A Millionaire Can Get Medicaid

So here’s an interesting development: I just found out I qualify for Medicaid, at least for the moment.

Now before you jump all over me saying I’m a greedy conniving cheat who shouldn’t be leeching services from the government, I will just say that it is very likely that I will never actually cost the government any money for using Medicaid. I’ll explain below. But I do think this is a great example of some of the perversity built into our current healthcare system.

I currently pay over $750 a month for COBRA coverage from my former job but in a few months, it will run out and I’ll have to buy my own insurance. I’ve been researching the plans offered through NY State’s marketplace under the ACA, otherwise known as Obamacare. I was going back and forth about what kind of plan to get and which insurance company to choose, but then realized that I shouldn’t be agonizing over it for just the last month of 2018— I could just pick the cheapest Bronze plan for that month since it was unlikely that I’d use medical care that month other than in an emergency, and then I could wait until the 2019 open enrollment period to decide on a plan for next year.

 I decided to see what the application process was like— I didn’t think I’d finalize and submit it right away, but I wanted to see what info was needed. The process is actually pretty straightforward, though if you aren’t sure what all the lines on your tax return mean, you might want to get some help. You basically have to give identifying information to be sure you qualify, and then income and deduction estimates for the year of coverage to see if you are eligible for any subsidies.

 The system is linked into NY State government data, so it knew I wasn’t earning any wages (via a paycheck with withholding) this year. For my estimated income for 2018, I just used the business income, interest, dividend and capital gains numbers from my 2017 tax return. (The business income is a little trickle from blogging, plus a consulting project I did last year, which is unlikely to be repeated this year.) They then ask about certain deductions that affect your adjusted gross income— again, I pulled this information from my 2017 tax return and extrapolated for what they would be in 2018. One of those deductions is what you pay for health insurance premiums if you are self- (or un-) employed.

 So here’s the thing— my taxable income this year is only likely to be around $20,000. When you subtract from that what I’ll pay in 2018 for my health insurance, which is over $8,000, boom, suddenly I’m at poverty level. Assets are not taken into consideration at all. It is also worth pointing out that the dividends and capital gains produced by my 401k and Roth IRA accounts are not taxable, so while I factor those in as “income” in my planning for the future, they don’t affect my eligibility for Medicaid. While I hadn’t originally planned to finalize my application, I sort of inadvertently did: a screen popped up saying I qualified for Medicaid, and that it would be effective as of July 1! I was very confused by this so I called the helpline and talked the whole thing through with someone to see what it would mean.

 Since I will still be paying for my COBRA coverage through November, any medical costs I have will still be covered by that primary insurance, but apparently Medicaid will become secondary coverage, if the provider I use accepts Medicaid. (That's a big if-- one of my doctors stopped being in-network for any insurance companies, so I’m sure she won’t accept Medicaid.) I’ll probably get a physical and maybe see another doctor or two before my COBRA runs out, but I’m guessing it may not be anything that Medicaid would cover.  There is also a slight possibility that I’ll get some work later this year— in that case I’ll have to go back into the application and update my projected income, and presumably that would put me back in the position of buying a bronze plan, with maybe a small subsidy towards the premium for 2018. And in 2019, without all those COBRA payments, I’ll probably no longer be eligible for Medicaid and will just get a subsidy for purchasing a plan. And depending on my actual income, I may end up paying all or some of the subsidy back when I do my 2019 taxes.

 I really wonder how many people fall into a situation like mine. I didn’t do anything to “game the system.” I just happen to benefit from a quirk in how the laws are currently designed (and yes, they should fix that quirk). If I had more investible assets, my dividends and capital gains would probably be high enough to disqualify me. And if I wasn’t paying for my platinum level COBRA, my adjusted gross income would be too high for me to qualify-- that, to me, is the most bizarre detail. But for the next couple of months at least, I am a millionaire who qualifies for Medicaid.

Income and Poverty Statistics

I love looking at data about income and wealth and poverty levels. I feel like we're so inundated with misleading information when people start talking about "the middle class" in relation to politics and taxes.

A report was just released of Census Bureau Stats about real income before taxes-- it's good to note that this is different from the Adjusted Gross Income stats often reported when people are referring to IRS data. Since weathy people tend to take more deductions for mortgage interest, charitable giving, 401k contributions, etc., it's important to remember that their real income is much higher than their adjusted gross income-- so when politicians talk about taxes that might affect someone whose income is above $200,000, they mean someone whose real income could actually be much higher.



But here's a few stats I found most interesting:



Overall, median household income adjusted for inflation declined by 2.3 percent in 2010 from the previous year, to $49,445.

That is for all households. Breaking it down a bit more:


Married couple households $58,036
Non-family, aka individual male $35,627
Non-family female $25,456

Median income of full-time, year-round workers:
Men $47,715
Women $36,931

15.1% of people are below the poverty threshold. Kind of an arbitrary line in the sand, as someone making a dollar more than the threshold isn't in great shape either. It's also interesting to note that about 34% of people are below 2X the poverty level. The poverty thresholds by household size are below:

# of people in household	48 states &DC	Alaska	Hawaii
1	$10,890	$13,600	$12,540
2	$14,710	$18,380	$16,930
3	$18,530	$23,160	$21,320
4	$22,350	$27,940	$25,710
5	$26,170	$32,720	$30,100
6	$29,990	$37,500	$34,490
7	$33,810	$42,280	$38,880
8	$37,630	$47,060	$43,270

211,492,000 Americans over the age of 15 earned money in 2010, or 67% of total population.



Interesting that it corresponds very closely to the total number of people age 15-64, presumably the ages of people you'd expect to work. But a lot more people are working past the age of 65-- about 8% of people over 65 had income in 2010.

Total popluation of US: 312,222,000

0-14 years: 20.2% (male 31,639,127/female 30,305,704)
15–64 years: 67% (male 102,665,043/female 103,129,321)
65 years and over: 12.8% (male 16,901,232/female 22,571,696) (2010 est.)




What this says to me is that almost half of all working individuals in the US couldn't support a family of 4 at more than poverty level. Two-income families have become a necessity... as has debt. The graphic below, which accompanied an article by Robert Reich, highlights this nicely:




All stats are from this Census Bureau report and Wikipedia citations of Census data.

