A Time of Limits?
Don’t take offense—but are you disposing of income that isn’t really disposable?
If you are, you’re certainly not alone. We seem to be in a time when “disposable income” appears essentially limitless, as long as it’s only spent a little at a time—and without much worry about the long-term consequences of short-term overspending. Part of that infinite disposability is the idea that small sums—including daily indulgences and subscriptions of one sort or another—aren’t really spending, since they’re so small…even as one sum piles up on top of others.
I don’t believe this is a generational thing. If it is, it’s one shared by most every generation that’s still in or nearing the workforce. It’s certainly behavior urged on us by advertisers and far too many writers who should know better. I strongly suspect there are links between the mortgage crisis and the tendency to view all income as disposable (including income you think you should have), and I hope those links may lead to rethinking of that view. Of course, maybe you’re just emulating your government, but let’s be more charitable than that.
I’m nearly certain widespread innumeracy and economic illiteracy (or aliteracy) plays a big part. I’m fairly certain perceptions of ubiquity play a role, aided by advertising and the apparent socioeconomic status of most journalists—that is, the sense that “everybody” uses X, pays for Y, regards Z as essential to life, where X, Y and Z are all uses of disposable income.
These are musings, informed by some things I’ve seen in print and in person. If I also mention the truth about some “everybody” notions along the way—well, you should be used to that by now. I may be entirely off base here. Maybe we can all keep going the way we have been with no long-term consequences—or maybe too many of us will keep spending as we have been, regardless of long-term consequences. But if I’m right—if some of us start to take clearer looks at spending, income, “needs” and wants, and try to bring things into balance—the consequences favor public libraries. Or at least they favor public libraries that maintain a stance of serving the whole public and particularly those without lavish disposable incomes (a majority of the public by any measure I can think of), rather than slanting service toward the overadvantaged minority while proclaiming “basic service will always be free,” as basic service gets get more and more basic over time.
Consider two figures as we proceed: $25,795 and $48,201. Those are the 2006 median points for personal income among wage-earners and for household income in the United States. Remember: “median” means midpoint within a universe—so roughly half of the wage-earners in the U.S. earned less than $25,795 and roughly half of the households had less than $48,201 total income.
Does $48,000 household income constitute middle class? And if it does, what does that say about infinitely disposable income?
Let’s start with Netflix, the way “everybody” gets DVDs. Netflix has about seven million subscribers. Blockbuster has roughly three million. (Incidentally, we love Netflix and have used it for years.)
“Everybody gets DVDs by home delivery.” Maybe, if there are only ten million households in the U.S. But the Census Bureau’s figure for 2006 is 116 million. And more than 80% of those households have DVD players (as of the end of 2006), and I’m going to assume that people with DVD players use them. So nearly 90% of those who have DVD players don’t consider even the $9/month minimum Netflix plan to be a good value. For these people, the vast majority of Americans, convenience isn’t that important. At least 90 million American households have DVD players and either buy all their DVDs or have someone go somewhere to get DVDs—for free at public libraries or for a price somewhere else.
Are those 90 million households unimportant? They probably are to Cartier, Rolex and Lexus; they may be to Acura and Crystal Cruises. They’re not—or at least they shouldn’t be—to America’s public libraries, since they almost certainly represent at least three-quarters of your users.
What? $17 a month (the most common Netflix subscription)? That’s nothing—a drop in the bucket. You’re right: For many people $204 a year is a drop in the bucket. Why do we stick with a plan that’s only $3 a month cheaper and means we only have two DVDs on hand instead of three? Can’t we afford $36 a year? Of course we can. But we also watch one movie a week and we’ve never had two losers in a row or two damaged movies at once—so why should we pay the extra $36 a year? That’s one dinner with drinks at our good neighborhood Chinese restaurant. (It appears that the average Netflix subscriber views about 68 movies a year, based on Netflix’ own claims for shipping, so at 48 to 52 we’re just a little below average.)
Why this example first? Because some writers continue to argue that libraries need to offer Netflix-like priced delivery services in order to compete, and part of that argument is the assumed near-ubiquity of Netflix usage—a ubiquity that simply does not exist.
