How Americans Spend Their Money

In case you missed it, there was a very intriguing article in the NY Times this past weekend dealing with household consumption. The argument is that household consumption is a far more reliable indicator of economic prosperity than household income, because raw income numbers don’t tell us how that money is being used and how the income disparities really pan out in terms of lifestyle disparities. In other words, just knowing how much you make in a year is not going to show the real differences between the have-s and the have-nots. I’m interested in hearing your thoughts on this article and the graphical data it holds — it would suggest that our lifestyle gaps are not as profound as we once thought, and that America’s consuming habits are homogenizing –and becoming increasingly ravenous — for both rich and poor.


  1. It seems shortsighted to focus only on household income and expenditures while ignoring household assets and liabilities.

  2. CE, these guys are with the Fed in Dallas — walk over there and kick their butts!

  3. Just a couple questions to highlight my point–

    If you compare consumption between households:

    Shouldn’t you make a distinction between outlays for goods that have some sort of lasting value (e.g. real estate, artwork, jewelry) as opposed to perishable or intangible goods (food, vacations, massages)? What about outlays that have the potential to generate more income in the future (business assets, securities, education)?

    Shouldn’t you be interested in the sources of money used to pay for goods? Was it current earnings, accumulated savings, or borrowings? Did the household add to or deplete its accumulated assets in that given year?

  4. Aren’t assets and liabilities implicit in the data? Rich households spend over 16 grand per annum on transportation. My guess is that includes assets (in the form of cars) and liabilities (in the form of car payments).

    It was interesting to see that the biggest discrepancy isn’t in any form of consumption, but in the payment of tax, at 23:1. For some perspective, the difference between what I pay for my hovel and a filthy capitalist pig pays for his McMansion is in the range of 4:1.

  5. Aren’t assets and liabilities implicit in the data?

    They are sort of implicit, but they work against the authors’ point.

    Where will the average household from the “bottom fifth” be in 20 years, with an annual income of $9k and annual consumption of $18k (not including taxes, charitable contributions, or education).

    How will that compare that to those in the middle fifth or highest fifth 20 years from now?

    I could apply for a couple of credit cards, liquidate my 401k, and take out a 2nd mortgage, and soon I could be spending as much as someone with twice my income. But long term your outflows have to be less than your inflows or you can’t sustain that level of spending.

  6. Mark IV: You pay 4x what it costs for a McMansion?! May I come over with my family and live in your basement?

  7. You’re right, CE. Those questions that are difficult to answer with data like this. The tables are a snapshot, but they don’t tell us much about people’s lives.

    A student in grad school is probably in the lowest quintile for now, but in 10 or 15 years might be in the highest one. But the argument works in reverse, too. A wealthy person might have liquidated some assets 18 months ago and be living on the proceeds. If we consider only income in the current year, that person is poor.

    I agree that it would be interesting to be able to see dynamic data over time.

  8. I would go to visit my family in Chicago for Christmas and on the way from one party/gathering to another we would often take “scenic” routes and go through upper scale neighborhoods and look at some of the houses. I recall one particular time where we saw a monstrous house with a cool yard (or garden for you Brits) and I wondered aloud, “Man, that person must be loaded.” My brother considered for a moment and replied, “Or really in debt.”

    The measure of wealth is if you live below your means, regardless of your income bracket. There are some people I work with that make close to $100K a year and live paycheck to paycheck. I can’t fathom that, but it exists. I have seen it.

    I know people who have debt (not counting a house) in excess of $20K. That’s insane. Conspicuous consumption is a blight, but there are so many who can’t say no.

  9. Very cute, Ray. Now you know why my high school English teacher wore out entire boxes of red pencils on my papers. But of course you’re welcome anytime.

  10. ArielW, I guess one of the points of the article is that consumption is no longer very conspicuous. It is simply ubiquitous.