The Dilemma of Asking For and Accepting Help

I keep thinking about a friend I'll call Edna. Edna is a divorced mother of two. Because she's had to juggle child care, her job history over the past 15 or so years has been rather checkered-- nothing bad has happened, but she's had to stitch together various part time jobs that would allow her to be there for her kids. She'll do pretty much anything, from cleaning out someone's basement to cold-call selling on a commission-only basis to bartending, but many of her jobs have been temporary so she's never had a chance to really establish herself in a career. Her husband has paid child support, but she's just barely made ends meet-- one of the kids is now old enough to have her own part time job, and she made more money last year than Edna did. I learned this fact during a dinner when another friend of Edna's urged her to apply for food stamps, which Edna did not want to do.

The friend's argument was that these government assistance programs exist precisely for people like Edna-- she does her best to find sources of income but is trying to look after her kids without being a burden to anyone. Her income in some years is basically at or below poverty level though there are times when she manages to do better. Shouldn't she accept some help?
But Edna hates to ask for help, which leads us to another fascinating aspect of her situation: Edna's parents are quite wealthy.
They have several other children. Some of those children have been given quite a bit of financial assistance-- particulary the male children: there seems to be just enough of a generational gap that girls were seen as needing only to find a husband, while boys needed education... and cars and clothes and apartments and so on. But although they've occasionally paid Edna to do work for them, they are otherwise very stingy with her. They barely even give gifts to Edna's kids, and when they do, there's often a whiff of goodie-bag re-gifting about it. Edna hates to ask them for anything, and rarely does, but at one point she reluctantly reminded them of an offhand promise they'd once made to chip in when it came time to pay for sending Edna's kids to college-- this time they kind of winced and alluded to money being tight for them... but of course this is in the context of them having two luxurious homes where they do lots of entertaining, and other trappings of an upper-class life.

I'm way over-simplifying the situation here to avoid too many identifying details, not to mention writing a mile-long post, but it's an interesting dilemma, isn't it? Should someone who is not wealthy herself but has a wealthy family turn to government for assistance? Is it the family's obligation to help her first? Some will no doubt say "neither" but what is someone in such a situation supposed to do? Leave her kids unattended? Pay money she doesn't have for day care programs? Edna's ex-husband is a mess, so he's not much help. It's hard to imagine anyone being more responsible and less prima-donna-ish than Edna... but she just can't seem to make all this work on her own.
Within a few years, both of her kids will be in college, and whether or not they get financial aid, that will be another drain on her resources, even if it does free up her time for a full-time job. But she's already been looking, and it's tough-- with the resume of a stay-at-home-mom who's fit odd jobs in around child-rearing, she's not going to be the most attractive job candidate in a climate like today's, where employers can probably be more picky. But she did mention that she will be going on a second interview for a job that pays about $40,000 a year, an amount she referred to as "life-changing."

Interestingly enough, she told me about the potential job while we were both at the home of another friend who has become something of an art collector. As I was listening to Edna, I was looking up at a painting above the fireplace that supposedly cost $50,000. It was such a collision of worlds... and it leads me to one more facet of these kinds of situations among friends:

Whenever Sweetie and I have dinner with Edna, we'll often cook something at home in order to avoid the issue of whether Edna can afford to go out. Sometimes we do end up going out, and sometimes we'll just pick up the check ourselves and tell Edna it's our treat-- but again, Edna has a lot of pride and won't always let us do that. The art collector friend hadn't seen Edna in a long time and invited us all to visit for a weekend in the country. I had thought we'd just be barbequeing, but we went out to dinner one night, and when the check came, we all split it evenly. I guess on one level that's totally fair, and just because one person makes 10 (or 20 or 100) times more than another doesn't mean it's their obligation to pay. But I personally think that if you invite someone to spend the weekend with you, they are your guest for the whole weekend, which means the host should cover the dinner bill, while the guest will hold up their end of the bargain by bringing wine or some sort of gift and offering to chip in for dinner but not arguing too much when the hosts insist that they'll get it. That rule doesn't have to be set in stone-- maybe going out to dinner one night is the thank-you gift to the host/hostess, to show your appreciation and relieve them from having to cook so you can all just relax and talk. But in this situation it seemed a little insensitive...

A Tree Grows in Brooklyn

I recently read A Tree Grows in Brooklyn for the first time-- it's an extraordinary book, and full of so many interesting thoughts about money. The main character is Francie, a little girl growing in Brooklyn in the early 20th century. Francie's father is a charming alcoholic who can never keep a job for very long, so they're always poor and scrambling for whatever money they can get. Francie and her brother sell old rags or metal (I forget which) to a junk dealer in order to get a few cents of pocket money for themselves, and here's what Francie does with hers:

Arriving at the store, she walked up and down the aisles handling any object her fancy favored. What a wonderful feeling to pick something up, hold it for a moment, feel its contour, run her hand over its surface and then replace it carefully. Her nickel gave her this privilege. If a floorwalker asked whether she intended buying anything, she could say yes, buy it and show him a thing or two. Money was a wonderful thing, she decided.

Here's an excerpt from a scene describing the family's mealtimes, where they each drink a cup of coffee. Francie often doesn't drink hers and her brother wonders why she's even given one. Here's Francie's mother's response:

"Francie is entitled to one cup each meal like the rest. If it makes her feel better to throw it away rather than to drink it, all right. I think it's good that people like us can waste something once in a while and get the feeling of how it would be to have lots of money and not have to worry about scrounging."
This queer point of view satisfied mama and pleased Francie. It was one of the links between the ground-down poor and the wasteful rich. The girl felt that even if she had less than anybody in Williamsburg, somehow she had more. She was richer because she had something to waste.

As she grows older, Francie is constantly aware of the need to save money. Her mother has learned this lesson from her grandmother, who insists that she should save whatever money she can, hide it in a coffee can nailed to a closet floor, and never touch it until someday there's enough to buy some land:

"It is winter, say. You bought a bushel of coal for twenty-five cents. It is cold. You would start a fire in the stove. But wait! Wait one hour more. Suffer the cold for an hour. Put a shawl around you. Say, I am cold because I am saving to buy land. That hour will save you three cents worth of coal. That is three cents for the bank...."

