The Still-Secret Salary of a “Middle Class” American

I finally got around to reading the title Atlantic piece about broke Americans. You know, the one where the guy is holding a paper bag over his head. I thought I’d love this article, because I generally find it really cool when people take their own financial woes and talk about them as they fit in with patterns and our society.

It turns out the article does highlight a lot of terrible decisions (like lying to one’s spouse about money), but it’s really not clear how connected it is to macro-level problems. Helaine Olen claims that it’s so much privileged whining, and I ended up largely agreeing with her. I mean, c’mon, complaining about costs like buying a house in the Hamptons and sending two kids to fancy schmanzy schools is a bit, well, rich.

Still, there was one point that bothered me even more than the humble-brags and the strings of horrible decisions. Where, exactly, are the dollar signs? Financial decisions are categorized as bad, even ruinous, for reasons it’s very difficult to understand.

Now, having read a lot of personal finance articles and blogs, I can see why Gabler was hesitant to include these. Someone who writes about struggling to find affordable housing in San Francisco, for example, inevitably provokes a string of “I do just fine paying a $99/month mortgage for a huge farmhouse in Somewhere, NE” comments. And those comments are not particularly helpful, because they miss the point.

Still, I just can’t let him off the hook. It is a money article, after all, and it’s about the middle class. A class of which Gabler is, apparently, a member. It’s impossible to test the strength of his connection with a larger American narrative on the basis of vague mutterings about his aching wallet. Take his claim that he expected his income to rise. Did he make $40,000/yr two decades ago, and watch the value of that income fall? Or was he making twice that all along, keeping his actual income well above average? Did he spend a 401k worth half a million dollars on his daughter’s wedding, or did he blow a relatively insignificant sum? Neither is a good idea, obviously, but I know someone with high-earner neighbors ($300K/yr?) who went into debt for a daughter’s lavish wedding. That’s a far cry from someone pulling together $500 that she doesn’t really have in order to get the kid a wedding cake from somewhere other than Baskin Robbins.

Gabler falls well behind popular personal finance bloggers. Most bloggers include a lot of dollars and cents (sometimes with almost too much detail), though many of us are less than perfect. I’m not really cool with pf bloggers who claim to save a large percentage of their income, but won’t reveal what that income is. Are we supposed to extrapolate it from the spending? I like those who keep the income and the spending in nice, colorful charts. Mr. RB40 does a great job of this. It gives lots of detail and makes all of these goals seem more achievable. My position is that if you don’t want your income splayed out messily over a webpage, you can still blog.

Just don’t write about personal finance.

And, in the spirit of full disclosure, I should reveal my own income. This year, it’s been 20,369.97, plus dividends (about $300 so far, automatically reinvested). 17K has gone into my TSP (401k). My nice, fat tax refunds (~3K) have gone into my Roth, so my take-home pay has been in the double digits. I actually think it’s less than $50. That’ll change, as I’m living off savings now, and I need to save up some more money before I quit my job. Spending has averaged about $1000/month, most of that going toward rent, food, and car insurance.

I’ll add more details on that in the future, because funemployment is great fodder for finance blogging! Stay tuned.

The Still-Secret Salary of a “Middle Class” American

Car Loans Blow

I just read something on Credit Karma about auto loans. Ish. Things are not looking good.

The article talks about how subprime auto loans are terrible, and how many people quickly get into personally overwhelming levels of debt after taking on those loans. Bad news, to be sure.

But the subject on my mind was something that applies even to those with great credit and more manageable loans. What if something dramatic happens, and the car is destroyed?

I grew up near the mighty Mississippi, so everyone knows that cars can be flooded easily. We should have warning systems with gates that block off major roads when there’s a flash flood warning, but we don’t. Once you get down on those roads by the river, it’s easy to decide to drive through shallow-looking water on the road, only to find yourself stuck. This hasn’t happened to me, mainly because I biked that road much more than I drove it, but it happens all the time.

ChainOfRocksBridge_StLouisMO.jpg

The river is a formidable foe.

Anyway, say your car gets flooded, but you get out of it ok—thank goodness. Luckily, the lender made you get “full coverage” on your car, so you should be fine. Because they did that to protect you, right? It’s gonna cover everything, right?

Hardly.

What will likely happen is the insurance payout will go first toward any outstanding debt on the car, and then (possibly) to you, minus the deductible. Ouch.

So here’s the situation: $20K Hyundai Elantra, 24 month loan at 3.11%. That means the monthly payment is about $861, and let’s say five payments have been made for a total of about $4300. And now the car is destroyed.

The insurance probably will pay the ACV, or Actual Cash Value. Meaning they’ll pay for a lovely Hyundai Elantra that is no longer new, and worth maybe $15500. After all, the car you had would have technically been a used car.

Then, knock out the deductible. Let’s say it’s $1000 to make the math easy.

Oh, and also the fee for having the junked skeleton of the car towed away. Let’s say it was about $200.

So there’s gonna be a settlement of about $14500, and it will go to pay off the car. Meaning that instead of money in your pocket, you now have nothing left that you can spend on a car. In fact, you probably owe $1500 for a car that is now scrap.

Personal-finance wise, this just means that avoiding car loans if at all possible is probably a good idea. It’s not an option for everyone, but my co-worker’s advisor always gives her a sidelong glance and tallies up how many paychecks she needs to save before buying a car with cash. His attitude is that a loan is a last resort, which makes sense. As the example shows, even “full coverage” insurance is not necessarily going to rescue an unlucky borrower.

But there’s a sexism issue here, too. Auto lenders have shown a pattern of discrimination when it comes to setting rates for loans. They’re more likely to charge a higher rate to someone who is non-white and/or non-male. And a lot of Dems are ok with this (boo). There was a high-profile settlement against some fiends doing this, including Honda (really?) and Ally Bank (darnit, I bank with them). But Congress is cool with letting these things slide.

So it’s a lose-lose. Oh well. The most any of us can do about it is to try and avoid these loans, then chew out our elected officials whenever we get the chance.

Oh, and if there’s a flash flood warning? Stay home.

Car Loans Blow