  11. Steve, ubiquitous it may well be, but that doesn’t change the fact that far too many people are living beyond their means. I did some research for a joint lesson I gave back in 2000 on emergency preparedness, right before the bubble blew up in the stock market. My numbers are no doubt out of date, but germane to the discussion at hand.

    In 2000 the average credit card debt of graduating seniors from American universities was $3,000, that’s not counting any student loans or other forms of debt. Average. $3000. That is a scary outlook on life. No doubt several of them have learned their lessons and spent the next several years paying off that debt. There were likely many who just used one credit card to pay off another. What does it say about a society that saves little and spends all “free” cash as a matter of course? I weep for the future of our nation.

    <soapbox>Fiscal responsibility is something that eludes many people. I don’t know how I can judge individuals if our own government can’t do any better. I don’t have a spending problem, I have a deficit. I long for a president who has a sense of fiduciary responsibility for the economy.</soapbox>

  12. Last Lemming says:

    The authors basic points are valid, but probably not quite as valid as they assert. To begin with, CE has a good point. To the extent that consumption levels cannot be sustained, they do not truly represent permanent income. And the fact is, we really don’t know how the poor are financing their consumption. The authors attribute the gap between income and consumption to negative “financial flows,” but a colleague of mine told me last week that such flows as reported on the Consumer Expenditure Survey (the data on which this analysis is based) did not explain the entire gap. (I’ve asked him for his reaction, but haven’t heard back yet). Some of that consumption seems to be financed out of thin air–economists simply can’t explain it.

    Which leads me to another point; the CEX was designed to measure consumption, not income. So there is reason to believe that the bottom quintile is accurately reporting its consumption, but underreporting its income. If that is the case, the 15:1 ratio of income in the top quintile to income in the bottom quintile is distorted and might be lower.

    Then there is the problem of the high-income folks. The CEX top codes all responses, so any amount over (I think) $100,000 is rendered as $100,000. We have a pretty good idea of how much income these guys have from tax data, but we really have no idea how much they are consuming. What that means for the 15:1 income ratio or the 4:1 consumption ratio is anybody’s guess.

    Again, there is little dispute that consumption is more evenly distributed than annual income. But these guys go too far in pretending to know how much more even the distribution is.

  13. ArielW, my point is slightly different. Yes, lots of people are spending beyond their means, but the nature of spending and the cost of items seems to be shifting. Household appliances are a good example. VCRs and microwaves were once luxury items, and the amount of time it took for those items to trickle down from rich-only to general use was fairly long. Today, mass consumption of consumer items is different — the time it takes for something to become mass-consumed is far less. That speaks to production efficiency, I suppose, but it also says that tastes are homogenizing and costs overall for such items are dramatically lower.

    I’d also argue that people have always lived beyond their means, bubbles and Enron notwithstanding. The forms and manner of overextended credit and foolish consumption have altered, but I don’t believe the percentages of overindebted people have changed significantly. (Those with data, feel free to chime in)

  14. Josh Smith says:

    I think the article has it right–discussions of poverty in our country should focus on what people buy rather than what they make.

    After I graduated from law school my wife and I moved into the same home my wife’s great grandmother died in (interesting story). The real wages of my wife’s great grandparents and our real wages are probably very similar. However, we heated the home with electricity rather than coal; we have Internet, DVD players, etc.; we have access to life saving health care that the ancestors did not (insulin); etc.

    Point: standard of living is better measured by what you can buy than your real wage. Measuring poverty by the “bottom-fifth” allows us to measure disparities in income, but really doesn’t tell us if people are getting poorer. And, given advances in technology and trade, it would be very surprising if the bottom fifth is getting poorer.

  15. Josh Smith says:

    Alright, everything I just said may be wrong. I just watched a guy ride by on a unicycle–my wife’s great grandparents surely could afford at least a bicycle. Maybe things are getting worse for the poor.

  16. 15) Ha!