And then there's this painful scene, where Francie wants to win a beautiful doll that is being given away at her church by a girl from a rich family. They announce that it will be given to a "poor little girl named Mary" and Francie wants it so badly that she raises her hand and lies about her name, while having to publicly acknowledge that she's poor. As she leaves the church with her prize, she is tormented by the other poor girls:

Francie's eyes smarted with hot tears. "Why can't they," she thought bitterly, "just give the doll away without saying I am poor and she is rich? Why couldn't they just give it away without all the talking about it?"
That was not all of Francie's shame. As she walked down the aisle, the girls leaned towards her and whispered hissingly, "Beggar, beggar, beggar."
It was beggar beggar, beggar, all the way down the aisle. Those girls felt richer than Francie. They were as poor as she but they had something she lacked-- pride. And Francie knew it. She had no compunctions about the lie and getting the doll under false pretenses. She was paying for the lie and for the doll by giving up her pride.

If you've never read this wonderful book, I highly recommend it, and not just for the insights on money and class. There's great historical detail about old New York, and it's a fascinating portrait of a girl's coming of age.

Finances and the Family: The Earlier Generations

Thank you all for your advice and kind wishes after reading my last post. Obviously the family finance issue is on my mind a lot, and one of the aspects I was mulling over last night was how these things slide from one generation to the next: my mother's finances will affect mine, and mine could affect my niece and nephew. But what about the earlier generations? How did my grandparents' finances affect my mom and dad?

I've mentioned before that my mother grew up quite poor, with parents who divorced when she was a teenager. Her father was a barber-- he died a while back, and I never knew him well enough to know anything about how he spent what little money he made. Her mother is still alive, and seems to live very simply on a small income, I guess from Social Security, plus occasional checks sent by my mother and her 3 siblings. She is remarried, and lives in a small house that her husband bought. The mortgage is paid off. My step-grandfather supposedly has a few thousand dollars saved, but he won't tell anyone where it is-- as in, it's not in a bank, it's just in a coffee can buried in a closet or something. I don't think my mother's parents ever had much spare cash-- but nor did they have debts, as far as I know.

As for my father's parents, I don't think I've ever gotten around to writing much about them, and they are quite a different story.

My father's father was a lawyer. His parents were poor immigrants so he put himself through college and law school. He may have been the only one of their 9 children who got an advanced degree, though one of his older brothers was also successful and was actually in the House of Representatives for a term or two back in the 1930s. Probably because of this government connection, my grandfather ended up working for the Veteran's Administration. I don't know how much money he made-- a decent amount, I'm sure, but nothing like what we hear about corporate lawyers making today. My father has expressed some resentment about the fact that my grandfather volunteered for the Navy during World War II despite being well over the age where he'd have been drafted-- if he'd stayed home, his political connections might have led to an appointment as a judge, but by the time the war was over, his brother was out of office and had no strings to pull.
My father's mother also came from immigrant parents of what I guess you'd call a white-collar working class background (her father was a machinist but became some sort of supervisor). My grandmother graduated from high school but never attended college. She never worked until after my grandfather retired, when she did some part-time clerical work for her sister (who has an interesting story herself, which I'll have to tell later.)

But here's the kicker: my grandparents had 6 children, my dad and 5 sisters. They put them all through college and may have made some contribution to graduate school/law school costs for at least one or two of them. (3 of my father's sisters have advanced degrees.) Can you imagine paying for all that in today's world, on a middle-class government lawyer's salary? Education just cost less back then, and though all the kids went to Ivy League/Seven Sisters colleges, most of them were able to live at home while going to school, which must have been a big savings. And I suppose my grandfather would have paid for some weddings too, though I imagine they'd have been small.

How else did they make ends meet? My grandparents definitely had a depression mentality, and never threw out a scrap of food. But they weren't crazily frugal-- my grandfather gave my grandmother plenty of jewelry, and he played golf (though at a public course, not as a member of a private country club), and they had a comfortable house in an expensive area. They didn't really travel much, but I remember them taking a couple of winter vacations. I'm sure there were many years when money was tight, but by the time they were retired, they had a nice life.

My grandfather went into a nursing home and lived there for a few years til he died at the age of 90. My grandmother continued to live at home for about 13 more years, with part-time care from an aide for about 2 or 3 of those years. Then she went into a nursing home for about 9 months before dying at the age of 94. In the later years of her life, she gave each of the 6 children a few thousand dollars a year, and after she died, they each got a share of the proceeds from the house-- it sold for about $500,000 at the top of the real estate market, so each of the kids ended up getting over $80,000 in the end. (This inheritance makes up almost 1/3 of my father's current net worth.)

It just boggles my mind that they managed to raise so many kids and live so long and pay for nursing home care yet still not run out of money. My grandfather may have had a really good government pension. Maybe he invested well. He definitely left everything set up for my grandmother after he died, with some kind of annuity in her name. I would not say my grandparents were wealthy, but they were definitely prosperous.

The "American Dream" is for that kind of prosperity to increase in each succeeding generation, not evaporate. Yet that evaporation is what seems to be happening in my family. My parents have savings now, but they'll likely be gone well before they're even in their 80s, and then they'll have to tap the equity in the house. My sister and her husband are in their mid-30s with credit card debt and have probably barely made a dent in retirement savings or college funds for their kids. Our family's situation could be far worse-- some of stories told by commenters on this site make me feel like I have no right to complain. I guess it's just sad to look back at those early generations, on both sides of the family: their hard work after starting from nothing, their frugality, their willingness to live with less. They passed on an amazing gift to us, a gift that went well beyond money itself. I think they'd be sad to see that gift wasted.

Helping Out in a Health Crisis

Sometimes I look at the past year and wonder if all the good luck I've had in life is turning out to be a loan that's been called in by the bank. Nothing bad has happened to me personally other than losing some money in the stock market, but I feel like misfortune has been getting closer to me, in the form of bad things happening to my friends and family. In addition to my father's brain tumor and friends losing their jobs and getting divorced, I've had a cousin and a friend diagnosed with very serious cancers. Things were very scary for a while with both of them. Now, miraculously, things are looking pretty good. But none of this came without a cost, both emotional and financial.