Everybody has cell phones, right? For most of you reading this, that’s a given—and having a cell phone means having a monthly plan with hundreds if not thousands of minutes, so you can use that cell phone a lot. That usually means at least $45 a month (including taxes and fees), or $65 and up if data is part of the package. But that’s a drop in the bucket—$65 a month is just $780 a year. Now, $780 is 1.6% of the median household income—but hey, you have to have a full-time subscription-plan cell phone to survive today. Of course, everybody in the household needs a cell phone, so we’re really talking $90 to $130 a month (or more) or $1,080 to $1,560 a year. That’s more than three percent of median household income—a fairly large drop by some standards. That’s gross household income; I’d be surprised if that translates to more than $40,000 net, but let’s ignore taxes, Social Security and Medicare for the moment.
OK, so cell phones are reasonably ubiquitous: Market penetration in the U.S. is somewhere between 70% and 84% as of the end of 2006. Most people do have cell phones. Do they all have monthly plans? Not so much—the numbers get fuzzier, and there’s an awfully healthy market in “prepaid” cell phones.
As I’ve talked to people I consider technologically literate with decent incomes, I’m running into a fair number who have cell phones but don’t regard them as full-time communications devices. Some of us recognize that we don’t need monthly plans for those phones, particularly if we have credit cards.
We own one usable cell phone, used only for travel and special cases. We may buy another one, for cases where we both need emergency/outbound service. And until recently, we were paying $45 a month for phone service we weren’t using.
Now we’re paying $60 a year. If we get a second phone (on a different network), we’ll be paying $120 a year, not the $1,080 a year we’d be paying for two low-range monthly plans. How so? The active phone is a Virgin Mobile unit, using their “automatic top-up with credit card” plan, which only requires topping up once every 90 days at $15 a topup to maintain the phone number. For someone who uses their cell phone a lot it’s an awful plan: you pay 18 cents a minute (and a nickel per text message). For us, it’s perfect—and if we add another phone, probably an AT&T Go phone on a similar plan, we’ll be spending $480 a year less than we were and $960 a year less than we’d pay for a typical subscription plan.
$960 a year almost begins to sound like real money. If I was 25 years old, I might be aware that, left in a retirement account averaging 6% a year, $960 would be worth just over $10,000 when I was 66 years old and ready to retire—or $20,000 if my employer matches my contribution. That’s for one year’s savings. Do that each year and it starts to add up.
Can we afford $1,080 a year for two full-fledged subscription cell phones? Sure—but why pay for something we demonstrably don’t use? Am I suggesting that any of you cut down on your cell phone usage or subscription plans? Absolutely not—if you’re using those plans in a way that makes your life better and you can afford the plans. I’d consider some kind of phone to be a necessity; that’s why there are really cheap lifeline landline rates. (Getting rid of your landline to save $15 or $20 a month? More power to you—as long as there are no power outages broad enough to affect your service.)
Here’s a case where there’s much less ubiquity than usually assumed—and where I’ve seen more than one recent case of hard-sell journalism, writers who apparently think it’s wrong not to have not only cable, but premium cable.
Everybody has cable? Not even close. The FCC chair recently tried to assert 70% penetration—primarily because that level of penetration would give the FCC additional power over cable operators. But according to industry figures, only 58% of American “TV households” have cable. (There are households with no TV—about four million of them in the U.S., apparently.) On the other hand, most of those households also have premium cable—but that’s still a broad-minority pursuit, reaching 44% of the population.
How can you live without premium cable? Apparently most people think that’s a reasonable question. The average household with cable TV spends $95 a month ($1,144 a year) on cable service (not including broadband).
Great. No argument here. If you use premium cable as a primary source of entertainment, $95 a month is a drop in the bucket, even if it is something over two percent of the median household income.
If you’re not really using it…well, those drops start to add up. I make no claims to be a high-culture idealist. We watch network TV—indeed, other than our weekly movie (and old TV series on DVD on evenings when there’s nothing new we want to watch), that’s pretty much all we watch. We had the standard expanded-basic cable service and watched the price creep up year by year, always more than inflation, to about $55 a month in early 2007—still less than two-thirds of the average cable subscriber’s bill.