  17. Jeremy Jensen says:

    All I know is that someone making an average of $150,000 should never, assuming they’re not completely reckless, have to worry about having all their needs more than taken care of, and then some. Someone making $10,000 a year is one unfortunate event away from temporary homelessness and/or food insecurity, not to mention they probably don’t have health insurance. Regardless of how you look at the numbers, that fact remains. This article is missing the big picture.

  18. JJ, what’s the big picture you’re referring to?

  19. Some random thoughts on the poor spending nearly twice as much as they earn. Yes, credit card spending is self-limiting, but there are other forms of income and consumption that can continue long term and don’t seem to be accounted for in the article. Food stamps are not called income. Similarly, when the Bishop (or some other charitable institution) pays a mortgage/rent payment or energy bill that money is unearned and yet surely considered spent for the purposes of family consumption. Health care expenses. Christmas toy drive gifts. Do the authors of the article count the stuff acquired for free?

    Items associated with homeownership (dishwashers, laundry equipment, etc.) are generally either provided by landlords or not. And so much technology is available so inexpensively these days that many of the items that are on the list are actually cheaper than their lower technology counterpart (ie cell phones). In terms of luxuries, I’ve known very few poor American people who do not have TVs, DVD players and the like, but those things are generally purchased with windfalls.

    The most common windfall for the working poor is tax return money. The earned income credit and additional child tax credit both give money to the working poor beyond what they’ve spent in taxes. For instance, my family had about a thousand in federal income tax withheld this year, but will receive about $7000 back from the feds this year. Between that tax return and the additional rebate from the economic stimulus package our income increases by about a third. Does the article account for that income as income? Hard to tell, but it didn’t look like it.

  20. Josh Smith says:

    One last comment. For me personally, thinking about standard of living in terms of what I buy has great psychological benefits.

    When I lived in great-grandma’s house (see comment #14), I had one of the smaller incomes in the ward boundaries, definitely bottom fifth (plenty for my family, but relatively small). If I measured my standard of living by income, it would be easy to get pissed at the wealth around me.

    However, because I like to think of my wealth as a measure of what I can buy, I’m generally content: I heat up a few frozen chicken wings in the microwave, sit down to do a little blogging, and tell my wife “God bless America, … Joneses, eat your hearts out.”

  21. I think it’s amazing, from the 2nd graph, that 10% of households have a computer, but no Internet. How can people live without Internet? =)

  22. Jami–it looks like they assume someone making $9K/yr pays about $1K in taxes. Your $7K return would account for most of their calculated negative cash flow.

  23. I have a computer, but no internet at home (thus my relatively infrequent blogging). I also have no TV, having decided that I like living in the stone age and only visiting the 21st century when I’m at work. Strangely, I find myself spending more and more time at work…

  24. Name (required) says:

    Some people live beyond their means because ‘judgement day’ never seems to come. The government has spent more than it takes in for years and the consequences of that aren’t obvious to most people right now.

    I heard someone talk once about a person who had borrowed heavily on credit cards and purchased all sorts of luxury items. They had no prayer of paying back the debt that they incurred. They went bankrupt and then didn’t have to pay their debts. It wasn’t long before they were getting credit card offers again. The person who told the story saw a financial mess. The person who was living beyond their means probably saw easy money, with no need to ever pay it back.

    If the person in debt had been sent to debtor’s prison and forced to work to repay the debt, I think that you’d see a lot more financial responsibility. We are ‘civilized’ now, though, so we don’t do that sort of thing. We traded a certain amount of responsibility for some amount of civilization/compassion. I think the jury is out on whether it was a good trade.

  25. kristine N–A person earning $9000 would pay no income tax, but would pay SS tax (or its heartless cousin self-employment tax), state disablity, medicare, sales tax, property tax, car registration fees, etc. Perhaps the authors estimate that all of those taxes are approximately $1000.

  26. Jami–Yes; their calculated negative cash flow was about $10K. I count $7K as most of that cash flow.

  27. MikeInWeHo says:

    re: 12
    What a well-written comment. I’m often struck by how articulate and informed you guys are.

