Whenever I read an article about how people are living on the edge financially and they start listing how much people are paying on their mortgages or their car payments I sort of chuckle. I find it somewhat amusing because I think that due to human nature it will always be true. No matter how much money people make, they will find a way to spend as much as they can to get the nicest, biggest home or car that they can afford. If they can make the payments, they think that means they can 'afford' it. If they can afford it, they deserve to have it.
I think of it as an example of what I call The Goldish Theory: a goldfish will grow to the largest size that the environment will accommodate. Bigger bowl, bigger fish. I think it applies in many areas of human endeavor. I'm generalizing, of course.
How much administrative overhead does your organization have? Well, how many people do they pay to do administrative work? Those people find a way to increase the thing that they get paid to do.
How many hours a day does it take to do a job? How many hours a day are you paid to do it? Whatever the job, it's gonna take the whole amount of time that was allocated for it.
By the same token, how much is someone going to spend on a house or a car? The absolute most that their income will allow. By definition that puts them in a financially tenuous position. It's not because housing or automobiles have become so expensive, it's because people are choosing to spend every available nickel to buy them. It creates a feedback loop, of course, making those things more expensive because people are willing to pay.
None of this is new. Thomas Jefferson was a notorious spendthrift and amassed huge debts building Monticello.
We are all surrounded by opportunities to spend money. Twenty-four hours a day, seven days a week we are exposed to a constant stream of ads, and even for people who limit their connectivity to pop culture and electronic media there are means by which advertisers can attempt to influence them. I say "attempt" because just because an ad is present nothing forces us to read it or take it seriously. Yet the same ads tend to target a wide range of people and socioeconomic classes.
Consider a billboard that promotes, say, a luxury vehicle retailing for USD$100k: some kind of luxury full-size SUV or crossover. The ad is visible to everyone who walks by: the homeless person panhandling for change on the median, the aspiring professional athlete jogging through a morning workout, the harried minimum-wage earner scuttling across the crosswalk, the student disembarking from a public bus, the FIREd Mustachian pedaling by in the bicycle lane, the office worker commuting in a small hatchback, the entrepreneur on his or her way to the work site, and the high-income executive commuting in a similar luxury vehicle. Everyone can see the ad. But people respond to it differently.
At the moment the ad is viewed, only the Mustachian, the executive, and possibly the entrepreneur have the assets to purchase the vehicle. The Mustachian sees and dismisses the ad, and would laugh himself or herself incontinent at the suggestion that such a vehicle would be an effective use of the 'stache, because spending a year backpacking through the Andes or acquiring an investment property would be more satisfying. The entrepreneur might buy the luxury car, if it's time to buy a vehicle and if such a vehicle suits the business. Realtors, lawyers, and people whose customers see their cars often notice that the customers associate the price of a person's vehicle with the efficacy of the services they offer. But if the business is appliance repair or a landscaping company, then unless the business is a raging success and generating enough cash flow for the luxury car to be an afterthought, the entrepreneur isn't going to spring for a fancy car either. The executive might, if circumstances justify a new car. The advertisers know this, and they don't expect every ad to generate a sale. Poverty itself insulates against truly horrific spending, because although anybody might fantasize about chartering a super-yacht or flying around in a private jet, people tend not to actually do it. But advertisers also know that something interesting happens when people who *can't* afford a luxury item are exposed to advertising: unless they consciously do otherwise, they tend to absorb the idea that the luxury items are normal, commonplace, and appropriate for them "when they get some money". They don't over-consume, but it's due solely to lack of resources. When their resources change suddenly, the barrier to consumption disappears.
Eventually, people often do receive a sudden temporary change in income or wealth. The professional athlete gets called up to the major league. The student graduates and starts working in STEM. The office worker receives a bonus, and the Mustachian receives an unexpected inheritance, or the minimum wage earner wins a seven-figure jackpot in the lottery. For many, the calculations change. People tend to perceive the increase in wealth as an increase in income, and the instinctive balancing they do between income and outflow adjusts to compensate. The calculations change. People who avoided high ticket items because they couldn't afford it suddenly feel as though they *can* afford it. So they "splurge". The only one immune to the splurge urge is the Mustachian, who rightly recognizes the sudden influx of wealth as a change in *net worth*, not a change in *income*. Whereas a USD$10,000 windfall is used by a Mustachian to build up a 'stache, clear debt, or invest, most people use the windfall to consume. That is why sudden wealth tends to be ephemeral, and why consumption tends to increase proportionately with income unless the earner steadfastly insists upon doing otherwise.
I've taught my niece that consumption is a choice. If she pays more on her mortgage, for example, less is available for other activities such as retirement.