Both my friend and my cousin have health insurance, one through an employer and one privately purchased as she is self-employed. But that didn't mean their treatments were affordable. In one case, there was chemo and radiation and major surgery. In the other, there were chemo treatments, a special diet, and a lot of long-distance drives to doctors. Both had to take time off work, unpaid in at least one case. Both of these people have spouses, but neither were making much money. Both couples also had another dependent, either a child or an aging parent. What all this comes down to was that even with insurance, the illness put them in debt.

But here's the upside to this depressing story: people helped. Both my cousin and my friend knew people who organized fund-raising events for them. They were each fortunate enough to have a lot of family and friends who could donate their talents or their services or their products or convince others to do so. In each case, a whole community came together and donated money and showed their support and love in a truly special way. They raised thousands of dollars, but it ended up being about more than just the money, somehow.

All this reminded me of an article I bookmarked months ago: Helping Out With Cash: A Delicate Art (which was an follow up to an earlier article Not Laid Off? How to Aid the Less Fortunate. Both of these articles give some excellent suggestions on how to handle the delicate issue of offering help to someone who may need it, but feel awkward about asking for it or accepting it. It's a more and more common issue these days. I just hope my usual sphere of good fortune will return and no one else I know will need this kind of assistance! How about you? Have you ever been involved in a situation where friends helped raise money for someone in need, or been the recipient of such aid?

Friends at Both Extremes

Here's a story about a relatively new friend of mine, someone I don't think I've mentioned here before. Let's call her Bella.
Bella is a divorced mom with two teenage kids. She gets child support payments from her ex-husband, but money is tight. She works at least two part time jobs at any given moment, and is always hustling for other little projects. That is what I love about her-- the hustle. She will literally do pretty much any honest job, from bartending to babysitting, to hauling garbage out of someone's basement. Her oldest child obviously picked up on this enterprising attitude, and has already started working, not just for her own pocket money, but realizing that her earnings will help support the household. Things are that tight.

Interestingly, Bella's parents are quite well off. They seem to be a bit oblivious to money matters and don't realize how much of a struggle it is for Bella to make ends meet. And Bella doesn't want to ask for handouts. Their wealth means her kids get nice gifts once in a while, and go to their house in the Hamptons once or twice each summer, but Bella isn't yet desperate enough to ask them for cash support, even though they've given big handouts to her siblings in the past.

Switch gears for a minute, to a dinner I had recently with another friend, who's met Bella many times and known her for years, though they aren't close. This friend, who I'll call Henri, is very successfully self-employed. Though he was worried that the economic downturn could put him in the position of having to lay off some of his small staff, he's actually landed some great deals recently and his business seems to be booming. He mentioned that he needed to hire a new bookkeeper and someone immediately mentioned Bella. Bookkeeping turned out to be among her many past jobs, so it seemed perfect. Since Henri and Bella don't talk that often, someone else said they'd tell her about it and have her call him, and then asked "how much is the pay?" Henri answered "$90,000 plus bonus."

At that point, my jaw dropped, and I wondered if I should apply for the job myself! I make slightly more than that now, but given the kind of growth Henri's business has been having, I wondered if it would be worth riding his coattails! (And hey, I like counting money! And I even worked for a bookkeeper when I was about 13.) In reality, I'm not sure I want to be a bookkeeper-- I think I was just shocked to realize how truly successful he must be if he can employ a whole group of people, many of whom are probably equally (or more) well-paid. I heard later that Bella was also a bit shocked-- when she was told about the job and the potential salary, she seems to have gone into a sort of reverie, saying "$90,000? Do you know how much that would change my life right now? $90,000....."

I would like to say that this story had a happy ending in which Bella and Henri were an employer/employee match made in heaven. But alas, Henri's other bookkeeper might not be leaving after all. And Bella would have a hard time doing the commute into the city for a full-time job-- her kids are at a tricky age to have to fend for themselves in a suburb without good public transportation. And who knows, maybe there was some awkwardness there? It can be weird to mix friendship and business, especially when there is such a disparity in circumstances. Bella is probably my poorest friend right now, and Henri is probably the wealthiest. It's strange-- but they both give me a lot to think about for this blog!

A Sad Tale from the Publishing World

This item appeared in an industry newsletter called Shelf Awareness the other day:

When Twenty-third Avenue Books, Portland, Ore., closed suddenly last January, Stephanie Griffin lost more than her business. Willamette Week reported that the owner "became homeless after the store closed. Startled neighbors discovered this in June . . . Griffin had started panhandling outside her old store, which was still empty at the time."

"Most people would ignore me and then say 'Oh, the bookstore used to be there,'" she said. "I would say, 'I used to own that store,' and they would keep walking."

The Willamette Week article included the photo below:


It's scary to see how easy it can be for someone's financial life to fall apart: business owner one day, homeless beggar the next. This person may not have been the most astute business owner, and blaming George Bush certainly oversimplifies the many factors that must have contributed to her store's demise, but it's still rather sobering news.

What Ever Happened to Hobos?

Ok, this is totally random, but the other day I was thinking about how I dressed up as a hobo for Halloween when I was a kid. I wore a tweed cap, an old blazer of my dad's which I think I was allowed to tear up a little, and his old, raggedy boots. I also smeared eye shadow on my face to look like beard stubble, and carried a bandanna on a stick, which I used to stash the candy I collected. If you look at the Wikipedia entry for hobo, you'll see exactly the look I was going for. Except I also wore a pair of large plastic ears, I guess just to increase the pathos!

Now, a hobo is not exactly just a poor, homeless person. The term has slightly more romantic connotations, as hobos were known for riding railroad cars all over the country, and they had all these cool slang words and code symbols to help each other out. But still... hobos are poor and homeless.

So do kids still think it's fun to play hobo, or to dress up as one on Halloween? But certainly no kid ever says "hey, I think I'll be a grungy homeless person for Halloween," right? Nowadays it seems like they all want to be something far more glamorous, and the life of a poor, itinerant person is no longer romanticized. But I don't have kids, so I may be wrong... what do you think?

