Author Topic: High-income people living paycheck to paycheck?  (Read 5344 times)

the fixer

  • Handlebar Stache
  • *****
  • Posts: 1037
  • Location: Seattle, WA
High-income people living paycheck to paycheck?
« on: March 21, 2014, 11:24:45 AM »
http://www.washingtonpost.com/blogs/wonkblog/wp/2014/03/21/living-paycheck-to-paycheck-its-not-just-for-the-poor/

I'm skeptical about the underlying study's methods. I didn't read the whole thing, but it doesn't sound like they consider taxable investments as "liquid." Most of the people on this forum would probably be classified by their definitions as wealthy people living paycheck to paycheck because we have high balances in assets that provide a return, and low balances in checking and savings accounts.

fallstoclimb

  • Handlebar Stache
  • *****
  • Posts: 1082
Re: High-income people living paycheck to paycheck?
« Reply #1 on: March 21, 2014, 11:41:34 AM »
I was waiting for someone to post this, because I thought the same thing -- technically I fall pretty exactly in their definition of "wealthy" paycheck-to-paycheck, with $50,000 in assets but only $5,000 available in liquid form, but I would never ever consider us paycheck-to-paycheck! 

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8422
  • Registered member
Re: High-income people living paycheck to paycheck?
« Reply #2 on: March 21, 2014, 11:45:15 AM »
I'm pretty sure they consider taxable as liquid.  The examples they cite for non-liquid are "house" and "retirement" which typically means tax-advantaged.

MDM

  • Walrus Stache
  • *******
  • Posts: 9245
Re: High-income people living paycheck to paycheck?
« Reply #3 on: March 21, 2014, 11:55:33 AM »
The idea that people might actually choose to live on a fraction of gross pay, while investing most of it, occurs neither to the authors of the original paper:
Quote
This portfolio configuration implies that these households have a high marginal propensity to consume out of transitory income changes–a key determinant of the macroeconomic effects of fiscal policy.
nor to the columnist commenting on it:
Quote
There's an important policy consideration here. Economic stimulus programs are typically targeted toward the poor, since they are the most likely to immediately spend cash windfalls on necessities that they'd otherwise be constrained against buying. But this study implies that wealthier hand-to-mouth households, because they face similar monthly constraints on their spending, would also respond positively to economic stimulus. The paper concludes that "in order to maximize the aggregate consumption response to fiscal stimulus payments, the payments should feature more moderate phasing out with household income."

In other words, they are saying that the government ought to give more money to rich(er) people.  That seems a policy that both conservatives and liberals would agree to oppose....

Mister Fancypants

  • Bristles
  • ***
  • Posts: 296
  • Age: 42
  • Location: New York
Re: High-income people living paycheck to paycheck?
« Reply #4 on: March 21, 2014, 12:25:17 PM »
Even tax advantaged accounts are considered liquid, there is a penalty to liquidate them, but you have access to the funds if you need them and it is a formula that is easy to calculate. Account size minus taxes and if you are younger the 59 1/2 another 10% penalty.

When you apply for a mortgage, the bank considers your 401(k) and IRA as liquid assets, they pretty much bank (pun intended) on your willingness to liquidate those accounts rather than losing your house, it’s a psychological thing.

-Mister FancyPants

Eric

  • Magnum Stache
  • ******
  • Posts: 4058
  • Location: On my bike
Re: High-income people living paycheck to paycheck?
« Reply #5 on: March 21, 2014, 12:32:22 PM »
Which one of you posted MMM's latest article in the comments?

ScienceSexSavings

  • Stubble
  • **
  • Posts: 119
  • Location: Montréal
Re: High-income people living paycheck to paycheck?
« Reply #6 on: March 21, 2014, 01:58:37 PM »
Which one of you posted MMM's latest article in the comments?

I wish I could say it was me... A+ to whoever did that!

Otsog

  • 5 O'Clock Shadow
  • *
  • Posts: 99
  • Location: Nunavut, Canada
Re: High-income people living paycheck to paycheck?
« Reply #7 on: March 21, 2014, 02:42:50 PM »
Quote
Liquid wealth. In the U.S. SCF, we consider liquid assets to be checking, saving,
money market and call accounts plus directly held mutual funds, stocks, corporate
bonds and government bonds.

Quote
Illiquid wealth. Net illiquid wealth in the SCF includes the value of housing,
residential and non-residential real estate net of mortgages and home equity loans,
private retirement accounts (such as 401(k)s, IRAs, thrift accounts, and future pensions),
cash value of life insurance policies, certi cate of deposits, and saving bonds.

lexie2000

  • Stubble
  • **
  • Posts: 222
Re: High-income people living paycheck to paycheck?
« Reply #8 on: March 21, 2014, 09:30:28 PM »
I just can't imagine living like that.  We've always lived below our means so I just can't relate.

the fixer

  • Handlebar Stache
  • *****
  • Posts: 1037
  • Location: Seattle, WA
Re: High-income people living paycheck to paycheck?
« Reply #9 on: March 21, 2014, 09:38:59 PM »
For those attempting to live a low information diet, add this Adblock Plus filter to block WaPo's comments:
echoapi.wpdigital.net/*

So you can probably guess that it wasn't me.

FloridaStache

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Re: High-income people living paycheck to paycheck?
« Reply #10 on: March 22, 2014, 09:09:26 AM »
Haha- I read this article on WaPo yesterday and knew I'd find a thread about it here.  I posted a link to this article and a rebuttal on my Facebook page, saying that in no way do I agree that we should be offering "fiscal stimulus" to encourage those who already live above their needs to consume more.  I also posted that I believe our entire focus on a consumer-spending based economy is an unsustainable house of cards.  In order for this to work we have to have consumption increase indefinitely, and also have wage growth keep pace with this spending, along with indefinitely low inflation and constant "fiscal stimulus." 

Of course, I got an immediate chorus of complaints from my friends telling me I had it backward- that our economy would collapse if we encouraged less consumption by people living paycheck to paycheck.

Note how it is accepted without question in the mainstream media-and many in our government on all sides of the spectrum- that consumption is good and must be increased by any means necessary.

I found myself re-reading this MMM classic: http://www.mrmoneymustache.com/2012/04/09/what-if-everyone-became-frugal/
« Last Edit: March 22, 2014, 09:26:48 AM by FloridaStache »