Tuesday, October 9, 2007

How rich is rich?

On a similar topic to the recent discussion of health insurance for the "poor" is this one: I'm in class a week ago and teaching my usual stuff, modern US history. I was talking about the Supreme Court and how John Roberts is the new (and youngest) chief justice, and how judges have a great gig because they serve for life. One of my students asks, "How much does being a Supreme Court Justice pay?" I answer, "about $175,000." Then comes the money quote, since it's from a 12-year-old who doesn't have any clue what things cost: "Is that a lot of money?" Good question. I teach in a private school that costs about $15k per year, and live in a town where the "average" house costs well over $200,000. On the one hand, I think of $175k as being darned good money... more than double what my family brings in with two people working full-time in what I think are pretty good jobs. On the other, if you made $175k, you'd be paying well over a third of that in taxes (fed, state, and FICA). Let's say you're a Christian and you tithe, as well. So when all is said and done, you'll have about $96k to budget, or about $8000 a month. Still good. But if you are the Chief Justice, you don't live in a 40-year-old ranch house with no working dishwasher like I do. A home that costs $400k in my town is no mansion--we're not talking deep water dock here. And that payment runs about $3000 all-told. And you don't drive a '93 Lumina, you and your wife drive late-model cars with payments. Maybe $1000 more total. Put two kids in my school at $2500 a month total, and suddenly you're down to $1500 a month to buy all your insurance, food, utilities, etc. That's tight. Of course, you don't have to live in as nice a house or drive the new cars or put the kids in private school. You don't even have to tithe. But you would expect the Chief Justice to live that well. Maybe not private-plane and yacht well, but definitely private school and nice SUV well. I'd even go so far as to suggest that there are some people in my town that make that kind of money (upwards of a hundred and a half) who don't live lavish lifestyles and feel the pinch sometimes. If you ask them if they are rich, they'll probably say, "no--middle class."

Now don't get me wrong--I'm not weeping for the poor guy making triple or quadruple the national average. But it takes a LOT of money to live like the "rich." And if you can struggle on $175,000, imagine a working couple where neither makes over $50k, but together they bring in $80-90,000. Again, that's double the national average. But pay taxes, health insurance, put a roof over your head, maybe buy a late-model car, and you're too strapped to send a kid to college without a loan, or to aggressively save for retirement. They might be in the top 25% of income earners, but they certainly aren't vacationing in the Bahamas.

I think the best definition most of us use for "rich" is "somebody who makes more than me." But I'll bet those of us who say that are thought of as pretty "rich" by somebody else.


Goode Design said...

In my opinion rich is all of the following:
• Consistently tithe
• Lower income-to-asset ratio (the wealthy lower their relized income and maximize their asset/wealth creation)*
• Debt free
• Has a budget
• Operates on a budget
• No house payment (for those who need debt free defined)
• 2 – 4 year old used car (like most rich people buy)*
• Clothes that cover your body
• Has some form of investments
* Per Thomas Stanley's description of those he calls Prodigious Accumulators of Wealth in The Millionaire Next Door

Rich is NOT:
• Owning flashy things (cars, jewelry, TV's, homes, hi-profile neighborhoods...)
• Just having a high income
• Country club liviing

There's an old, wise saying: All that glitters is not gold

Coach Sal said...

Update: My buddy Matthew, who knows such things, informs me that the Chief Justice makes $212,100 and the Associate Justices make $203,000. So even by my calculus, those guys should be OK. But congressmen and senators make more like the $150-175k I was writing about, and the point remains the same--that it takes a pretty good chunk of change to live "rich."

And to cover what Pete said, it's true--the "real" rich drive used cars, live more frugally, give more in charity, work more hours, save more, etc. I highly recommend the Stanley "Millionaire Next Door" book. There are lots of pretty-high earners who are mortgaged to the hilt and are more "broke" than folks making a lot less but being frugal. Given a choice, I'd rather have less stuff and more peace.

Philip Murphy said...

I'm pretty sure Justice Roberts' net worth is close to $4 million. He made a killing at Hogan & Hartson.

Plus, his wife is no slacker either. She may make more than the CJ nowadays.

on another note... "Rich" is anyone who has more money than me ;)