Nuala O'Faolain on Money

I recently started reading Are You Somebody? by Nuala O'Faolain, a fascinating memoir that was recently reissued after the author's death. It's quite an intense and candid book, and I'm really enjoying it. And of course, I couldn't help noting a few passages where the author talks about money.

On her first job after leaving high school at the age of 17:

I had a job...working as a clerk in the hire-purchase office of a furniture shop in Grafton Street. Hire-purchase was for the very poor, then. I saw... how bitter it was for them to be still paying out for things they'd got long ago. Money was dominating me, too. I was living at home but I was giving up half my wages to Mammy. From leaving school on, how to earn enough money to keep myself was my biggest single problem for years and years.

Somehow I don't think Americans today have that same sense of shame about having things now and paying for them later.

Later she talks about an interview she gave in which she described herself and other students at University College Dublin as "poor." A reviewer takes her to task, noting that her father was a well-known journalist and saying "nobody who went to UCD in those bleak years [the late 1950s] was poor. They were only playing at poverty." Nuala admits that this was, in a way, true, as she wasn't as desperate as many unemployed Irish people were at the time, when things were so bad emigration could be the only option. "But," she says, "I was hurt, all the same." Her father seems to have squandered what money he did have, and her mother seems to have drunk away the rest during her twice-daily sessions at the local pub. Nuala and her eight siblings were all neglected, living in a filthy house where they had only scraps of sheets to tuck under their chins as they slept under piles of old coats.
Children don't necessarily benefit from their parents' financial resources-- but sometimes it isn't about the money anyway. Nuala tells the story of another Dublin journalist her age who was truly poor:

His mother was a maid in a hotel. The children would wait in the alleyway at the back of the hotel at night until she found out what bedroom was empty and smuggled them in. I envied him. I envy him that his mother took such care of them.

It makes me think of my own niece and nephew, and hope that the things they'll remember about their childhood will be more about the love and attention they got from their family than all the toys they had...

Nix Agonistes

Maybe those payday loan providers just want to help?

Take a look at this New York Times Magazine article: Check Cashers, Redeemed

Twenty or thirty years ago, traditional financial institutions fled neighborhoods like Watts, and guys like Tom Nix, co-founder of the biggest chain of check cashers and payday lenders in Southern California, rushed into the vacuum. They built a whole new financial subculture, which now includes regional giants like Nix, national brands like Ace Cash Express, Advance America and Check ’n Go and thousands of local chains and anonymous corner stores — more outlets, in total, than all the McDonald’s restaurants in the United States plus all the Starbucks coffee shops. Inside, it’s like banking turned upside down. Poor customers are commodities, deposits are irrelevant, bad credit makes for a good loan candidate and recessions can be boom times. Add up all those small transactions and throw in businesses like pawnshops and auto-title lenders, and you’ve got a big industry — $100 billion annually and growing. Nix alone pulled in $28 million in fees last year.

...

There are two big problems with businesses like Nix Check Cashing. One is that the fees are high. Most cashers pocket between 2 and 4 percent of each check’s value, which a recent Brookings Institution study calculated could add up to $40,000 in fees over a customer’s working life. And their version of credit, a two- or four-week cash advance against a postdated check, known as a payday loan, is even pricier — about 30 times the annualized interest rate of a typical credit card.

The second problem is that cashing your paycheck, instead of depositing it, encourages you to spend all your money rather than saving whatever is left over at the end of the month.

It's fascinating how many people distrust banks so much that they turn to check cashing outlets that charge exhorbitant fees. But I can't blame them-- I remember what it was like to have a low enough cushion of savings that I'd get hit with bank fees for dipping below a minimum balance, and it still pisses me off how much banks charge for international ATM transactions even though I now have enough money that I haven't had to worry about other fees for years. Banks have an amazing way of acting like they're doing you a favor by taking your money. And the less money you have, the more banks screw you.
This article does a great job illustrating how check cashers have gained their customers' trust, and it's somewhat encouraging that some, like the Nix company mentioned above, are now trying to offer a broader range of financial services and encourage savings. Of course you have to take that with a grain of salt:

Not everyone is ready to trust Nix’s motives just yet, or to embrace him as a champion of the poor, especially consumer advocates who have spent years lobbying to cap check-cashing and payday-loan rates and remember when Nix charged even more than he does today. “It behooves predatory companies like Nix to be seen positively by their communities,” says Roberto Barragan, president of the Valley Economic Development Center and a critic of Nix from way back. “But at the end of the day, it’s not about the financial well-being of his customers.”

For now, most banks remain reluctant to fight with check cashers and payday lenders for low-income customers; they don’t believe there’s enough in it for them. Just a few years ago, though, wire-transfer companies like Western Union were the only option for immigrants who wanted to send money abroad. Banks thought it was a sketchy business. The transfer companies charged about the same as a payday loan, $15 to send $100 to Latin America. But then a few banks decided to compete with them, even accepting foreign ID cards. And then banks started to compete with one another. And pretty soon, just about every bank wired money overseas. Businesses like Western Union had to slash their fees by nearly two-thirds.

“These communities spend about $11 billion a year on ghettoized financial services, about the same as what Wall Street spends on mergers-and-acquisitions fees,” says John Hope Bryant, founder of the nonprofit Operation Hope. “We’re not talking about small change. But there’s no competition for these dollars.” That’s the idea behind plans like Bank on California: to convince banks that marketing themselves to poor customers isn’t just a charitable act; it’s a benefit to the bottom line.

Nix says he hopes his model will do the same thing. “We’re going to be a tough competitor,” he told me. “We’re going to get a lot of business, and that’s going to force the rest of the industry to take a look at their prices, to be able to compete.” It’s not how you expect a banker to the poor to talk. But he might be onto something.

What's Up with the Middle Class?

There seem to be two different angles on what it means to be middle class these days.

On the one hand, there is a sense that middle class people are greedy and spoiled. The middle class has its eye on the upper class, and wants all the luxuries that used to be seen as just for rich people. Everyone is trying to keep up with the Joneses, with bigger houses and fancier cars and clothes than the middle class used to have. They are better off than they've ever been but they can't appreciate it because they are greedy for more.

