“Families Go Deep in Debt”

I shouldn’t read horror stories in bed late at night, and I know this, but I do it anyway. It’s easier when I have my big strong husband lying next to me. I can usually tell myself “it’s just make-believe,” except for when it isn’t. This time, the story was so scary that I had to share it.

The nightmare that was real? The Wall Street Journal feature of August 1, 2019, “Families Go Deep In Debt to Stay in the Middle Class.”

The subtitle of this piece says a lot for two Gen X people like us. “Wages stalled but costs haven’t, so people increasingly rent or finance what their parents might have owned outright.”

Yup.

My hubby and I both were raised by frugal Boomer parents. He grew up in a small town that didn’t have a movie theater, shopping mall, or fast food. My parents didn’t get a credit card until I was 14. I was in my twenties the first time they bought a new vehicle from a car lot. We probably have our parents to thank for the fact that we are debt-free and saving half our income today.

This is why we both had an issue with the WSJ article.

To start, we know the economy is hosed. That’s why we save so much. We’re waiting for the other shoe to drop and for another market correction/recession to happen. We know that incomes have flatlined and that almost nobody can “afford” housing or healthcare. We’re blaming broader historical currents, not individuals.

And yet.

There is still room for an individual (person, couple, or family) to buck trends and behave unusually, to live a radically different lifestyle and thus get radically different results.

Default behavior gets default results.

The WSJ article starts by comparing income and various categories of consumer spending and debt since 1987. Then it brings in three couples and shares details of their household budgets. All of them are younger than we are, and it would certainly be interesting to follow up in 10-15 years and see how they are doing.

Otherwise we risk sounding like grumpy old codgers...

The first couple are both 28, they own a home and two cars, and they have a baby. The article includes pictures of them in their home, and my first thought was, Wow, I wish our furniture was that nice! At age 28, I had a college degree, but no dreams of home ownership. I had never owned a car and in fact I still didn’t have my driver’s license.

That’s the difference. I had no expectations of living a middle-class lifestyle in my twenties. My parents didn’t, so why would I think I could?

Blue-collar kids don’t live in that world.

When I told my family I was going back to school, they challenged me and suggested that I become an electrician instead. My brothers invited me to their company picnic, intending to play matchmaker and find me a husband. Nobody in my acquaintance thought that I would graduate into student loan debt and magically be able to afford a home loan and a car.

The no-college plan is a solid plan indeed. Both of my (younger) brothers will retire comfortably in their fifties, debt-free, with their houses paid off. Consider commercial construction and encourage your kids to become apprentice carpenters.

I didn’t go that route. I went into debt to get a history degree at a state school.

Plan A was to pay off my loans and then save for a house. I had paid one of them off six years early and was working on the other when I met my husband. That was when we rejected the idea of home ownership, and eventually the idea of car ownership as well.

He had just started paying alimony and child support. We understood that we could choose either to own a house and a car OR to fund our retirement.

The more research we did, the more it confirmed our sense that home ownership is a luxury and that the game is structured in favor of the bank, not us. Where we live, renting and investing the difference offers a much higher rate of return than the supposed appreciation on a house.

In the 2.5 years since we sold our car and downsized into a studio apartment, our investment portfolio has gained two hundred thousand dollars.

A single-family house in most markets is highly unlikely to appreciate at that rate.

In the same timeframe, my husband has begun applying for patents and is currently working on his fourth. He didn’t have the time when we lived in a suburban house, with its constant lawn mowing, yard maintenance, and repairs. The WSJ article doesn’t talk about being on the hook for roofing, windows, plumbing, electrical problems, pest control, remodels, or fun stuff like collapsing chimneys and cracked or shifting foundations - that’s a whole separate article. The effect of home ownership on mental bandwidth is non-trivial.

Granted, most people are not aerospace engineers and their lawn care does not compete with their invention time. Most people would not be willing to get rid of 80% of their stuff and live in a studio apartment just to save money for retirement. Most people are demonstrably unwilling to live car-free and ride the bus to work, even if it saves them $8000 a year.

The WSJ article includes couples who ran up $50,000 in credit card debt, make minimum payments on store cards for retailers that sell little more than clothing and home decor items, go further into debt to attend weddings, take out dual car loans after a reduction in income, and, unbelievably, cash out a pension to pay off a credit card balance. My husband and I were so astonished by each and every one of these choices that we grimaced and made flailing hand gestures as we read.

What freaked us out the most was the line about someone being “forced... to borrow more” because of a wrecked car. Forced?

We would describe it more as “took out a loan for a second vehicle because it never crossed their minds that two married people can share one car, save in advance, ride a bicycle or take the bus for a few months, move to a smaller/cheaper place closer to work, trade/barter to carpool for a while, or make do with an old beater.”

What we would have liked to see in this WSJ article was a counterpoint, the voice of a certified financial planner, or someone who paid off a large quantity of debt in a short period of time, or someone from the FIRE community. Maybe one of each?

What we’d like to see is empowerment. We cringe to think of young couples and families drowning in debt, fighting or crying about money. We’ve certainly both been broke, both had cancer scares, both been unemployed and unclear about when we’d be gainfully employed again, both been divorced after marrying a secret spender, both struggled and counted pennies. Neither of us were born into the middle class. We put into practice the arcane guild knowledge of frugality that we learned from our economic stratum.

Is it possible to enter the middle class or the upper middle class as a 21st century American? Sure, yes, we’ve both done it from the downlow. Is it possible to do this with a handful of credit cards, a traditional mortgage, and a couple of car loans? Probably not. Proceed accordingly.