Monday, October 17, 2016

Your Purchases Can't Buy You Class

Another Monday, another post chock-full of middle class goodness.

The notion that our economic class is defined, not by our income or our wealth, but by our purchases, is fairly prevalent. If you own a house, or a second car, and take the family on a vacation now and again, maybe that means you're middle class. If you rent and take the bus and don't get time away from work, maybe you're not. Middle class people wear certain types of clothes. They eat certain types of food.

This purchase-defined class structure has a historical basis, and it's been portrayed predictably, and inaccurately, throughout the years in television and in movies.


In NPR's excellent series, "The New Middle" there was a recent segment about how we box people into classes by the kinds of purchases they make. And while I normally love just about anything on "All Things Considered", the notion that we can actually define economic classes by the purchases its members make is seriously flawed. In a consumer culture like ours, when almost anyone has easy access to credit, this idea is hopelessly misguided, and perhaps a little dangerous.

When you can take on consumer debt, you always have the option to buy above your means. In a sick twist on Paula Pant's famous saying, yeah, you really can afford anything...when you have a credit card. So, now, a Louis Vuitton bag can be the adornment of the wealthy and the indebted. A brand new Ford might signal that your neighbor is doing well financially and that he paid for the car outright, or it might mean he's just taken on five new figures of debt. The purse and the car are the same, and provide the same signals of status, whether they've yet been paid for or not.

With purchases made possible by debt, many of us are engaging in a sort of deception. When we spend more than we make, and go into debt in the process, we give the impression that we have more disposable income than we do. As a country, we're buying more than we can afford in order to, ironically, convince each other that we can easily afford all this stuff.

It's a messed up cycle.

Why would we do this to ourselves? Because we're hardwired to seek status and, like David McRaney reminds us, we are not so smart. There's a part of our brain that thinks it's more important to preserve our status, our sense of belonging to an economic class, than it is to preserve our limited income.

And so we go on trying to fool each other, with everything from the clothes and jewelry we buy, to our cars and homes, all of us competing to be the most average family on the block. (We frugal folks are probably just as deceitful: practicing stealth wealth, as Financial Samurai puts it.)

But why should I care? What does it matter if my neighbor gets a little self-worth from having a second car in the driveway?

I suppose the part that bugs me isn't, strictly, the idea that we can define the middle class by some set of purchases. It seems as good a heuristic as any.

But I get the sense that this social-status-for-sale is at the root of a lot of our bad financial behavior. That maybe it's not really the advertisers' or the car manufacturers' or the clothiers' fault that we consume more than we need to and far more than is prudent financially. But, rather, we might be taking on five figures of consumer debt and six figures of home debt because we think we're buying our family a spot in a respected social circle: a club where all the right people are members, where everyone seems to be doing pretty well and, hey, we'd love to have you and yours join.

When we accept, and advance, the notion that being middle class is simply a set of purchasing behaviors, should we be that surprised when people who can't afford those purchases are making them anyway?


*Photo is from Brett VA at Flickr Creative Commons.

36 comments:

  1. Superb article! Keep helping people with sharing posts. Thanks

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  2. I think it's insane how much credit you can get... I think I have something close to $50k worth of credit from all my credit cards. If you aren't disciplined enough, it's super easy just to purchase things so you can keep up with your class.

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    1. Yep. It's hard to know if the credit is a symptom (i.e. - Americans had an innate desire to be making all these additional consumer purchases, and the credit industry filled the void) or if it's a root cause for our consumption (i.e. - it's a supply-side phenomenon, and we buy more simply because we have credit).

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    2. Ahh... yeah my available credit is above $500K on credit cards... seriously can't imagine that... A couple of business cards have way higher then needed limits.

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    3. Whoa! That's a lot. There are probably some less-than-moral opportunities there. (i.e. - using cash advances and gift-card-to-money order strategies, to then pay off mortgages and stuff IRAs, then declaring bankruptcy). Not that any of my readers would or should do that.

      Still, that level of unsecured debt surely allows us to spend way above our means, if we ever wanted to.

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    4. Yeah Bankruptcy court would intervene with that... But yes one could make an attempt at fooling them. I've recently been closing quite a few cards.. I've been a serial opener for the perks... and Rarely use any credit beyond the minimum spend requirements.

