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What America is Living Without
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I think of some of it is normalizing the idea over the decades that kids are optional. If kids grow up with the notion that them having kids is expected / normal behavior, then life will be planned around that expectation. We’ve had occasional discussions with our kids about how many kids they might want to have (these are boys) and some number between 2 and 3 was mentioned. They’ve had cousins who’ve come from families of 2 and 3 kids each. And and when they look for partners, they will look accordingly — ie for partners who are similarly inclined. Other aspects of life will be arranged around this expectation — ie if you need to live in the suburbs vs the city, if you need to plan for better work life balance so that you can spend more time with the kids and take an equal share of the load of raising kids, if you need to choose careers that are more financially comfortable etc. All these decisions are integrated and are not happening in isolation. And generally develop frugal habits from early on — spend money only if you have to, not because you can etc.
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Yes, absolutely. This is something we need to instill in our kids as they grow up, so that good financial habits become second nature by the time they’re independent adults.
When my daughter interned last summer, her hourly pay was 5x what she’d earned as a TA the previous semester. We told her she’d be well served in life if she learned to live as though she were earning maybe only 2x as much (accounting for the fact that she’d be living in a city rather than on campus) and save and invest as much of the difference as possible.
I see too many parents who don’t teach their kids good financial habits (sometimes because they haven’t developed those habits themselves) and then wonder why their kids struggle financially as adults.
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When people grow up with generational wealth and can easily have anything they want, their perspective is different from that of people who are self-made. When someone from an immigrant family gets into a top school and later lands a high-paying job in tech, for example, they may want to experience things they could only dream of growing up. For them, that’s a sign that they’ve made it. It might be an expensive car, a designer bag, or three international trips a year.
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From knowing many immigrant families in our area and watching their kids grow up, I’ve seen the opposite. Our county has a substantial immigrant population, and I’d broadly put them into two groups:
Many of these families are from India, China, etc. That means they are highly educated and affluent, so their kids grow up comfortably. Yet these families are generally fiscally disciplined and live well below their (substantial) means. And their kids, by and large, carry those values forward.
Then there are other immigrant families who are more financially challenged. Their kids also tend to be careful with money, even when they start making good money. They’ve seen how hard their parents worked and sacrificed, and they don’t take it for granted. If anything, making their parents’ life more comfortable is a priority for them.
Of course, there are exceptions in both groups, as there are with everything else. But I’d venture to say that most of these kids aren’t the ones feeling financially stretched on $500K+ a year.
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There are different ways of learning. Growing up, I watched my mother constantly over-extend herself. My learning from that was to only carry a credit card balance that I could afford to repay in full every month.
Not immigrant families, but where I used to live I saw a number of people from low-income working-class backgrounds do well in our industry. This was pretty common with them. Whether it was all within their means or whether it meant they found it hard to make their paychecks last I have no idea.
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My hunch is that while the behavior families model is an important component, a person’s attitude toward money is far more complicated.
Purchases can be a form of self-care, self-administered validation of achievement or status, rewards for hard work, a way of showing love, etc. There are SO many instances of siblings having vastly different spending profiles. Maybe one sibling followed mom’s frugality and another wanted to reject all things mom, including the frugality.
Within a certain community, be it old wealth or newly acquired financial stability, there may be some norms that many in the community adhere to, but sweeping generalizations may not hold.
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Anecdotally, I know a young, first-generation couple with a small child who earn over $700K combined. They live in a 1,200-square-foot house in a good San Francisco neighborhood and pay for childcare. They have no family safety net—no parents to help with a down payment, provide childcare, or pass down wealth.
Yes, they earn a lot, but they’re building everything from scratch in an extremely expensive housing market. A larger home in the Bay Area can easily cost $20K a month just for housing, before childcare, taxes, and other family expenses.
I’m not suggesting they’re poor, but high income is not the same as generational wealth. There’s a big difference between earning well and having family assets and support to fall back on.
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We are in the immigrant bucket, and I have a tight sense of what my kids spend — young employees. A simple way to characterize the spend is that it is for comfortable living, and has not scaled with compensation.
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I think like picky eaters, you can do everything correctly and your children can have completely different ideas of how they spend money.
I’d love to say that my superior parenting made my children be high achieving and fiscally responsible.
When in fact it was probably some parental guidance and some dumb luck.
I have a sibling who has very different ideas of parenting and how they spend money. So does my husband. My kids cousins are completely different also. Yet they all came from the same grandparents. Who are very fiscally conservative
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Across an aggregate of all >$500k income households, housing is the largest combined expense after taxes. Higher income households tend to be concentrated in areas where housing costs are especially high.
