Ask Metafilter: How Come Everyone Else has Such Good Stuff?

From the estimable Ask Metafilter:

Ok, so it says that the typical person earns $14/hour, and the typical household earns less than $40k/year. Yet everywhere I look, I see displays of wealth. Expensive homes, cars, boats, TVs, activities, etc. So my question is: how are people paying for all of these expensive things?

I earn pretty good money (double the avg), but I would never dream of buying a $300k condo, a $40k SUV, and a $100/month cell-phone plan. On top of that, it seems as if every teenager is driving an Escalade, has a cell-phone, and is always shopping. Every time I go to a nice restaurant, it’s packed. I go on vacation and there’s millions of fellow Americans already there.

Can credit alone explain this? I just don’t get it..


  1. Paul – I’m no statistics expert here, but have observed the same thing you cite and concluded income data must be skewed significantly. When one reads an average (e.g. $40k/yr) one tends to think of data normally distributed around that average. I believe that a small number of very high earning families skews the data, possibly even into a “two curve” graph (official name for such a pattern escapes me right now) – one distribution @ the high end, another @ the low end, which could place a misleading average in the middle. Last, low interest rates have certainly helped, as auto makers, credit card co’s and home builders have certainly lowered the cost of carry over the past 4 yrs

  2. You bring up an excellent question. This is a topic of conversation often at my house. How can everyone live so lavishly on such average income? It doesn’t make sense. I think easy credit is the most likely reason. Also, do not count out parents. I’m 33 and I’m amazed at the number of people my age that still receive some type of funding from their parents.

  3. I recently went to drop my daughter at school ( I live in Bergen County NJ) and saw three Hummers in line in front of me. We had just had a snow storm and all three of them had a lot of snow on them. Evidentaly, the owners of these Hummers can afford expensive cars but do not have garages for them. Perhaps they stay in modest houses that do not have two car garages.
    So consider the possibility that the owners of the expensive homes are different from the owners of the expensive cars :-)

  4. I’m really shocked by the posting and the comments because it indicates even the intelligent readership of this blog doesn’t understand how Alan Greenspan blows bubbles. Lets do the short course:
    Curiously short interest rates for a curiously long period -> refinance craze in which homeowners use their homes as piggy banks -> consumptive frenzy.
    US total debt is over 300% of GDP, compared with 200+% in 2000 and 170% in 1929. Mr Magoo succesfully kept the bubble burst from turning into a deflationary spiral, but he did so by taking out the national credit card…the falling dollar is the “interest rate” here.
    Once rates rise, the refi binge will be over, people holding ARMs will get slaughtered, and the bear will come back out of its lair…but if this happens after 2006 then Mr. Magoo gets to retire with a “recovery” on his resume.

  5. Michael makes a very good point. While I am NOT saying that the spending power of the consumer is without limit, I do believe that many market observers do not consider the tremendous wealth transfer imminent from “The Greatest Generation” to Boomers and X-ers, etc… Also there are many senior citizens with some decent wealth/income who spend very little because they are retired and because they want to maximize their contribution to their children’s income/wealth.

  6. joe – there is only one story worth noting about generational wealth transfer – and that is all generations transferring to the boomers. even genX/genY are having their future wealth confiscated through the incredible debts our society is running up in govt and in our own finances. genX/genY will end up holding the bag in the form of higher interest rates, higher medical costs, higher tuition bills, etc. while its true that the genX/genY folks are also taking part in the consumptive frenzy, they will not be able to escape paying for it like the boomers will.
    i don’t think the ww2 generation matters at this point – their hand has been played, they are simply living out their social security entitlements at this point.

  7. Yes indeed, credit is the answer. What is it? An average of 2.4 credit cards per American? Spending 115% of their annual income?
    My friend, credit is the 8th modern wonder of the world. Everyone is left happy- you get the big TV, and I get you on my books.
    Sorry for the cynicism 😉 It’s sad but it’s true. Just the way, Richard Thaler would guess, human psyche is not good at m managing money- unfortunately, myopia, overconfidence, risk aversion and loss of self control tend to get in the way.
    Don’t worry- the situation is much worse. It’s just that it’s obfuscated.

  8. Couldn’t it just be that you see person A with a Hummer, person B with the $100 cellphone plan and person C with the big house?
    (Indicating that each person doesn’t spend his/her modest income evenly on all fronts)

  9. The collory just may be that when the crash happens it is not just stocks but the entire housing market. Just what happens if there is 3-9 months with zero home sales?