    “Ubiquitous Consumption” — that’s a great expression. But it’s hardly an American phenomenon. Let’s have Steve Evans give us a report on what he sees in China, for example.

    The affluent are interesting too. I’m always struck by how extremely wealthy people seem to view themselves as middle-class. Our best friends here own homes in WeHo, NYC, and Palm Springs. But if you asked them if they were rich, they would look at you quizzically and probably say “Well, by global standards we ALL are!” (Then we’d rail against the Republicans and continue to enjoy our seared ahi, but that’s another story….)

  28. I was amazed a few years back to discover that we were only $5000 above the poverty level – i.e. we would have qualified for free/reduced school lunch. Mostly this is b/c we have lots of kids. We own a nice single family home, have plenty to eat and clothes to wear, and have room in the budget to order out pizza, etc. Hardly one step from the street. But, we don’t own cell phones, own 1 car, only have basic cable, buy many of our clothes from secondhand stores, etc so apparently we’re considered poor.

    I did think it interesting to see how blatant an article was in the latest BYU magazine, “Are you materialistic?” It point blank said that as Mormons if we’re going to have large families, pay for missions, food storage, tithing, etc, we can’t expect to have all of the material things that other people have. It’s too bad that in order to be considered “successful” and well-off you need to have a designer home with designer clothes and cute knick-knacks all over. Plus pay a lot for birthday parties, Christmas gifts, etc

  29. It never ceases to amaze me that explorations of “how poor are the poor?” always include some reference to the percentage that have color TVs. As though we all expect the poor to have a TV, but will be shocked that they could afford one with color.

    Also, the people who have a computer but no internet are called old people, not poor people.

  30. How did an article saying (more or less) “all is well in America” make it into the NYT? Did Democrats miss one of their payments to the editors? I kept waiting to see how they would spin this into a class warfare piece, but it never happened!

    24-You’re suggesting that debtors prisons might have been the ideal? The jury’s not out–prosperity reigns and lenders lend vastly larger sums of money now that we have a decent system in place. Or has the economy slid backwards in you mind since the days of Dickens?

  31. Jeremy Jensen says:

    Re# 18:

    The big picture is that the top quintile and the bottom quintile in this country live in different worlds in terms of their economic security, which is a big part of quality of life (I mean, how important is a DVD player if you’re worried that losing your job for a month means you lose your housing or go without meals). The article doesn’t even address this, IIRC.

  32. Jeremy Jensen says:

    “The affluent are interesting too. I’m always struck by how extremely wealthy people seem to view themselves as middle-class.”

    What’s interesting is that I’ve heard of a study that seemed to show that a lot of people, perhaps the majority, think they are more wealthy than they actually are. In this study, people were asked whether they were in the top 10 percent of income earners, and something like 25 percent of people said they were. That may be why Republicans have historically been successful convincing people that lowering taxes for the wealthy is a good thing. Way more people think they’ll benefit from those tax cuts than actually do.

    I would dig the study up, but I don’t really have time right now, and I can’t think of what I’d Google under.

  33. Jeremy Jensen says:

    The other silly thing about the article is that it mentions how the price of non-necessary household goods are dropping, but doesn’t mention that necessities like housing, food, and gas eat up a larger chunk of people’s pay than at most other times in recent history.

  34. MikeInWeHo says:

    re: 32
    I’ve heard that too, but your idea that it helps explain Republican success is intriguing. Reminds me of that book “What’s The Matter With Kansas?” (by Thomas Frank)

  35. MikeInWeHo–

    I like your observation that wealthy people don’t view themselves as such. I have one possible explaination:

    Suppose someone makes $150,000 per year. This is higher than roughly 95% of all U.S. households. But it is only a small fraction of the very highest earners (who make $ millions). So on a relative percentile basis, this person is very near the top. But on an absolute basis, this person is nowhere near the wealthiest people in the country.

    I loved the “What’s the Matter with Kansas” book too.

