Yet another blogpost on a familiar paradox, after a discussion, without a lot of new content. I wrote this letter to my wife, but edited later.

Over a 2021 Chinese New Year dinner, I described the paradox “Many WallSt colleagues have a household income around USD 300k (USD 17k/M after tax), in the top 2% among U.S. households, but I notice some kind of livelihood pressure.” (The paradox also exists in Singapore.) I asked why.

• LZ.Yu and his wife pointed out the car cost, mortgage cost, private schools, tuitions (more expensive in U.S.), perhaps maid cost.
• LZ.Yu also pointed out taxes including pTax and the tax-like med insurance (Melvin3 items)
• I pointed out the FOMO factor — they spend as much as other families in that tax bracket, otherwise they felt impoverished. The Chinese middle class tend to complain about livelihood pressure while living in the top 2% of tax brackets. See [19]wage+homePrice: biased views@China colleagues etc.
• I pointed out their need to save up for an Ivy League education .. about USD 600k for 2 kids. Real pressure.

If you earn $17k a month, and spend $16k, with close to no zero net balance in the bank (below 10k), you have a very thin buffer (brbr). You would feel a livelihood pressure, whether you admit it or not.

LZ.Yu’s wife has a familiar view — “For a big spender, it’s her own money. If she earns it herself, and if she is happy with her lifestyle and if she can cope with it over ups and downs, then it’s suitable for her“.  This view is full of IF’s. In reality, millions of people spend like there’s no tomorrow. When tomorrow comes, they would not show regret in public, but in their quiet moments, they would feel regret once a while, esp. when they look at their saver-investor peers. Same regret as binge-eating, binge-gaming or binge-drinking. We do regret later .. our life was weakened not enriched.

My first-hand observation of my high-earning sibling (before his/her mortgage) showed me that any savings built up in bank account tend to disappear within months. I think it’s a lack of self-discipline. Similarly, you also said some homeless people have trouble saving away a windfall income. I think even if this person receives a million-dollar inheritance, he would spend it all within 2 years.  A common pattern among undisciplined people.

Note the absence of “pressure” in that big-spender lifestyle as described, but I believe the limited level of savings makes the lifestyle rather vulnerable. Indeed LZ.Yu’s wife went on to describe a big-spender’s reaction to a $1k denied medical claim.