About those HENRYs

Last week, CNN and Fortune Magazine, published a fascinating article about the 'HENRYs' - a demographic of High Earners, Not Rich Yet people.  These are folks with high incomes, sure - $250k to $500k, but interestingly, none of them consider themselves rich.

The article caught my attention on a variety of levels.  First, because it came out just a short time before election day, and something I hear over and over again is discussion about 'real Americans'.  This is often used in the context that both high earners, or those coastal-state latte drinking liberal elitists don't represent 'real America'.    And if they are one and the same, they certainly can't be 'real Americans'.  I'm not sure what that makes people who fit that bill, but we'll get to that in a minute.  

It also fascinated me, because, while not HENRYs, my husband and I do earn well above the median, and our habits were well represented in some of the featured families. In other words, our spending and lifestyle habits do somewhat mirror the HENRYs.  Not entirely - private schools are not on our list for one, but somewhat.  

Lastly, it's because of the label 'rich' and how I define it - not by earnings, but by net worth. This too, mirrors the HENRYs beliefs. So I thought I'd take some time to explore my thoughts on the article.

I'll start off by saying anyone in that earning category who describes themselves as struggling is not using their resources wisely.  If you can't make ends meet on $500k a year, you are probably overspending on big ticket items, like housing, cars, and so forth.  But there's a huge disparity, between what $250k can do for you in say, Moline Illinois, vs. Manhattan.  There's also far less likelihood that you'll make that $250k in Moline.  

So why don't these people think they are rich?  Top of the list is taxes.  As of 2006, the data cited in the article, a high wage earner in this bracket, who averages $287,000.00 a year gross pays $57k in federal taxes.  If you live in a state that also taxes income, take another 5-8% of that, or between $14, 350 and $22,960.  Add to that Social Security taxes, medicare taxes, and you are talking about $90,000 of that $287,000.00 average earnings gone before you see these folks see a paycheck.  Yep, almost a third of their average earnings goes out the door.  And in most cases, due to the AMT, or Alternative Minimum Tax, these folks never see it back, not even in the form of the deductions that so many of us view as standard to tax payers.  

So it's pretty understandable how the HENRYs get a little resentful when politicians talk about them paying more taxes.  After all, they pay a tremendous percentage more of their incomes in taxes than those 'real Americans' already.  And because the primary tax base is on income rather than net worth, folks like Ross Perot average just 7% of their wealth in taxes, vs. the 30+% cited here for these high earners.  In other words, we don't tax the rich in this country, we tax the high wage earners.  Warren Buffett keeps a huge part of his money safe, simply because he isn't pulling it out of investments.  

In fact via taxes, the HENRYs are subsidizing the lower earners in many government programs.  Is this fair?  Well, yes.  And no.  Barack Obama is right - when wealth is spread, everyone wins.  Rising tides, correctly managed, raise all boats.  Unfortunately, over the last 25 years the disparity in taxation means that the HENRYs have actually born a greater tax burden, percentage wise, than the conspicuously rich Paris Hiltons of the world.  

And that's just taxes.  Add to that the simple math that higher income earners often enter their fields after prolonged education, and there can be a fairly large bite of their income going to student loans.  If a law student graduates with $100k in loans, hardly unheard of, that's about $1000 a month just in loan payments.  

Higher earners also are often congregated in higher cost of living areas - those coasts full of us latte drinking liberal elitists.  This means that housing costs are higher, as are the costs of some things like child care.  In my area, near Boston, the monthly cost of  daycare runs about $1200-$1500 per child, and this is the average, not the high side.  For some folks with multiple kids, it can be cheaper to get a live-in nanny than to pay $3000 or more in daycare each month. And that federal dependent care credit is what, about $4000?  Gone in 6 weeks for a family with 2 kids in these areas.   

Let me also toss in another couple variables.  Sure, the HENRYs save a lot for education, especially college for their kids, as well as large amounts for retirement.  But they also can expect little back in the way of assistance - they will probably not be eligible for much beyond loans for college for their kids, and they plan for what my generation mostly expects - that Social Security and Medicare will be means-tested by the time they retire.  Meaning they will foot the entirety of their retirement by themselves.   

Because politicians and the media get a lot of mileage out of pitting the well-off against the not well off, and because there's no small amount of misunderstandings and even jealousy from the have nots to the haves, there's this idea that these people aren't 'real Americans'.  Real Americans, as we all know, wear flannel, drive tractors and pickups, and are the teachers, farmers, truck drivers, restaurant workers and small town people of our heartland.   Like Sarah Palin, right?  Except the little detail, oft overlooked,  that she, too is a HENRY.  

But where does that leave everyone else?  Let's be real here, a lot of people live on the coasts. Millions and millions of citizens. Are they not 'real Americans'?  Do they not pay taxes, raise families, work hard, donate their money and time, and vote?  I personally know quite a few people that fit the definition of HENRYs, or are close to it, and most of them work very hard indeed.   All of them love their kids, and want what's best for them.  And all of them do very much see themselves as Americans,  even if they don't regularly wear flannel.  

I know few 6-figure+ wage earners that don't work long hours, who aren't handed Blackberries to ensure they are perpetually accessible, and who aren't expected to be able to pick up and travel as required for work.  In other words, there's a trade off for that fantastic income.  Sure, they may be in offices with free coffee instead of working in the fields, but that's small consolation when you have a week full of meetings that force you to kiss your kids goodbye before they wake up and kiss them goodnight long after they fall asleep.  No one would pick that to be the case, but sometimes it happens.  And because HENRYs and similar folks are human, they just try to do their best.  I see a lot of them burn out trying to make it all work.  

I think the idea that these people aren't real Americans is pretty revolting, and does nothing but alienate neighbors and friends in a pointless class war where no one wins.  We, in our perpetual money hypocrisy in America, simultaneously celebrate the small business owners and dedicated who work hard to get ahead, and then resent the hell out of the fact that they did, in fact, get ahead.  

I think that the HENRYs have it pretty good.  Most of them aren't sweating next month's mortgage payment, or making a choice between gas to get to work and food on the table - and that makes them pretty blessed.  But I also think we need to stop seeing this group through rose colored glasses - they have some pretty big challenges too, and their taxes subsidize a lot of the support that those less fortunate than themselves receive.  

While there are people who struggle a lot more with many basic decisions, such as gas vs. food, or a parent sending a sick child to school because of a lack of paid sick time, and their needs must be addressed, the HENRYs aren't exactly popping out golden goose eggs that can subsidize all the lower wage earners needs.  We need to stop our regressive tax breaks to the truly wealthy to find some of the money that our federal government needs.  We need to get some of our corporations off welfare, and make them responsible for themselves.  We need to start looking at all our options, not just the easy targets who don't have the lobbyists to help them.  

HENRYs are that easy target.  They earn a bunch.  They don't have lobbyists and legal help to build them tax loopholes - they just aren't quite that rich.  They aren't the CEOs, they are the VPs. Or the men and women who employ some of those 'real Americans'.  

They are an integral part of America, and it's time we started treating them like it.

Want to meet the HENRYs yourself?

http://money.cnn.com/2008/10/24/magazines/fortune/tully_henrys.fortune/index.htm