  36. Steve Evans says:

    CE, I think you’re right. Having dealt with some of the top 0.01% people, I can say they’re quite aware of their wealth — although they too complain about not having enough….

  37. Location makes a big difference too. Someone in San Fran is going to find a lot less bang for their $150,000 than someone in Dayton.

  38. The standard reasons to use consumption data is because it does not (or should not) bounce around as much as income data. People smooth their consumption out even if they have variable income, so consumption gives you a guess where that person thinks their long term average income lies.

    This can be a pretty big deal. A huge chunk of people living in poverty this year will not be living in poverty next year. In fact, they will be sufficiently far out of poverty next year that, if we used a two year average they would never have been in poverty. Thus it would be no surprise that people at the bottom consistently outspend their income since they often earned more last year and will earn more the next year.

    It would also be no surprise if the CEX consistently missed or undercounted some sources of income.

  39. Jami,

    Agreed that location is a factor. I think wealth is also relative to one’s upbringing. Someone who grew up in a $30,000 household would feel rich with a $80,000 income (for a while). Someone who grew up in a $500,000 household — probably not so much.

  40. I’m quite fascinated with this subject.

    Money perplexes me.

    On the one hand I feel quite wealthy. How can a person not feel wealthy when they know that their basic needs are not something that they ever have to worry about? Our income would put us in that top 5% and yet, I feel that true ‘wealth’ isn’t something I’m even remotely familiar with.

    We’re quite careful with money – we’ve opted not to move so as to live in a house that is paid for (it’s a small house by some people’s standards, just over 2100 square feet). We have 3 cars and they are all paid for as well. When I look around my home I see a lot of things purchased at Ikea, garage sales and a few things picked up in an alley for free and refinished myself.

    Our one single indulgence is original artwork. Occasionaly we eat at expensive restaurants.

    I just don’t at all feel ‘rich’. I cannot bend my head around the amount of wealth that seems to be everywhere. It seems that everyone has to have a brand new car at all times – bigger and better homes, expensive clothing and shoes, private schools, high end groceries, etc.

    I keep thinking that I’m either doing something wrong or all of these people are in massive debt. Because although I know there are plenty of people in this part of town who make more than we do – I also know that we have to make more than many of the people I see driving new Escalades.

  41. MikeInWeHo says:

    Comment #40 reminds me a lot of my situation, although our big indulgence is travel. Conservative financial values serve one well no matter the location, imo. My dad and I remodeled a bathroom and laundry room in our condo and saved 25k over hiring the same work done. People around here thought it was quaint.

    This part of L.A. is just nuts. Sometimes I’m not sure why we stay. I can’t get over the level of wealth I see around me all the time, and while some of it is probably debt-driven the consumption itself is certainly real.

    More than a few of the top 0.01 live very near us further up in the Hollywood Hills. Steve’s right, that crowd is quite aware of their wealth and usually prefers anonymity. It’s a whole other world with them. I don’t mind having them nearby; clearly I benefit too. As I mentioned to a friend, “they need to have people like us nearby because we’re a buffer between them and the real world.”

  42. Steve Evans says:

    “our big indulgence is travel”

    Says the guy who wouldn’t schlepp to Hong Kong for a decent party.

  43. In the book “The Millionaire Next Door” a study suggested that, across the board, “rich” or “enough” was largely twice your current income or financial status. This roughly applied to everyone from minimum wage to the 39% tax bracket.

  44. Steve Evans says:

    t.mauery, the real lesson from that is that income (for Stanley and Danko, specifically salary income) is not as important a factor in being rich as consumption.

  45. #40

    I am in the equipment finance business I see credit reports on a daily basis. based on what I see on the reports…. Essentially the average person is overmortgaged, drives to expensive of a car and has between 15-35K in CC debt.

    There are a few hotspots of over-extension. South Florida and the entire state of CA seem to have the most over-extension on Debt. CA is driven mostly by huge mortgage debt and on top of that large home Eq loans.

