UCLAri

I know this has been done a bit already, but Gibson's comment on $200K being middle-class started some gears up in the noggin. What does middle-class mean in the US when the disparities in living costs in NYC vs. Topeka are so large?

Is Gibson as batpoop loco as people have made him out to be? Is it just that he's so used to living in NYC/LA/DC-priced areas that he can't see the rest of the forest anymore?

Or is $200K the "new middle-class" (or as I like to say, the Gibson-middle), and those of us only making it to a piddly $100K or so are just screwed?

hayden

I'm not sure the differences are even between a family income of $200K in Kansas vs NY. I think there's a wild difference between a family where one spouse earns $200K, the other spouse doesn't work; versus a family where both spouses work, pay for child care, and their lives are filled with worrying about child care, who's going to pick up the laundry, property taxes going up, whose turn it is to do the physician appointment for little Jimmy or Jane, etc. etc. Despite the income being the same, the lifestyles are very different.

mini

The median family income in the U.S. is around $53k - with the middle quintile being $43-$67k. The median family income in the New York City area in 2006 was $54.4k. In San Francisco, it was a little higher; in DC lower. A family with this income in Topeka is likely doing okay; in NYC?

Studies indicate that for every doubling of family income from the median, on average assets quadruple. So a family in NYC with a $200k income has assets roughly 8 times the middle.

In other words, Gibson is out of touch with New York City, no less Topeka.

BusinessGuy

It seems to me that many people say middle-class when they really mean to say upper middle-class. $200k is hardly upper-class (at least not "wealthy" or "rich").

UCLAri

mini,

The studies you cite do not control terribly well for cost of living differences. Thus, it's hard to say whether or not the NYC family is doing as well as the Topeka family. Of course, NYC is highly variable as well, and not everyone gets to live in the upper Westside.

BusinessGuy,

It still is in the top 3% or so of earnings. It's at least very very comfortable in most places.

mini

Actually, they do. It is true that owning an apt. in New York City may cost more than a house in Topeka. But it is also true that as an asset, its value has multiplied far more quickly that the house in Topeka (which is actually losing value.)

Wealth is defined by assets, not income.

UCLAri

This is why I shouldn't eat, watch BSG, and post. Egg on my face. I have no clue what I was thinking, but yes, that sounds right.

Still, I have to wonder if cost of living increases in NYC outstrip disposable income increases for those in the first standard deviation from the mean income.

In that case, while assets do increase in value over time, it's still meaningless to the one SD from mean earner because he or she simply can't afford to acquire an asset. The problem with assets, especially land, is that they have an entrance fee that some cannot pay because they only can afford a small margin of savings.

kelsmom

Perhaps $200k isn't upper middle class in some areas, but it is in my area. However, there are probably people in my own area who feel that the $200k they make annually isn't much. I suspect that the more they have, the more they think they need ... so the more they make, the higher the upper limit on middle class is adjusted. Kind of like age. When you are 10, 25 seems old. When you are staring 50 in the face, 60 doesn't seem as ancient as it once did.

It is true that the cost of living in an area influences what might be considered middle class. Someone on CC once stated the NYC trash collectors made a salary I would consider to be quite high ... certainly much higher than trash collector salaries in teh suburban midwest ... apparently, though, many salaries in NYC are comparably higher than they might be elsewhere. What is happening now, though, is that the middle wage earners (whatever middle is in a particular area) are feeling a squeeze downward. In my area, wages are routinely being cut (by 1/2 in the manufacturing industry!), and medical costs (copays, employee share, etc) are skyrocketing. The effect is devastating to our economy. The middle is now what was once below-middle. All the wonderful new jobs coming to our area pay $7-10 per hour. I expect our middle will fall further. Sadly, many of our top earners ... those who are in management positions & are cutting the wages/jobs of those below them ... are not feeling a comparable pinch. Personally, I think the longterm effect will be that they will find that no one can afford their products & services anymore. I worry about the longterm viability of our economy in this scenario.

And no, I am not Gibson-middle class. If I was Gibson-middle class, I would be thrilled!!

Bay

Using the formula I am familiar with for calculating mortgage debt, i.e., two and a half times gross income plus 10% down, a family earning $200K can buy a $560,000 (approx) home. That would be a middle-class home in most of California.

hayden

Part of the problem is that it's hard for hard working people, where both spouses go to work everyday, to compare themselves with a guy making $3 BILLION dollars in a single year, and seeing themselves as having a lot of money.

The obscuring fact is that people making 200K have more in common with the people making $40K per year, than either of them have with people making $1mm or more per year. If the people making 200 or 40 per year lose their jobs, or have their property taxes go up 5%, or pay $.50 more per gallon of gas, they may have to significantly change their lifestyles. But if a person making $3mm per year pays more for gas, they don't really need to even look at the receipt.

There must be some different way to gauge economic differences. Maybe the percent of income on discretionary spending, or something like that - something that would show the real fragility the families may feel day to day.

kelsmom

Hayden, very well said!

mini

Two and a half times income plus 10% down for a median (middle) family in San Francisco means they can afford a $165k home. In San Francisco. In other words, the $200k family will end up with an asset that at least might appreciate, won't pay any rent, and will realize a major mortgate interest deduction, subsidized in part by the $60k family.

The $200k family, like the $1m family, owns a house, likely some stock, has a pension plan, health insurance, and a car that works (most likely). The $40k family more than likely has none of the above. And, over time, the differences between them will grow.

djvu009

yeah it's just absurd to compare a 200k per year income to 40k per year.
That's 3333 per month compared to 16000 per month.

Shrinkrap

Does anybody know what percent of "baby boomer's" have "pension plans"?

mini, 165K home in San Francisco? I've never heard of such a thing. Not sure if it matters but I was under the impression people with kids couldn't/didn't want to live there because they couldn't purchase homes. I live 45 miles away inland (= more affordable) and I think average home is/was a year ago... maybe 300K.

From Wikepedia
Following a national trend, an out-migration of middle class families is contributing to widening income disparity[44] and has left the city with a lower proportion of children, 14.5 percent, than any other large American city.

Where cm I find all the "quartiles"?

Can't tell when this is from, but I think it's still true that it's hard to become a home owner in many parts of California. Forgive me if I'm missing the point.

CNN/Money: Top housing markets

UCLAri

mini,

Find me a house in SF that's $165K that's worth buying...