Then there is the sense that the middle class is squeezed. Today's middle class is worse off than their parents-- college and healthcare costs have skyrocketed, good jobs with benefits are more difficult to find and it's harder to make any real progress towards financial security and a comfortable retirement. For some examples of the changes a median family has faced from 1970 to today, check out Jonathan's post about a lecture called "The Coming Collapse of the Middle Class." The middle class is seen as being the segment of our society that needs the most help right now.

Who are the middle class anyway? When politicians talk about taxes, at least in the last few years, they tend to define the middle class as anyone making up to $200,000 or so a year. But only about 2% of households, I believe, make over that amount. It seems a bit too broad to define middle class as 96% of the population, excluding only the 2% who are the most wealthy and the 2% who are poorest. And actually there is a much larger percentage of the population who live at poverty level or below, usually about 12-15%. And the poverty level is defined as an income of just over $10,000 for a single person, $13,690 for 2 people, and only $20,650 for 4 people. That leaves an awful lot of people in the range of incomes between $20,000 and $200,000 to be considered middle class.

So maybe what many of us think of as "middle" is not truly in the middle? Rather than having an "upper middle class," maybe we have a "middle upper class?"

But money is not the only thing that determines class. You can still view the special report that the NY Times did a couple of years ago called Class Matters, whose interactive tools try to measure the way income, education and occupation all factor into social class. Is what we think of as middle class more about a certain set of values, like sending your children to college or owning a home or working in a white-collar job, or taking a vacation every year?

How do you define the middle class? Do you consider yourself middle class? Do you think the middle class is better off or worse off than 20 years ago?

Losing a Job, Moving in with Mom

Here's a sad article from the Times: Blue-Collar Jobs Disappear, Taking Families’ Way of Life Along

After 30 years at a factory making truck parts, Jeffrey Evans was earning $14.55 an hour in what he called “one of the better-paying jobs in the area.”

Wearing a Harley-Davidson cap, a bittersweet reminder of crushed dreams, he recently described how astonished and betrayed he felt when the plant was shut down in August after a labor dispute. Despite sporadic construction work, Mr. Evans has seen his income reduced by half.

So he was astonished yet again to find himself, at age 49, selling off his cherished Harley and most of his apartment furniture and moving in with his mother.

Middle-aged men moving in with parents, wives taking two jobs, veteran workers taking overnight shifts at half their former pay, families moving West — these are signs of the turmoil and stresses emerging in the little towns and backwoods mobile homes of southeast Ohio, where dozens of factories and several coal mines have closed over the last decade, and small businesses are giving way to big-box retailers and fast-food outlets.

Things like this just kill me. People need jobs. It doesn't matter what kind of work you do-- as long as you can support your basic needs on the wages, you have some dignity. I know people say our economy is transitioning from being based on manufacturing to service industry jobs, but I suspect that really doesn't work for a lot of people... not that I personally know what to do about it...

Pawnshops and the Vice Fund

Would you pawn your jewelry to send your kids to Disneyland?

Cash to Get By Is Still Pawnshop’s Stock in Trade

One rainy afternoon in April, she decided to give up the earrings to get something back, and took them to Jay Rosado. He examined them for a moment, then set them on a scale. Minutes later, Ms. Maynard was handed $80.

Mr. Rosado runs a pawnshop in the South Bronx. It is easy to think the worst about someone who walks into a New York City pawnshop, long supposed to be a den of thieves, addicts and the downtrodden, and the swindlers who take advantage of them. But the New Yorkers who frequent pawnshops often want something as legitimate as it is simple: quick cash to help get by.

Ms. Maynard, 44, used the $80 to buy groceries, a MetroCard to get to and from work on the subway, and a dinner of pizza for her three sons. She needed the money because she had given her father all she had — she makes $19 an hour as a social worker — to let him take the boys to Walt Disney World. She covered some of the expenses; her father paid the rest.

The boys — 13, 11 and 9 — had no idea that they would soon be headed to Disney World. They also had no idea that their mother had pawned some of her favorite jewelry to enable them to go.

The shelves and safes in Mr. Rosado’s pawnshop are stocked with such secrets: Ms. Maynard’s hoop earrings, the diamond-studded watch that Danny Bautista turned in to pay parking tickets on his truck, the two gold bracelets Martin Baez gave up to pay his cable bill.

I personally hope I'm never in the position to have to pawn anything to get by. But here's a question more relative to my life: Would you invest in a mutual fund that specifically invests in "vices," such as tobacco, alcohol, and gambling?

At Least on Wall Street, Wages of Sin Beat Those of Virtue

The Vice Fund, based in Dallas, has invested substantially in “sin stocks”: companies involved with drinking and gambling as well as military contractors and tobacco companies.

“We’re not advocating these behaviors at all. We’re just looking at this through the eyes of an investor,” said the portfolio manager, Charles L. Norton, who says he does not smoke, drinks “on occasion” and gambles a couple of times a year. The fund’s goal, he said, is simple: “to just make money.”

As the article points out, there are plenty of mutual funds that strive to offer socially responsible investing, by avoiding these vices and by only investing in companies whose practices are compatible with a certain set of values. But are these funds always successful? My gut reaction is to think a "vice fund" would probably always make more money than a "goody two-shoes fund" just because there is so much money being spent on vices! There is a reason people feel compelled to blow their hard-earned dollars on pornography, gambling and mood-altering substances. They are addictive and people can't get enough of them. There is going to be a trade in this stuff no matter what, so why shouldn't someone make money off of it? And indeed, the Vice Fund has been beating the S&P 500 consistently for 5 years.
But here's an argument on the flip side: I don't know if I'd want to give my money to a fund whose managers don't even make any pretense of having scruples about these things. If their mandate is to make as much money as possible while remaining morally neutral about things that may actually be hurting people, how can I expect them to be honest and trustworthy? Sure enough,

The record of the Vice Fund has not been without blemishes. Its founder, Richard A. Sapio, and two other executives at the fund’s advisory firm, Mutuals.com, were accused in 2003 of securities-related fraud and in 2004 of conspiracy to commit securities fraud, wire fraud and mail fraud.

