A reader asks:
I need Ben’s take on the viral NYT story about the “middle class” couple who make $500k living in NYC. As a fellow flyover state guy I’m not completely up to speed on what it’s like living as a coastal elitist but these people can’t be serious, right?
This is the story in The New York Times that made a lot of people angry online:
Typically, when you see a story like this you should assume it’s rage bait. The news publications, blogs and newsletters have all learned that one of the best ways to get attention is to piss people off.
$400k/year is only enough to live paycheck-to-paycheck in San Francisco!
Here’s how AI is going to cause a massive recession and 20% unemployment!
60% of the population can’t come up with $400 for an emergency expense!
Stories like this get shared widely because they confirm priors for some people, enrage others and then get dunked on by people who love to debunk outlandish claims. Rage bait actually works.
However, The New York Times has been doing a series on what it’s like to live in New York City on various levels of income:
I actually thought this piece on the family making $500,000/year living in NYC was interesting because people don’t often talk about their budgets out in the open like this.
They spend $4,200/month on daycare. They rent a one-bedroom apartment for $3,900/month. They live right across from Cental Park but it’s only 800 square feet, they share a bedroom with their son and have a cramped kitchen with no sunlight.
However, they enjoy living in the city and are happy to make these trade-offs:
“When we talk about the possibility of moving to the suburbs, we both really dread it,” Mr. O’Leary said. “I don’t like to drive. Anala doesn’t drive. I feel like we’d be stuck. We really value being able to walk everywhere.”
These kinds of decisions are fascinating to me.
Some people look at these numbers and think these people must be nuts. Others understand that if you want to live in a big city like New York, it costs a lot of money and you don’t get a lot of space.
This is the part that had people up in arms:
They make half a million dollars a year and consider themselves middle class. When rich people describe themselves as middle class that’s bound to set people off and for good reason. This family is not middle-class. They are rich.
Their income places them in the top 2% of earners in America. They are able to save $120,000 a year which is more than the median income in all of New York City (around $80k).1
So why don’t they feel rich?
They do live in a high-cost-of-living area. But that’s a choice. They don’t want to live in the suburbs.
The biggest reason they feel middle-class is because they are surrounded by people who are as rich or richer than they are.
The Upper West Side has a median income that’s much higher than the rest of the city:
Around one-third of the residents make $250k or more.
It’s estimated there are now 400,000 millionaires in New York City, more than any city in the world. That number is up 45% in the past decade.
My favorite line from the show Fleishman is in Trouble is when Jesse Eisenberg tells Claire Danes, “Excuse me, I make almost $300,000 a year. I am a rich man in every single culture except the 40 stupid square blocks that you insist we live within [Manhattan].”
Almost no one thinks about wealth in absolute terms these days. Wealth is relative to your peers, your neighbors and the people you see living extravagantly on social media.
If you make a lot of money but choose to live in the same neighborhood as other wealthy people, that doesn’t make you middle class.
Some people buy boats. Some people take expensive trips. Some people send their kids to private school. Some people get country club memberships. Some people want to live in walkable cities with lots to do.
Those are all luxury decisions.
This is why being rich is not a number; it’s a mindset.
We touched on this question on this week’s all new Ask the Compound:
We also covered questions about how much to save for retirement in your 30s, the reasons you should or shouldn’t own bonds, how military veterans should save their money and how to make up for lost time if you got a late start on saving for retirement.
Further Reading:
Millionaires & Delusions
1And I’m guessing they save even more than that in retirement accounts. Also a good rule of thumb for middle class is around two-thirds to double the median income. So let’s say it’s $160k in NYC.