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    5. Yeah, I am no bankruptcy expert. I remember hearing once that your primary residence, 401k, & IRAs were sometimes outside of the court's purview, but this scammy strategy would really test the limits of that. As always, no real shortcuts.

      We use credit cards similarly, with an out-of-control spreadsheet keeping track of all the cards, open & close dates, points, etc. We're about to start a family though and our round-the-world travel hacking days may be coming to and end. Or, at least, taking a very long break.

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    6. There's no reason to stop or even pause your round the world travel hacking. It gets more tricky with an extra person but our daughter has come with us just fine. She flew business with us as a lap child (for a small fee and they had bassinet for her) when she was under 2. Now she gets her own business class seat. She's 3 and has been to 5 countries over 3 trips. Only issue is that she complains about not having her own TV when we fly economy when we are domestic.

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    7. That's rad! We'll see how inclined we are to travel ourselves once we start caring for our kids, but it's great to know that others are still globetrotting with kids in tow!

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  3. I wonder what society would look like if credit didn't exist. Would it level the playing field? Would it reveal who you were at your core without the material stuff you think will make you look like a certain member of society? I that that was part of why my dad said I should get a new car. I think he wants me to somehow fit in. But fit into what? Who am I trying to impress? I think there was a time in my life where I did give a shit about it. Now, totally do not give a shit! :)

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    1. I know classical economists would disagree, but I think we'd be far better off with less access to credit (or, perhaps, caps on interest rates so that banks might ultimately bear the true costs of bankruptcies on consumer debt).

      I don't think it's necessarily all that bad to want to improve your economic class, and, sure, maybe it's fine to show off a little of that status with purchases. But when the desire to seem middle class or upper class can be met via credit, then really bad purchasing/debt behavior ensues...or at least that's my pet theory.

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  4. I'm going to have to play devil's advocate on behalf of purchase based "class" status. Shock that I might defend it given that we feel like we live very middle class (spending at or below median income level), despite earning well above that... Anyhow... here's my argument:

    It's not that spending as class is necessarily a bad thing, it's that you (and others most likely) are assigning value judgements to various classes. Being upper class or lower (working?) class does not make a person any more or less valuable as a human being than someone who is middle class. It's just a reflection of what lifestyle type you are living. There are plenty of people who live upper class lifestyles but file for multiple bankruptcies over the years (not naming any names, but a certain candidate for the highest office in the nation comes to mind). The fancy clothes and houses do not make him worth any more than someone like Eco Cat Lady who from her many comments here seems like she has never earned a super high income, but lives an amazingly rich (ER FTW!), albeit frugal life.
    It's not the system of judging class by spending that is the problem, it's the value equivalencies that are mistakenly assigned to that which can lead to problems. Once people stop believing that spending makes someone a better or more worthwhile person, then spending just *is*, and becomes a convenient way to group people who live similar lifestyles.

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    1. "[Y]ou (and others most likely) are assigning value judgements to various classes. Being upper class or lower (working?) class does not make a person any more or less valuable as a human being than someone who is middle class. "

      Hmmm...I think we have a case of miscommunication here. Let's clear that up.

      I'm not trying to making any judgments on people based on their class. Of course people in one class aren't better than those in another. And to the point of the post, I don't think someone is better or worse based on the clothes or car they buy, either. But, sure: I'm human. I feel envy, admiration, etc. when I see others buy nice things. I'm assigning some value there.

      But even if we take the value equivalencies out of the equation, isn't it still a problem when someone is spending above his means? That is, two people with very similar spending, who might outwardly seem like they're leading similar middle class lifestyle, probably are not living similar lives long term, if you look at how the purchases are financed.

      While my initial criticism is that, given our access to credit, equating class to purchasing behavior is inaccurate at best, my larger point is that, when class is defined by purchases, then spending is used as a proxy for status. Even if I don't think Joe (upper class) is a better person than Bob (middle class) based on their disparate spending, they both still might be making poor purchasing decisions in a quest to attain/retain a certain class status or sense of belonging.

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    2. "When class is defined by purchases, then spending is used as a proxy for status"

      I think this is the problem. I don't see why people make this false equivalency (or proxy, as you call it). Class by spending is an algorithmic clustering of households that outwardly "look" similar. Status is, I believe, closer to a determination of someone's worth: whether or not they should be admired, or have a life that should be aspired to by other for one reason or another. They're two completely different concepts and it honestly baffles me why many seem to use them as interchangeable.

