Why the rich don't feel wealthy
As weath increases, so do your expectations, and lots of income doesn't feel like quite enough.
Have you heard of Todd Henderson, the law school professor who blogged that if the Bush tax cuts are allowed to expire for America's highest earners, he's going to have to make some budget cuts -- like firing the housekeeper or the yard guy?
The mortgage on his large Chicago home, the kids' private school tuition, his physician wife's student loan bills -- plus the regular household expenses -- consume most of the family's $250,000-plus annual income, he wrote.
Henderson titled the controversial post at his blog "We are the super rich" -- his sarcastic attempt to point out that he's not. Still, it's rarefied air. Only 2.47 million U.S. households had income of $250,000 or more in 2008, according to the U.S. Census.
Why do Henderson and others in his shoes feel so strapped? Post continues after video.
"They are spending what they are making," Roberton Williams, senior fellow at the nonpartisan Tax Policy Center, told the Chicago Tribune. "They don't feel like there is any fat in the budgets. But the average person would take a look at their budget and say, 'Wow.'"
A saleswoman interviewed by the Trib, Megan Cowles, said she's sympathetic -- to a point. "I get what (the wealthy are) saying. It sucks, but they have more areas to make concessions than someone who makes $30,000."
Henderson quit blogging in response to the uproar over his post, but you can find the original and some of his additional comments here. When you read them, you may conclude that Henderson objects to paying more taxes not so much because he can't afford them but because he dislikes President Obama's policies. (The president has proposed ending the Bush tax cuts for households making more than $250,000 a year, while continuing them for the rest of us.)
Regardless, the consensus seems to be that Henderson doth protest too much. He didn't help his cause when he wrote that "we are just getting by despite seeming to be rich."
Laura Rowley made some excellent points in a post at Yahoo Finance:
- Henderson exemplifies the "hedonic treadmill" and, we might add, lifestyle inflation. As one's income increases, it's easy to consider the extras a higher income can buy as normal and necessary parts of life. Commenter Debbie added, "He will never 'feel' rich because he will never have enough. He has confused needs with wants. He has turned choices into needs."
- His household has financial security, something the professor may not adequately appreciate.
- The expectation of what life is like at higher income levels is a powerful force. In reality, there are tradeoffs. If you decide to buy a home where the property taxes are $15,000 a year, you'll have less money for other things.
"But frankly," Rowley concluded, "that discussion is offensive, particularly in this economy, when for millions of people the choice is not travel or private school versus real estate, but utilities versus food, or rent versus car payments."
So, how can Henderson and others like him begin to feel rich again? The Wall Street Journal's Brett Arends provided some pretty standard personal-finance advice -- but with the Arends spin. Among his suggestions:
- "Adjust your expectations," and get off that hedonic treadmill.
- Refinance the mortgage, or move to a more affordable location.
- Start tracking your spending. "If writing everything down is too much of a challenge: Junk the plastic, and just carry cash," Arends wrote.
- Downsize from two cars to one. He likely can walk to work.
- Mow the lawn yourself. Henderson said keeping the lawn guy employed keeps him off the dole, as if one less client would wreck his business.
- Don't blame Uncle Sam. Arends wrote that "contrary to what you seem to think, federal taxes are not extortionate by modern historical standards." The top 20% of households pay average federal taxes of 25.1%, compared with 25.6% in the final year of Ronald Reagan's presidency.
Oh, and one more thing. Never, ever, ever again blog about how hard it is to live on $300,000 or $350,000 a year at a time when one middle-aged man in four can't find a full-time job, and one in five can't find any job at all.
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