Then we looked at usage. My wife wasn’t watching anything outside “basic basic” channels and I was watching one two-hour show that airs for 16 weeks a year—and since I taped it, it was really a 90-minute show. The difference between basic cable and expanded basic? $39 a month (taxes included). Hmm. We were paying $19.50 an hour for that program. That’s almost enough to pay for live professional theater around here, and four times what I’m willing to pay for a TV show.
So—gasp—we downgraded. Saving $468 a year. Which is a drop in the bucket—although, when added to the $480 a year we’re saving on cell phone service we don’t use, it comes close to being one of those interesting four-digit drops.
I’ve been indirectly scolded by two sources over this rash decision. In one case, a local columnist was writing about her recently deceased mother’s atrophied “spending muscle”—how she failed, according to the columnist’s view, to spend enough on herself. The columnist feels the same way about her mother-in-law, bemoaning the fact that while the mother-in-law has TV and cable, she doesn’t have “the movie channels.” Did the columnist ask the mother-in-law whether she felt the need for more movies on TV? No. It seems to be a given that you’re not really living if you don’t have the whole package—that you’re failing to take care of your basic needs because you don’t spend $90 a month on cable.
The other case was more insidious. A subscriber to one of the “home entertainment” magazines wrote in asking whether they actually needed digital cable with high-def channels when they get a high-def widescreen TV. Can’t you get high-def over the air? (The subscriber was objecting to the fact that an article on HDTV sources omitted over-the-air HDTV, saying “But then I guess it’s un-American not to pay for your TV reception.)
The magazine’s writer gave a correct answer: Yes, most people can get network TV in HDTV form over the air, generally with an indoor antenna. The expert didn’t mention that over-the-air HDTV usually has the best picture quality of any high-def source except Blu-ray or HD DVD discs, because broadcast HDTV uses less signal compression than cable or satellite.
But the expert seemed offended by the question. “But if you’ve bought an HDTV, you want more HD content, not less, and that means paying for cable, satellite, or telco-delivered TV.” Isn’t that an interesting assumption? There’s something wrong with you if you don’t want more, more, more. Buy a high-quality TV and only use it for movies on disc and network entertainment? That appears to be unAmerican.
When we finally do buy a wide-screen HDTV (don’t cry for us: our 10-year-old TV is a fairly large-screen Sony XBR), we’re going to try out a good indoor antenna. If we get over-the-air reception of the high-def versions of local stations, I’ll have no qualms about booting Comcast out of our household. Sure, it’s only $16 a month—but if it’s $192 a year for something we’re not using, what’s the point? Over the course of five years, $192 a year pays for the difference between a good HDTV and a really good one—or for, say, the great old TV shows on DVD.
Warning: I’m going to mention one of those daily necessities and I don’t want you to get upset. You could skip this paragraph. “We all” get our $4 Starbucks fixes every day, right? Do that once a day, six days a week, and it adds up to $1,200 or so. Twice a day every day? Still a mere $2,840. Plus a few hundred extra calories if you’re getting one of the coffee-flavored liquid candies Starbucks loves so much, but that’s a different issue. We’re lucky: We both used to frequent the original Berkeley Peet’s before there was a Starbucks, and we’ve both grown to dislike the Peet’s and Starbucks approach. I fix fresh-ground 100% Kauai coffee each morning. I’d guess it costs around fifty cents to $1 a cup, maybe less. Not a monetary decision, to be sure: We can afford the $2,400 a year for the household. But that’s a fairly big drop.
Then there’s bottled water—not only a cost issue, a material and fuel issue. Bottled water involves a lot of material for bottles and a lot of fuel to ship processed tap water (or spring water) from “somewhere else.” Still, since Mountain View went to chloramine instead of chlorine, the otherwise-excellent tap water tastes funny—and, unlike chlorine, chloramine doesn’t dissipate after a day in the refrigerator. We’d been buying a fair amount of bottled water (at least ours came from Hayward, a 20-mile shipping distance). We were typically paying $4 for 24 half-liters, which is about $1.66 a gallon for water but a whole lot better than paying more for water than for gas.
