Thursday, May 19, 2011

Sympathy for the financially inept

Felix Salmon does a great job dismantling the latest wave of "how can I possibly get by on a quarter mil" stories (Jonathan Chait also has a suitably snark-filled take on the subject, though unfortunately it's behind the TNR paywall). Salmon takes apart the bad math, the poor reasoning and the general offensiveness of these articles so thoroughly that there's not much to add on the general level but I do have this one locale-specific observation.

I've lived in LA for a number of years with an income that has bounced from low (parochial school teacher) to high (corporate statistician) to really low (writer and board game designer), so I can tell you from experience that any individual who can't live well in this town on 100K is either incredibly extravagant or ridiculously bad with money. I can also say from experience that you can get by on thirty (barring the unexpected) and be quite comfortable at sixty.

If you're an Angelino and you're a individual who makes six figures or a member of a household with a combined income of over a quarter of a mil and you still find yourself in the red at the end of the year (barring special circumstance like a sudden drop in income, major illness, or the birth of a special needs child), you should admit to yourself that you have a problem and either seek financial counselling or consider finding someone to make your money decisions for you.


  1. What strikes me as odd is how small these tax increases are relative to take home income.

    Felix Salmon give the example of that couple getting a 15% raise. So an increase of $37,500 in income.

    Clinton era taxes: $14,850
    Current taxes: $12,375

    That is a difference of less than $2,500. Now imagine that they live in a state without an income tax (Florida or Texas, both large states). That really is their full marginal tax cost unless they spend the money as FICA no longer applies to incomes this high.

    In other words, people are fighting to the death over a tax increase of about 1% of gross income for people in this income range.


    I get that people cannot use increases in salary to compensate for these increases (due to stagnant or declining wages) but that is a very different conversation.

  2. My guess is that objection comes from some combination of: (a) They don't find it easy to come up with that extra $2500 right now, especially given that for years they've been spending freely, (b) Cutting back on personal spending would be an admission that maybe they were living beyond their means, and that's not a good image to have of oneself, (c) They don't like the idea of that money going to the government where it will be spent on things they don't like. If only the feds could get their spending under control, the tax increase wouldn't be necessary.

    It's gotta be much more pleasant to think that the federal government's spending is out of control, than to think that one's personal household spending is out of control.

  3. Andrew: True. And, in general, I think eras of wage growth over time are much better for personal happiness as you can partially grow oneelf out of a bad decision or two. The reverse, wage contraction, is ugly even for people who are well compensated.