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    3. I hear you, but class comes with status: they're linked. I'm not optimistic that we'll be able to identify one class as "upper", one as "middle", and one as "lower" and somehow remove the status connotations that are inherent with that kind of hierarchy.

      While the post focused on the idea that there are problems with using purchases as a heuristic for which class someone belongs to, I think you're making a larger critique of the classes themselves: that they (erroneously) connote status, regardless of how we define them.

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  5. My family didn't grow up using credit cards and the only debt that my parents had was the mortgage. When I graduated college I had no idea that people could get car loans. I was that naive. I thought everyone that drove a nice car had enough money to pay cash for it. Boy was I wrong. It would be interesting to see what life would look like if we had to pay cash for everything.

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    1. I hear you, Mustard Seed Money: a creditless world would certainly be more authentic and accurate. Probably a little more painful, too, since credit solves a lot of liquidity problems, and allows us to smooth our consumption.

      Absent that, I'd love for there to be some way to really understand which purchases were paid for outright, and which were financed. No more purchasing deception!

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  6. This makes me think of the "Millionaire Next Door". The people who are actually rich are the ones with most of their money in businesses or investments, not in things. They have basic cars, wear simple clothes, and drink cheap beer. They don't get tie up their identity with the need to have nice things. I think the people who go into massive debt to "buy class" do it because of insecurity, not advertisements. Whereas the ads don't affect people who are secure with their identities and don't need to buy things to fit in. Like how intelligent people don't need to go around telling people how smart they are. The ones trying to show off their knowledge, have something to prove because they don't truly believe they are smart.

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    1. Love that book, and it's probably the original documentation of "Stealth Wealth".

      And insecurity probably is at the heart of some of our poor financial behavior. When we are more confident and accepting of who we are, we're less likely to try to compensate with money.

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  7. "What does it matter if my neighbor gets a little self-worth from having a second car in the driveway?" It will matter when said neighbor has to file for bky and you as a taxpayer end up footing the bill. :-)

    LOVE this and think you're totally right on, DB40. I just read an article (and wrote about it) recently where the supposed expert said that the avg 15k credit card bill is perfectly acceptable as long as you can make the payments okay.

    It's this kind of flippant attitude about debt and the pursuit of stuff that's gotten this country (us included) in the mess it's in.

    As long as people continue to "compare themselves among themselves" they'll continue to be "not wise". :-)

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    1. Yay, wisdom!

      "It will matter when said neighbor has to file for bky and you as a taxpayer end up footing the bill. :-) "

      I'm certainly no bankruptcy expert, but don't other customers of the lender end up footing the bill (usually by higher interest payments or fees)?

      And I totally agree on how flippant we are with consumer debt. I read tons of articles/tweets/rants on how big a problem student debt is, and not nearly that many on consumer debt...which is more than twice the size and, you know, doesn't give you a much larger salary like a bachelor's typically does.

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  8. Wow! Now this is some good stuff! This is actually something Ive never considered before. I definitely dont want to be a part of the middle class if it boils down to going into debt to exist within that class.

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    1. Thanks, Latoya. One of the main hurdles with dealing with this class-driven purchasing problem (assuming it even exists) is that few of us ever think in those terms. No one ever thinks, "I'm buying this car so I can show others I live a respectable, middle class life."

      Rather, we'll say things like, "I work hard, and I deserve this." It's squishy. We get the sense that we ought to have something not due to our ability to afford it or because of a practical benefit, but because we have an intrinsic right to have it. There's a sense of entitlement buried in that sentiment, and it's hard to explain why any of us really "deserve" any item or experience unless there's an underlying reason, like class identity, which signals certain people should have certain things. (To be fair, there are any number of other concepts that drive our purchasing behavior, too.)

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  9. You've hit the nail on the head I believe. I came from a middle to upper middle class family based on income, but we never wore designer clothes, bought expensive cars. My parents still live in the same house where we my sister and I shared a room and my brother's room was smaller than most walk in closets. My dad grew up with more than enough, but my mother grew up truly dirt poor. They chose to live below their means because they were raised to not care what other people had. My husband's parents were both raised fairly poor for our area and didn't rise into a better earning situation until we were in high school. Despite this they always had the latest and greatest. To this day my husband worries about what people may think of him based on his car. I couldn't care less since it is mine and not the banks. So yes, whether we like it or not, we do judge people by their possessions and we are passing this down from generation to generation. My husband has come along way, but I see it in the people I work with and the students I teach at church. It is really sad, because it is so disingenuous.