Most larger towns and cities have filtered-water stores, some using reverse osmosis (apparently the only way to get rid of chloramine). After you’ve purchased a jug, the stores around here charge two bits a gallon: $0.25. Since the water’s purified on site and the store’s a little more than a mile away, we’re cutting fuel consumption (we fill two three-gallon jugs at a time) and materials—it’s easy to refill water bottles from the jugs. In this case, the environment’s more of a concern than the price: After all, at our typical drinking-water usage levels, bottled water was only costing us about $400 a year, maybe less—which really is a drop in the bucket. Of course, $52 to $78 a year is even better.
I could go on, particularly for those enamored of the “celestial jukebox” concept. $10 a month for satellite radio? Nothing. $13 a month for a music service? Nothing. $50 for really high-speed internet? Don’t be silly: That’s nothing. (We spend $20, but that’s because we’re too far from the switching office for higher-speed DSL and don’t want to deal with Comcast.) Other daily or frequent indulgences? Well, we all need our indulgences (although I find that infrequent indulgences are somehow more satisfying than daily indulgences). I don’t argue against them. Life is tough; indulgences can help. Shopping out of boredom? Ah, that’s another story…
When you add all those nothings together, it can start to seem like real money. For a two-person household where both buy coffee drinks daily, with two cell phones, premium cable, Netflix and satellite radio (but no by-the-bottle bottled water), I come up with nearly $6,000 a year—12% of a median household’s gross income. Which is fine—if the couple actually has $6,000 a year in disposable income.
There are “necessities” and then there are necessities. Maybe you need Netflix, premium cable, coffee drinks, bottled water, one cell phone per person and all that—but it may be a different level of need than for housing, water, electricity, gas, food, clothing, transportation and health insurance or by-the-appointment medical care. None of those needs is glamorous, but they make up a sizable chunk of income that’s really not disposable—a big chunk for most households earning much below, say, $75,000 a year (and quite a few above that level). And 70% of U.S. households are below that level.
What’s disposable income? To advertisers and merchants, it’s anything they can get you to spend. I’ll offer a few counter suggestions:
Ø If you’re not contributing the maximum for matching funds to retirement, you may be overspending your disposable income.
Ø If you have outstanding credit card debt, you may be overspending your disposable income; if you’re using a measurable percentage of your income for credit card interest, you’re probably overspending disposable income.
Ø If you’re paying more than 30% of your gross income for housing—mortgage and utilities—there’s a good chance your disposable income is at risk. If you’re paying 40% or more and you have an adjustable-rate mortgage or a trick mortgage…well, you probably already know you’re in trouble.
What’s been happening the past few years seems to be predicated on the idea that everyone has loads of disposable income. In essence, we’re all upper-middle class or better, since in the past you could assume that middle-class folks made hard decisions about their money. Somehow, though, we’re now in Lake Woebegone country—we’re all above average, at least in disposable income. And we need all those things our disposable income buys.
One article, pushing the idea that public libraries should be selling premium services such as Netflix-style home delivery, says most public library users have incomes between $15,000 and $35,000 a year, and argues that libraries should target higher-income users. (There’s a significant flaw in any non-Census-Bureau survey these days that purports to include income as a characteristic: Many of us refuse to answer such questions, either choosing “Prefer not to state” or abandoning the survey if necessary. My guess is that higher-income people are more likely to consider their incomes private.) Implicit in that argument—at least to my eyes—is the idea that most people are well above that income range. Are they?
Not according to the census bureau. Yes, a lot of Americans make more than $35,000 a year—but “a lot” is roughly one-third of those over 15 years old, or about one-quarter of all U.S. residents. (If you’re wondering, roughly 11% of wage earners earned more than $70,000 a year in 2006.)
What would you consider upper-middle class or affluent? I’d suggest a household income of $150,000 a year or more, at least in high-cost states. By that measure, only 7.5% of households qualified last year—just under 8.8 million households out of 116 million total. Let’s use “comfortable” rather than affluent. I’ll suggest two rough levels for “comfortable”—$100,000 for high-cost areas, $75,000 for the nation as a whole. By those standards, a lot of us are comfortable, but still a minority: about 19% of households in the former category, about 30% in the latter.