Payday Loans

Today's New York Times has an article about payday loans, with a surprising twist: some are offered by a non-profit organization.

Payday loans have become an increasingly popular way for low-income Americans to try to make ends meet. The loans are often for relatively small amounts, and short periods of time, but the interest can be incredibly high, amounting to over 500% in terms of an annual rate.

Peggy Truckey, 53, knows the allure. Last year she owed nearly $1,300 to four of those stores, and was paying about $600 a month in finance fees alone. “I thought I was going to have to take a second job just to pay off the interest,” Ms. Truckey said.

Then she heard about a new nonprofit program operated out of a Goodwill thrift store, one of several hundred lower-cost payday loan products that are now being tried by credit unions around the country. She got a payday loan, at half the finance charge, but also something more: help converting all her two-week payday debts, which charged the equivalent of more than 500 percent annual interest, to a one-year loan at 18.9 percent, bringing her monthly payments down to a manageable $129. A few dollars from each payment go into a savings account, the first she has had in years.

“I have almost $100 in savings,” said Ms. Truckey, who earns $9.50 an hour as a supermarket meat clerk. “I’m in a comfortable position for the first time in many years.”

Not everyone approves of what GoodMoney is doing-- their non-profit payday loans may have lower interest rates, but "lower" may mean "only" 200% instead of 500%-- still tough for a low-income person to manage. And some think that these loans just reinforce a kind of behavior that should be avoided entirely. But for people at near-poverty level, there may not always be other options, and their situation can go from bad to worse in no time:

Dan and Julie McGrath cannot say whether the program would have helped them. Three years ago they took a $150 payday loan to follow Mrs. McGrath’s daughter to an out-of-area basketball game. Before long they had loans at five payday stores, and some $2,000 a month, about two-thirds of Mr. McGrath’s income, was going to finance charges.

On a recent evening, the couple huddled outside a weathered 22-foot trailer on property owned by Mrs. McGrath’s parents 90 minutes away near the Michigan border. Since the couple lost their house, this has been their home. It has no hot water or working toilet. In moving, they gave up custody of Mrs. McGrath’s teenage children.

Recalling the way the loans had piled up, Mr. McGrath, a 41-year-old maintenance mechanic, said: “We thought, ‘O.K., we can get this one over here and pay off these others.’ But it never works out. I’d need a set of tires for the car: back you go.”

Silicon Valley and Atlantic City

Read these two articles from Sunday's New York Times:

In Silicon Valley, Millionaires Who Don't Feel Rich

Mr. Kremen estimated his net worth at $10 million. That puts him firmly in the top half of 1 percent among Americans, according to wealth data from the Federal Reserve, but barely in the top echelons in affluent towns like Palo Alto, Menlo Park and Atherton. So he logs 60- to 80-hour workweeks because, he said, he does not think he has nearly enough money to ease up.

“You’re nobody here at $10 million,” Mr. Kremen said earnestly over a glass of pinot noir at an upscale wine bar here.

The Days and Nights of Maurice Cherry

Mr. Cherry had no plans to gamble. He is what is known as a rider, one of dozens of New Yorkers — often homeless or nearly homeless — who travel back and forth between Chinatown and Atlantic City or Connecticut each day, and sometimes twice a day. They sleep through the two-and-a-half-hour rides and make a quick buck off the casinos without handling so much as a single chip.

...

The most dedicated riders virtually live on the bus, making two round trips a day. They leave early in the morning from an informal bus depot at Division Street and the Bowery, spend a few hours at the casino, then return in the late afternoon. As night falls, they are back on the corner, ready for their next journey. For some riders, the routine brings with it a sense of shame. “This is the bottom of the barrel,” said one scrawny young man who was hunched against a chain-link fence as he waited for a bus. “There’s not much further to sink.”

...

As riders get off the bus at Resorts, they are handed paper certificates worth $25 in cash, which they head straight into the casino to redeem. “It’s the same people every night, day in and day out,” said Michelle Garland, a Resorts cashier. “I guess it’s the only way for them to get a couple dollars in their pocket.”

The casino, a ’70s-style carpeted maze rife with glassy-eyed gamblers, resounded with the unmistakable electronic melody of money being won and lost on slot machines. But Mr. Cherry was not even tempted to gamble. After redeeming his certificate, he walked from the casino to an Indian and soul food restaurant a few blocks away. After a $6.50 dinner of fried fish and macaroni and cheese, he strolled back along the Boardwalk, sea gulls circling overhead as if hypnotized by the white light beaming off the casinos.

Now stop and ask yourself how you feel. How do you feel about those people? Do you feel scorn? Towards whom? And how do you feel about yourself? Do you feel dissatisfied and envious? Or do you feel fortunate and prosperous? Or something in between, or something else entirely?

The thing that struck me about these stories is that we all seem much more likely to look at richer people and feel poor in comparison than we are to look at poor people and feel rich in comparison. Somebody always has more, and we always want more. That is what we focus on. There are many more people out there who have less, yet we so rarely take that as a lesson in appreciating what we have and seeing it as "enough."

The story about the Silicon Valley millionaires is the #1 most-emailed article from the Times website right now. The Atlantic City article isn't even on the list.

News That Amused

Actually, "amused, saddened and disgusted" might be more like it: a couple of not-especially-recent NY Times items that I haven't managed to mention yet:

June 28: A story that made me feel better about the fact that I spend $80 to get my hair cut, and currently have one or two extra bottles of moisturizer that I don't really need. Compared to these ladies, my maintenance is lower than low: SKIN DEEP: Beauty Regimens Reach for the Gold Standard.

''We have more procedures than we did 10 years ago to help you maintain your appearance and to undo some of the damage you did to yourself by sitting in the sun,'' said Dr. Flor A. Mayoral, a dermatologist in South Miami. Dr. Mayoral said that she asks every new patient the size of her yearly beauty budget and works within the limits. She estimated that many of her patients spend $2,400 a year on facial injections and $2,000 a year on hair coloring.

Lisa Oliver, the head colorist at The Salon by Maxime, calculated that her clients spend even more on grooming.

