The free availability of credit is similar to the free availability of drugs and junk food.

Q1: is it naïve to assume that a family of 3, earning the U.S. median household income is able to enjoy a decent quality of life?  You hinted at the savings factor (discussed later)

Yale graduates typical earn 80k/Y pre-tax, according to a Yale professor on an 2022 BBC broadcast.

In the greater-NY region, median household income is about 80k/Y pre-tax, according to https://censusreporter.org/profiles/31000US35620-new-york-newark-jersey-city-ny-nj-pa-metro-area/. This “median” is computed across all households regardless of size. In economics, a household can have one to four or even more members. I believe a family of 3 earning 80k (pre-tax) would have a decent living standard. This is my short answer to Q1.

You described your own story 10 years ago + the story of your Mexican neighbor. As you hinted, a key differentiator is the savings rate. If a family of 3 can consistently save $5k, and invest at 4% return over 20 years, they would build up a $150k nest egg [1], providing a cushion in a downturn. However, many people seem to fail the “consistency” criteria — They save for a while and spend all in a splurge.

Q2: Will $5k/Y or $420/month less spent affect that family’s middle-class living standard? I say no. The reason has to do with the concept of livelihood needs vs aspirations.

• A typical saver family would think hard about allocating and budgeting for livelihood needs. They bend over backward to make ends meet while saving some amount every month. They feel insecure (or impoverished) when looking at their cushion/reserve/nest egg, and compare it to their peers.
• I imagine that many non-saver families (in the U.S. or other countries) hate the trouble, hate the restriction, hate the loss of freedom. They feel impoverished when they must adjust spending to reach a savings goal. They feel impoverished when they compare to their free-spending peers.
• ^^ Peer comparison is a fundamental driver of the spending/saving/investing behavior.

(I always appreciate personal stories. Here’s another.) Until Apr 2010, my wife and I together earned slightly over USD 90k pre-tax, or around 75k post-tax. I spent an estimated [2] 60~70k to support a family of 2 or 3. My living standard wasn’t a hardship, but we had to make some (by American standard) uncommon lifestyle choices, choices that most middle-class Americans wouldn’t accept:

1. eg: net rental cost .. was $500~1100 even when we had a newborn. Contrast that to “earn $72k (post-tax), pay $24k on rent” lifestyle typical of American renter families.
2. eg: car ownership .. we just said NO. This requires that we live near public transport, not suburbs.
3. eg: medical insurance .. we bought only briefly for my wife before having baby, and for my newborn baby.
4. eg: no debt .. no car lease, no credit card loan, no hire-purchase by installment. We never spend the money before we earn it.
5. eg: alcohol, tobacco, latest gadgets, overseas vacations .. aspirations ! we just said NO. We did go to cinemas and waterfront parks.

The first three big-ticket items, rather than food cost as you mentioned, add up to explain the bulk of my higher savings rate (among comparable families). We sacrificed many non-essential “finer things in life”, and I actively rejected peer comparison. (Actually, most of my colleagues had much higher combined incomes and therefore not my peers! ) Based on first-hand observations, my longer answers to Q1 are:

1. Yes, the median household income does represent a reasonable quality of life and comfort level, provided we spend well — allocating, budgeting, and giving up non-essentials.
2. Part of “spending well” is consistent saving on a monthly basis, which requires discipline and sacrifice.
3. fundamentally, freedom and responsibility are the 2 sides of the same coin. Quality of life and discipline are also two sides of the same coin.

If words like “discipline”, “sacrifice”, “responsible” and “give-up” sound inconsistent with “comfort” to you, then the answer to Q1 is NO. Among those families earning the median, if the majority of them actually struggle for livelihood[3], then I believe it’s first and foremost an attitude problem. You may blame the high-cost “system” [4] of the U.S. but I think that’s only a superficial part of the problem.  If an individual lacks discipline, then even if she earns higher than 70% of the local population, she would still struggle to make ends meet, let alone saving up.

[3] most of the non-essential items are not part of livelihood, such as car ownership, home-ownership, living in the suburb, …

[4] I’m not denying that some U.S. “systems” are indeed expensive, such as healthcare, home repair, (public) universities, and public transport. Therefore, some observers (you too) claim that a middle-class lifestyle in a rich country like the U.S. is not so enviable because the cost of living is much higher than assumed.  There’s an economic concept designed to measure “income relative to local cost of living”. It is the PPP-GNI [i.e. PurchasingPowerParity-adjusted Gross National Income]. Using this estimate, Singapore nationals are richer than Americans.

Q3: When earning $75k post-tax, did I feel a decent quality of life?
A: Not sure. Perhaps we were giving up too much while building up a war chest, a cushion, a nest egg.

[1] computed using https://www.rl360.com/row/tools/regular-savings-calculator.htm?Currency=1&LumpSum=150000.00&YrsTilNeeded=20&GrowthRate=4
[2] I keep my “burn rate” records every year, except my U.S. burn rates during 2007 -2012.