Should public libraries be targeting services for that 19% or 30%? Maybe, at least to some extent. For the 7.5%? Certainly not at the expense of other services. It’s hard for any two-tier service program with charges for the upper tier not to distort the library’s functioning to some extent—on behalf of those least in need of commonly-supported goods. Your answer to the 7.5% question may have a lot to do with whether you regard public libraries as a public good or as another cultural outlet for the moneyed.
Numeracy plays a role here. So, to be sure, do advertising and predatory lenders. Too many people purchased houses they could not afford unless everything went right. (Yes, some of this may have been fraud—but how can someone bringing home $2,500 a month not see that signing mortgage documents to pay $2,600 a month—omitting utilities, food, clothing, tranportation, etc.—is asking for trouble even before the rate adjusts? That’s the kind of story we’re seeing here in some cases, and it’s hard to buy “Oh, they were just misled” as a total story.) Too many people with modest incomes bought into the idea that they deserve everything, and they deserve it now.
For most of us, I think, this isn’t about austerity. It’s about choices. Sure, you can have that BMW—but it may mean you won’t have as much in retirement savings. You can certainly have those coffee drinks, that premium cable, Netflix and whatever—but maybe not all of them, not all at once, adding new indulgences and monthly services as you go. Maybe you keep your car for five years or seven years instead of three. (Or ten years or twelve years…fact is, I still think of my six-year-old car as a new car, and probably will for years to come. Admittedly, we live in California, where rust on the undercarriage isn’t much of a problem—and, by the way, there are a lot of ten, twelve, 15-year-old cars on the roads here.)
Want that great cruise? I’m all for it. When we went on one trip and saw people who were then our elders having trouble with some of the excursions, we decided to go places while we were still sure we could fully enjoy them…and, later, discovered the virtues of high-end cruising. Those were expensive choices, and for us they were the right choices. We chose those cruises. We didn’t choose some other expensive purchases. We didn’t choose to frequent high-end restaurants all the time. We didn’t choose expensive clothes. But we certainly chose to spend serious money—making choices and using true disposable income.
But choices don’t seem to be the American way. What does seem to be the American way: Ignoring tomorrow. That, I believe, is changing—or at least I hope it is. Maybe it’s because I’m nearing retirement age, but I’m becoming acutely aware of the fiscal realities of retirement. Just a brief digression:
Traditional advice has been that you need 80% or so of your current net income once you retire. Increasingly, though, that’s nonsense. What costs are really going to go down after you stop working? In many households, you’ll spend more on utilities, since you’ll be home much more of the time. Health care? Maybe you’ll spend less (with Medicare); maybe you’ll spend more. Otherwise—well, if you’ve been spending a fortune on professional clothes, sure, there’s a savings, but most of us haven’t been. Food? Could be cheaper in retirement (if you’ve been going out for lunch a lot). Could be more expensive. Meanwhile, you’ll probably want to go on more vacations. You’ll probably take up more hobbies—some expensive.
I’m seeing contemporary advice that assumes you’ll spend as much after retirement as you do before. That still doesn’t require as much gross income, to be sure, but it’s a sobering thought. Add to that the 4% guideline: Your retirement savings will last you long enough, accounting for inflation, if you start out using no more than 4% of your gross savings.
If those numbers are sobering, they should be. When I read about a 55-year-old couple who’ve saved half a million dollars and decide to go for early retirement, I wonder what they plan to do if either one reaches 75 or 85. Half a million dollars sounds like a lot of money. $20,000 a year—not so much.
That isn’t what we want to hear. I was reminded of the economic fantasy we’re encouraged to lead by a December 5, 2007 post at Stephen’s lighthouse, “8 consumer trends” (http://stephenslighthouse.sirsidynix.com/ archives/2007/12/8_consumer_tren.html). Stephen Abram points to a Trendwatching report on trends for people to “watch and capitalize on in the new year.” Let’s look at some of them:
We get an inkling right up front of where Trendwatching’s coming from, given this quotation from their report from the start of this year:
[I]n the end, when dealing with (and selling to) people, everything always comes back to status. In a traditional consumer society, he or she who consumes the most, the best, the coolest, the most expensive, the scarcest or the most popular goods, will typically also gain the most status.