''Depending on how much Botox and the pricier stuff you get done, when you add in hair care, nails, face and body, it's got to be between $2,000 to $3,500 a month,'' Ms. Oliver said. In Los Angeles, she added, such grooming is considered basic maintenance.

''If you are high maintenance, you could spend a lot more money,'' Ms. Oliver said. ''I can think of a couple of people where $3,500 a month might be low.''

And to completely switch gears from that last story, see this article from June 30: For Poor Families, an Added Burden of Too Many Pets.

Excess animals, dropped on dark roads that wind through oak and pine forests and cornfields here, tend to end up in the care of people with bigger hearts than bank accounts. People like Mr. Swetman and his wife, Alicia, who have a hard enough time paying their own mortgage and gasoline bills on what Mr. Swetman earns as a machinist at a bathtub factory but have ended up with a large menagerie nonetheless, mostly because of abandoned animals and unplanned births.

The Swetmans live on a back-country road near Finger. They keep two dogs in their cluttered concrete-block house, two tethered to trees and the rest in three wire pens. They somehow eke out $26 a week to buy two 50-pound sacks of dog food.

“I’d do without food myself before they do,” Ms. Swetman said. But they say with some despair that veterinary care, which can run $100 a year per animal for vaccines and $100 or more for spaying or neutering, is far beyond their reach.

Do you think these people are doing the right thing by adopting all these animals?

The Times Magazine Money Issue: Popularity and Ruby Payne

This past Sunday's NY Times Magazine Money issue was full of great stuff. An article called The Class-Consciousness Raiser particularly interested me:

She had already explained why rich people don’t eat casseroles, why poor people hang their pictures high up on the wall, why middle-class people pretend to like people they can’t stand. She had gone through the difference between generational poverty and situational poverty and the difference between new money and old money, and she had done a riff on how middle-class people are so self-satisfied that they think everyone wants to be middle class.

Interesting... why DO poor people hang their pictures high up on the wall? But more importantly, how will knowing the answer to that question help anyone?
The "she" referred to is a woman named Ruby Payne, whose best-known book, A Framework for Understanding Poverty, has been in the top 50 on Amazon for the last couple of days. Payne has made millions by doing seminars for teachers (and selling related products) to help them understand students who come from poverty. Her fans think she is doing great things. Her detractors say that her work is anecdotal, not researched, and that she is just perpetuating harmful class stereotypes.
The story about Payne has been one of the most-emailed articles on the NYT website in the days since it appeared, which I think is indicative of Americans' obsession with the mystery of class. We all know there are elements of money and education to it. Birth can matter, your job can matter, and then there are those other tricky aspects like the accent in which you speak, or whether you're anxious about knowing which fork to use-- because of course using the wrong fork could be very classy indeed as long as you did it with insouciance and panache and full knowledge that your fork-usage transgression was carried out in the spirit of delightful qualities whose names are deriven from French. We all seem to find it fascinating that we might telegraph these little signals about what kind of people we are, and we love trying to decipher those signals in others.

I have to confess that I am really tempted to read some of Ruby Payne's books, some of which focus on class/money differences at the office, and in relationships. I have always had a pet peeve about pictures hung at inappropriate heights, and when I moved in with a long-ago ex-, whose family background was a notch down the income/education scale from mine, I got really bossy about deciding where things should be hung, and always found myself insisting that they be lower! So for all that that detail seemed a little ridiculous, it definitely caught my interest! Perhaps there is a grain of truth in these stereotypes...

The other piece in the magazine that I found particularly devastating was the photo essay called Money Talks. Take this quote from a 17 year old boy:

You have to be popular, you have to be in style-- in order to be popular you have to be in style, so to achieve popularity, you have to have a lot of clothes, a lot of shoes. My parents used to give me the money, but they saw how I got out of hand with my spending, so I had to get a job and pay for everything myself. Sometimes it can go close to $700, $800 a month, just on clothes.

Perhaps I am just over the hill and naive, but I thought most teens would at least give some lip-service to the idea that popularity isn't everything, or at least that popularity can be determined by factors other than one's clothes! But I guess this kid was just being honest about it. Unfortunately, ever since the story came out, the guy has probably been ridiculed by all his classmates for breaking the rule of cool by being too nakedly ambitious in his quest for popularity, while the other popular kids suddenly insist that insouciance and panache are all that really matter...

What the World Eats

A reader emailed me a link to a fascinating photo-essay called "What the World Eats," in which 16 families from around the world are shown at home with a week's worth of food, and the amount of money they spent on it. Take a look!
You might be surprised at some of the photos, which were taken from a book called Hungry Planet. People in Western Europe tend to spend the most, with a German family at the top of the heap, at about US$500 per week for a family of four:


They seem to drink a lot of beer! Ok, so that is not the surprising part of the series. What surprised me was that families in a lot of countries seemed to be spending between US$150-200 a week, in the U.S., Poland, and even in Mexico and China. Of course, what we don't know is how each family compares to the median income in that country. Most of the families in the photos would probably look more or less "middle class" to American eyes, but some are probably quite wealthy compared to others in their countries.
What I also found interesting was the different kinds of food each family ate. The Mexican family apparently drinks about a dozen two-liter bottles of Coke in a week. But they eat loads of fruits and vegetables. The Americans and Brits, on the other hand, have a much lower proportion of fresh produce, and more meat and carbs. In all but the poorest countries, there is at least some evidence of Coke, McDonald's, KFC, or Burger King within the week's eating.
Who were those poorest countries? Bhutan at about $5 a week and Chad at $1.23 were the bottom of the list. The difference in money spent is not nearly as striking as that in the actual volume of food when you look at the photos.
I will certainly look at my kitchen a bit differently when I go in there to cook dinner after finishing this post. I have spent an average of about $131 per week on food year to date, but aside from my mother's 3-week visit when I was doing a lot of entertaining, that was all pretty much for one person. And I think I spend less than most people at my income level in this city. I'd love to see a version of this photo essay comparing a variety of New Yorkers... but it would be harder to photograph them with their groceries, since people here eat in restaurants so much!

Thanks again to Katrina for sharing the link!

NYC Records

Two things are at record-setting highs in New York:
Homeless families and billionaires.