Tag: personal-finance

Capture!

I thought the US Census was a factual thing. It is meant to report data, not succumb to opinion. This headline, however, which is being used nationwide as a rally call against housing markets, is a product of capture.

The census people want us to believe that nearly half of renters are in financial straits.

How did they get this number, and why does it seem high when you look around in your life and don’t see that half of the people you know or come into contact with are shouldering the pressure of a cost-burdened housing expense? The threshold used to determine financial distress occurs when a household spends more than 30 percent of its income on housing expenses. It is said that this is an industry norm– meaning lenders of all stripes rely on this benchmark when determining creditworthiness.

That’s not to say that lenders do not approve borrowers with a higher debt-to-income level. They do. In fact, they will lend up to 50% in situational circumstances. Note that up to these levels, the financial institution is still anticipating that the loan will be repaid. Delinquencies are not the objective in the lending business. (Here’s a post on debt-to-income ratios from a few days ago.)

But that’s not what this headline implies. According to the census, 30-50% of the population is ‘burdened.’ Perhaps one could let that go to semantics. Only the ratio calculated in this case differs from the industry norm. This ratio includes utilities as a monthly expense, where the industry standard does not. So, how does the added cost of heating bills, electricity, water, and possibly internet (I’m not sure what the American Community Survey includes) adjust the threshold and push a larger share of the population over the 30% threshold?

The first thing to know is how a debt-to-income ratio is calculated. Take an average rental cost of $1300 a month. The monthly income amount for a 30% debt-to-income ratio is $4333/mo. If you add $139 in utility costs, everyone adjusts up 3%. An added monthly cost of $200 (say the respondent includes all their streaming options), then the debt-to-income ratio rounds up another cohort by 5%. It’s safe to say that the census is no longer using an industry standard by calculating ratios with additional monthly obligations.

Is the renter who likes streaming services cost-burdened or simply choosing an entertainment option? Is the renter who elects to pay a larger portion for rent to live on a metro line, forgo the cost of a car payment, and net out a lower monthly expense as a result, cost-burdened? Is the renter who selects a living option close enough to an ex-spouse to share custody and not pay child support cost burdened or cost savvy?

People arrange their monthly budgets all the time with savings and benefits that may not be readily apparent to the outside world. That’s the beauty of choice. As long as a market is loose enough for people to navigate to their best circumstances, they arrive at a combination that works in their best interest, reflecting all facets of their lives.

College students will undoubtedly pay more for rent than their income would seem to allow. That’s the reality of their stage of life. Seniors also fall into a different category of consumer than working adults. Many could be at a stage where their monthly living expenses may include food and care, while their monthly income may just be one source in their retirement plan for covering expenses at the end of life. Are these students octogenarians, cost-burdened, or simply living their lives as planned?

Affordability is a subjective measure. I question the Census’s objectives in publishing opinions on affordability in the housing markets. What’s next? Will we be told we can’t afford to take a vacation or to take the summer off to be with our kids? Or should the Census return to the way it was– a fact provider?

Getting cash to those in need

Viviana Zelizer’s sociological classic, The Social Meaning of Money, is full of historical examples of the conveyance of time and resources to those in need. The author also depicts the evolution of aid from charities to pensions from the state, from controlled expenditures to variations of individual freedom to choose how to spend.

What sort of money, then, was this new charitable cash? Rejecting the model of dole, wage, or insurance, pensions appropriated instead the forms of the middle-class domestic economy; or, more precisely, they replicated women’s housekeeping cur-rencies. Considering that most recipients of public pensions and a large number of those receiving or at least managing private cash allowances were women, charitable cash was easily transformed into a special category of domestic currency, a sort of collective pin money. Notice the vocabulary: the term “allow-ance” comfortably echoed the familiar income of middle-class wives. Pensions, of course, had been legitimized as a dignified payment by the enormously successful federal program of Civil War payments for veteran soldiers. But there was also a long tradition of pensions as a substitute income for husbandless women. And it was middle-class women who, for the most part, ran this feminized currency exchange; not only did women’s organizations become the strongest supporters of mothers’ pensions but mostly female social workers supervised both public and private forms of cash relief.

Zelizer is one of the few academics who speaks of the poor as worthy to choose. Furthermore, she repeatedly illustrates how participating in systems of trade serves to educate the participants, gives them standing, allows them to be role models to their children, and so on. Instead of the standard starting point that the poor will simply be happy to receive, Zelizer paints out in broad relief the full benefits of market participation to this group of modest means.