didn’t exist at the time) and never be bored. In other words an educated person could spend that time visualizing solutions to problems, mentally writing a poem or something but never would they be bored.
Nothing spells immaturity quite like someone who complains to others about being bored or calls other people or places boring. Anytime I feel the slightest hint of boredom I find something to dispel that feeling. I may be happy, I may be sad, I may be angry, I may be frightened, I may even go mad but I refuse to be bored.
Not hardly. “State” as in one of the 50 States. In this case, this hearkens back to the idea of the “poor farm” that existed before Frank Roosevelt, but is a considerably better deal for all concerned.
Back then, the States and counties would take over a bankrupt farm, and build a barracks on it. Then they would put a bunch of poor people to work growing their own food, and some extra they could sell to buy other supplies. It was close to a self-supporting enterprise, costing a lot less than any other form of welfare.
Today, that idea would be expanded beyond agriculture. Thus while the town works for “minimum wage”, for private companies, minimum wage is worth a lot more, because the expenses are very low. Most of the money is saved on the “back end” instead of the “front end”. There is little or no county or State control involved, except kicking in amenities like a public library or services like garbage removal and fire protection.
It saves a heck of a lot of money, because otherwise all those people would be straining city services, and creating lots of expenses in the cities. So this shoots for a win-win situation.
I’m sorry to hear that. I hope you find something soon.
My Wife and I are barely keeping our noses above water, and the way things are going at work here, I don’t know if I’ll have a job in 6 months. I’ve been looking diligently for the last three months, but the only positions open are either for Doctors, over the road truck drivers or commission-only salesmen. There’s no way I could take a low wage job and not fall completely behind on my mortgage and loans.
If I lose my job, we’re sunk.
Long-established Freepers can laugh at somebody's sincere comments and call them drivel and newbies can't respond?
Consider yourself literarily ‘smacked’ for you insolence Megan.
Enjoy your stay at the FR.
Keep the job. I’ve been having to take salaried sales positions, but low salaries. Very tough out there.
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