We’re all out for Status, which means lots of spending. But even as consumption-oriented an outlet as Trendwatching recognizes that sheer consumption doesn’t cut it any more, so they talk about “Status Spheres: a variety of lifestyles, activities and persuasions, which can be mixed and matched by consumers looking for recognition from various crowds and scenes.”
They count on the “traditional sphere,” with “hundreds of millions of consumers who do want to consume more, who do covet all things bling, who do crave in-your-face brands,” but there are more “spheres,” such as the “transient sphere” for bored folks “driven by entertainment, by discovery, by fighting boredom, who increasingly live a transient lifestyle, freeing themselves from the hassles of permanent ownership and possessions.” [Emphasis added: really? Hundreds of millions?]
Or the “online sphere,” where “social status 2.0 is all about who you connect to and who wants to connect to you, tribal-style.” This group’s relentless commercializing of everything even manages to cheapen the “eco sphere” (people who care about the environment), the “giving sphere” (philanthropy), and the “participative sphere.” Ah, but look:
Here’s the short version: “with more wealth burning holes in (saturated and experienced) consumers' pockets than ever before, quick status fixes derived from premium products and premium experiences will continue in full force next year.”
We all have too much money and are out to get “quick status fixes.” How do we do that? How about $20 bottles of water—or, for that matter, “Bling H20” at $480 a bottle. Limited-edition beer at the price of Champagne. $28 gourmet marshmallows.
How about “fashionable toilet paper” at $4 a roll? Porsche baby strollers? $5,000 leatherbound laptop computers? The report fails to distinguish between absurdity and actual differentiation, but it’s clear that the keys are expensive and exclusive—regardless of worth.
You’ve probably heard about this before: Breaking stuff down into bite-sized pieces—so you can consume an ever-wider variety without noticing when you’ve gone too far. Hundred-calorie packs of snacks cost a lot more per ounce than larger packs—but they’re worth it, apparently. Small-plate restaurants with big-plate prices are all the rage. How about semi-disposable clothes, intended to be worn a few times and then discarded? That doesn’t do a whole lot for the environment, but the prices seem low. Wired has celebrated the rise of “snack culture” and the apparent concomitant ubiquity of short attention spans.
Each tidbit costs less than the big chunks you used to buy. So what if you’re spending twice as much overall? You’ll never notice along the way…
I won’t go through the others. The sheer cynicism of the “Eco-iconic” section and assertion that we all have an “insatiable demand to be online 24/7” are annoying enough; a couple of the sections are, well, just plain strange.
But that’s also what’s being peddled—by Wired, by many consumer magazines, by loads of specialty cable channels (and to some extent by all ad-supported TV). Consume more, consume “better” (higher status, more expensive) and don’t worry about the consequences.
Are there limits? If so, will more of us come to recognize them? To bring in another long-time theme, will we seek lives in balance?
I hope so. I’d like to think so. I’m not arguing for budgeting (unless your spending really is out of control). For many of us, that’s a needless annoyance. I’m not telling you to change your ways—unless your ways are causing you to lose sleep or worry about your ability to sustain your lifestyle.
Lifestyles are overrated. There’s a difference between maintaining a lifestyle and living a good life. One is a matter of recognition, status, consumption; the other is a matter of balance and inner peace. It’s tough to maintain a given lifestyle if your income slumps a little or you have unexpected expenses: Those daily “needs” hurt when they’re gone. It’s easier to keep living a fulfilling life when your circumstances change slightly. Living within your limits can be good living, even if it doesn’t match an assumed lifestyle. There’s a funny thing about living within limits and paying less attention to status: You may find that you have more disposable income for things that would improve your life, even if only for an hour or two.
People who live within limits are more likely to make good use of shared assets, I suspect. They’re more likely to appreciate parks, to take walks…and to use their public libraries. I’m hoping more people will recognize the need for limits without having that need forced upon them through foreclosure or bankruptcy or an inability to retire…ever.
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