  46. #40 and #45–

    I suspect that many faithful church members are among those that are overextended.

    Church leaders have been teaching us to get out of debt in authoratative fora for many many decades–at least as far back as President Grant, and probably further.

    For comparison, President Hinckley’s counsel against tattoos or multiple piercings/body piercings came during a youth fireside.

    Yet, I believe many (good, well-intentioned) bishops would balk at considering a man with earrings for a ward leadership calling, but would certainly consider a man with excessive unnecessary consumer debt.

    To be fair, I recognize that it is hard to judge someone else’s financial position. That which is “unecessary” to one may not seem unecessary to another. And I would hate to see callings based largely on financial situations.

    (Interestingly enough, I personally know of one recently-called stake president who was asked extensive questions about the his debts and overall financial position during the process of receiving his call.)

  47. bbell,
    Except that you see a self-selected group of people, specifically, those who need to finance whatever type of equipment you finance. Based on your description, I would assume they’re not a representative cross-section of America; every source I’ve looked at pegs the average person’s credit card debt at $8,000 (and I’ve heard some people pretty convinced that this number is also too high).

    That said, I’d probably agree with your underlying point; the average U.S. savings rate is slightly negative. I haven’t thought it out–I’m pretty convinced by the peaks-and-troughs argument for measuring consumption rather than income to determine wealth–but that suggests to me that we are all, on average, slightly overextended.

  48. Bandanamom says:

    I try not to be judgemental but I do think this is an area in the church where a lot people somehow feel oddly that if they are righteous, it should follow that they will be financially successful.

    And odd little things creep into people’s thinking when they mix religion and money.

    Our recent Stake President’s wife asked our teenage son to pray for the Stake President’s business. When asked what she meant by that, she told our son that she really wanted to go on a nice vacation this year so she was asking those she felt comfortable to pray for his dental practice. I’m not sure this is technically wrong, but it was odd. (she also quoted him the scripture about praying over our fields, and teeth is the Stake Presidents field I suppose…our son joked to us that he guessed she wanted him to pray for people to get more cavities).

    We have friends who are heavily in debt but who feel that the Lord will bless them financially to get out of their economic mess. In the meantime they keep spending and refinancing.

    I was recently shocked to discover the level of debt our Bishop is in. His wife disclosed to me that they refinanced and built on to their house a couple of years ago on the assumption that he would continue to make the kind of money he had been making the past couple of years (this turned out to not be the case). The doubled the size of their home, put in a pool and large patio and went from a $300,000 mortgage to a $800,000 mortgage. It’s hard for me to understand – he’s over 50 years old with a new, 30 year, rather large mortgage. Again, they saw their new economic good fortune as a ‘blessing’ after struggling through a few years of problems. Now that he’s the Bishop, I think it’s a massive burden and stress on him – he’s got to hustle to make that payment every month and church takes up a significant portion of the time he could otherwise devote to his job. His wife seems to think the Lord will make up the difference if they just shoulder the responsibilities they’ve been given. That might be true. But it occurs to me if they had used some common sense and lived within their means, rather than accumulating more debt, he wouldn’t be having such a struggle right now.

  49. Sam B,

    They are on average fairly well off families that own small businesses so they are self selecting.

  50. MikeInWeHo says:

    re: 42 Gosh I’ve done way crazier things than that, travel-wise. But not sure a bloggersnacker warrants 14+ hours in coach, and I’ve already seen pretty much all there is to see in HK. So gotta pass, Steve. Besides at this point the primary obstacle for me is limited vacation time. It’s more precious than $$ since my employer frowns on managers who are away too much. Workaholic morons. That’s why I punish them by wasting time blogging. :)

    re: 45 You know I appreciate your comments, bbell, but you do seem to often associate various social pathologies with regions you find morally distasteful. But does More Sin really = Lower FICO?? Are the secular less finacially responsible than the faithful? Show me the money, as it were.

  51. re: 44
    So is it consumption itself, or the potentia to comsume at a particular level?