In some of these areas, basic homes cost 7 figures. For example, one of the houses in my neighborhood just went pending for $3.3M this week. It’s a basic 3-bedroom type home with a quarter acre yard. If someone bought this home with 20% down and a jumbo mortgage, that would be ~$200k per year at current mortgage rates. Property tax and insurance would likely bring it to $250k/year. Home maintenance/repairs, home utilities, HOA, … might bring it $300k/year, which could be nearly 100% of after tax take home on a $500k household income… leaving nothing left over for anything else.
However, while theoretically possible, hardly anyone does this. In my area, almost without exception 1st time home buyers start at a less expensive option, often a condo, with costs closer to $1M. After paying down a portion of the condo, they may use the proceeds to purchase a more expensive home. Even if a household instead wanted to spend ~100% of take home on their home, it is extremely unlikely that they’d be approved for a jumbo mortgage at the listed DTI.
The result is housing/rent is typically one of the largest expenses for high income households, but there is typically also a large amount left over for other expenses and savings.
The fed Consumer Expenditure survey only goes up to a max income of $200k+. Among this group, the largest average expenses were:
- Housing – $51k/year
- Retirement / Pension / SS – $33k/year
- Transportation – $28k/year
- Food – $19k/year
- Entertainment – $11k/year
… - Total --$170k/year
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Is there a thesis / theory on whether kids are more less responsible with money if you put them on a budget vs have them ask you for everything / justify, in their childhood? Is there data to support either view? We are in the second camp.
My daughter has a good job and makes quite a lot of money. Yet, she is frugal as can be. When I question how frugal she is (often saying things like you have so much treat yourself to X), she says but I learned from you guys, citing how frugal we have always been all our lives.
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I started giving my kids allowances in high school. The allowance was given to them no matter what. It was over 20 years ago, and I remember it was around 200 per month. They used the money to pay for outings with their friends, gifts, savings, etc. I didn’t give them any extra money outside of their allowances. I did the same when they were in colleges, except they got extra money for groceries.
They are both very good at managing their money in their thirties. Aside from teaching them to live below their means, I also showed them to enjoy spending their money. I am an immigrant, so I was brought to always be extremely frugal. Whenever I spent money there was always a sense of guilt. So I wanted my kids know it is okay to budget some fun money. It is okay to treat yourself to a designer bag, it is priceless to go on a vacation with your family.m.
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Hey, she’s “buying” optionality. Those frugal habits mean the ability to take “the job of a lifetime” which means a pay cut; the ability to go back to school for a career pivot; the ability to make future choices about her lifestyle that many of her friends will not be able to make.
I have a friend who had a relatively successful (and stressful) career as a lawyer. She completed an MSW and just got a job working in a hospice facility. I’m going to guess it’s 30% of what she was earning? She confessed that she always hated “lawyering” and promised herself that once her retirement was fully funded and secured, she’d give back and do something that fed her soul while helping people.
She never lived large-- but every dollar saved enabled her to pivot. She says she loves it. The stress of billing and bringing in clients is gone. She says she goes off excited every day, comes home tired but energized by doing good work for people who need her. And when the time comes for her to retire, I think she’ll enjoy a well earned period of bliss!!!
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My older child grew up with toys that cost no more than what we could find at the 99-cent store. My second child, born ten years later, had the kinds of toys and things that an average middle-income family could afford.
Both of them grew up watching me clip coupons and spend very little. One thing I always told them was, “If you want more, earn more.” Frugality can only take you so far.
Interestingly, they have developed very different spending habits.
My oldest doesn’t spend much on himself, but he spends generously on his family. My youngest spends more on herself, but she earns a good income from her main job and has also found a fun second job that brings in extra money.
I guess they both learned the lessons I wanted to teach them, just in their own ways!
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This is why my H is a very happy (though extremely hardworking) teacher now, instead of a very stressed hardworking pediatrician. When he decided he wanted to pivot, there was no “doctor lifestyle” to keep up, as we’d never adopted one.
Many years ago, we came across a book called “Your Money or Your Life” whose point was that spending all your money stifled life decisions, especially wanting more non-work life. it changed our lives.
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I have read a lot in favor of the allowance. The other method doesn’t allow them to decide how to spend and have the consequences. It doesn’t help them learn the “value” – as in “that’s 3 months worth of income” (much as “that’s a week of wages” later in life. It makes it feel like you can spend whatever you get, and it doesn’t really encourage saving.
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