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    1. Great point about these behaviors being learned and passed down. I wish I'd thought to use that angle in the post.

      The funny thing is that even we frugal people are engaging in the same behavior: our purchases don't reflect our financial situation any more than those of people who spend beyond their means.

      There's nothing wrong with that, of course. I only bring it up to show that, for most people, it's folly to try to look at their purchases and use that as a heuristic for their financial situation or their economic class.

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  10. Thanks for the link to the series. I usually don't listen to All Things Considered. This special series sounds good, though. Yeah, seems silly to measure the middle class status by the products we purchase. I guess it's the easiest way because you can see it. Other people can't see your bank account.
    The key is to to ignore the Jones. I don't care what my neighbors drive and what they have. It's just not a big deal to me.

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    1. Hey, Joe!

      Yeah, purchases might not be all that accurate a measure, but it's one that's somewhat transparent. I get to see the car my neighbor owns when the garage opens (along with some other stuff, too. :)

      I get the sense that frugal folks have more or less flipped this problem on its head already (how else could they be comfortable in older cars, older clothes, etc.?). But for the average person, I bet they're competing hard w/the Joneses.

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  11. It has always been interesting to me how even people who drive luxury cars and live in big houses can be poor. Sure they make big money, but if they spend more than they make then they are just digging a big hole that is hard to get out of.

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    1. Hi, Dennis.

      Your comment is a good reminder that income and wealth are sometimes correlated, but they're not the same thing. Sometimes you can have a lot of one and hardly any of the other.

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  12. Nice work on the indentation fix, DBF! I really appreciate your writing style by the way: Engaging, concise, and thought-provoking. I feel like I'm working a bit too hard trying to emulate others with 2000 words posts. Yeesh...

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    1. I should be thanking you for bringing that to my attention. I always just assume everyone else see the blog the same way I do on my old 14" ThinkPad.

      And thanks for those kind words, too. I'm a fan of those who can write long form, so this may be a case of the grass being greener. :)

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  13. Nicely put. Parallel to your point here, I'm advocating for people to post on Facebook a summary net worth statement. Two benefits: 1) an 'emperor has no clothes' moment when we see that our neighbor's accoutrements are financed through high-interest loans, and 2) the keeping up with the Joneses phenomenon becomes constructive instead of destructive if it's family balance sheets being compared!

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    1. Thanks, Kurt! A while back I did a net-worth quintile post that seems similar to your Facebook effort.

      http://www.donebyforty.com/2015/04/middle-class-wealth.html

      Unfortunately, Toluna took down the survey, because they viewed it as promotional for the blog. They are the worst.

      I like the optimism in your comment, too. A real view of our finances really could flip the competition on its head, making keeping up with the Jones a virtuous cycle instead of a vicious one.

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  14. I really agree with your sentiment. I think teaching my children about finance and how new cars every 3 years may not mean someone is someone is rich. They may be able to lease to give the appearance...they may in fact be rich....they may be in the middle etc.

    I myself do buy new cars, because I can't change a lightbulb without help, however I depreciate them thru my business and then end up passing them off to my children as their first cars, so 5 year used car that I know the history of.

    Teaching kids finance with the "must haves" of iphones and 200 channels is quite the challenge. While we afford the above indulgences, we skimp in other places. I often wonder how people making less keep up with bills I can afford but often am embarrassed I actually indulge in. I would love to see your quintile graph of income plotted against % of income going to family cell phone bill. That would be a scary graph because younger people truly look at cell phones + data plans etc as a need as basic as food and water, they are only starting to be old enough to have to pay for them though !!

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    1. Thanks for that thoughtful comment, Chris. Good on you for teaching your children about finances. I wish my parents had (or maybe they tried, and I just wouldn't listen).

      Phones, in particular, are a real drain on your finances if you go the traditional route. We're huge fans of MNVOs (we use AirVoice Wireless and get the AT&T network, but pay dirt cheap prices: $30 total a month for two phones...$20 for the missus, $10 for me). Which all goes to say, there's probably even more squishiness in the purchases-define-class mentality than it seems, since frugal folks can make normal-seeming purchases for less money than average.

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