  52. #45 – Have you priced a house in much of CA lately? The real crime is the housing market. $1 million for a small house that costs $150K-$200K max where I live? Why even bother trying to own?

    Are the homeowners blameless? No, but this is one situation that is completely out of control.

  53. Mike: Nice choice of punishment method. Killing them softly, my man.

  54. Sorry, that should be potential, not potentia.

  55. Mike,

    I think you are reading into my comment on #45 to much. Those two areas are where I am seeing the most trouble on CBR’s.

    Its also where a lot of the trouble in the housing market is happenning. There is your correlation.

    People in the liberal Northeast do not have the same kind of CBR’s that I am seeing in the other two areas as much.
    Best CBR’s on average in my Exp are in the Dakota’s and Minnesota. Go figure

  56. bbell,
    Right. But statisticians tell us that a self-selecting subset of a group doesn’t tell us anything meaningful about the larger group. That is, your experience tells us something meaningful about well-off families that own small businesses, but that may not tell us anything about American society at large (for example, I can imagine a small business owner would have more debt than someone, like me, who works for somebody else; I haven’t had to absorb any start-up costs).

    I’m not at all questioning the validity of your observations; I’m just saying that, as a self-selected group, they probably don’t line up perfectly with American society at large. (I would imagine that activity rates among Mormons would not match up super-closely with average U.S. religious activity rates, either, because we, too, are a largely self-selected group.)

  57. MikeInWeHo says:

    re: 53 I wonder how many hours a year at work we spend blogging, anyway?

    re: 55 OK, I buy that. And hey, I’m one of the most obviously biased people in here too.

  58. Hmmn, I’d like to see a similar analysis about how Canadians spend their money.

    Because Canadians don’t have to worry near as much about medical costs.

    In the U.S., it makes a huge difference whether one has employer-sponsored health coverage. My employer chips in over $9,000 per year for a family plan for each employee, in addition to the premium payments deducted from their paycheck.

    That $9,000 is neither taxed nor tithed, and yet it provides the best bulwark against bankruptcy (since medical expenses are the most common reason).

    And it’s a big reason why comparing incomes is apples-to-oranges unless health care plans and costs are also factored in.

  59. There were several letters to the editor in today’s NY Times that all pointed out a similar thing–using spending on durable goods as a judge of economic health is flawed. We have been married for six years and have been students for most of that time (still are, and now I’m going back to grad school next year). Our income has always been very low, but between some government assistance, gifts from family, tax returns and credits, we live a pretty comfortable life. We have most of the things that many people I know with larger incomes have. We have two computers, a car, a television and DVD player, running water, etc. Our kids are always fed and I don’t worry about buying them clothes (DI is great and we have family members who give us hand-me-downs). However, what we don’t have is financial security. We eat up almost all of our paycheck each month. We have no credit card debt, but we also have little savings. Whenever we manage to accumulate savings, it usually ends up getting used up again in a few months for things like medical expenses, car insurance, sudden emergencies (we suddenly had to get a new tire the other day), etc. As students our employment and income has been erratic. Hopefully this is a more or less temporary situation and we can get out of it in a few years. Anyways, I guess what I was trying to say is that if you were to look around our apartment it really doesn’t look that different from many other people’s (well, the mismatched furniture might be a giveaway), but you can’t tell by looking at someone’s outside appearance if there is no depth to their finances, or even worse, a big gaping hole.

    Healthcare expenses really are what will sink a lot of people. We’re careful budgeters and keep track of where all our money went. During the two years my husband was offered insurance through his job we used it, despite the fact that we qualified for Medicaid. When I added it up we realized that one year we had spent nearly 30 percent of our income on medical expenses alone (insurance premiums, copays, prescriptions, etc.). I’ve known several families that have ended up in serious financial trouble due to medical expenses. When you get in a situation like that there is little you can do if you don’t have many assests. The furniture and other things we own are not worth all that much.