Life and Debt on Willow Lane
by Stephen Gandel

October 8, 2007

Like suburban families everywhere, the Mendells, Steins and Wrights judged their own financial health by how they thought their neighbors were doing. How wrong they were.

The 5:22 evening train from Philadelphia arrives in Wallingford, a leafy, peaceful suburb 11 miles west, at 5:48. Passengers depart holding briefcases and newspapers; some are met by cars, but most just walk home. And why not? Nearly every home in this town of 13,000 is within a 20-minute stroll down streets flanked by stone colonials, rolling lawns, spacious flower beds and weeping willows. It's a place where everyone seems to have made it, but not too much. There are few mansions or even McMansions in town. Most people drive mid-size sedans or SUVs. If there is a place left in America where people embrace being middle class, Wallingford is it.

Ernie Wright, 39, does the commute most weeknights. Two years ago he and his family moved from Philadelphia looking for just this kind of comfortably upper-middle-class community—a place where they would feel at home. And usually they do. That is, except for an occasional niggling feeling that most of their neighbors are actually a lot better off than they are.

Marni Baker Stein, who lives around the corner, takes the train home most nights too. Like Wright, she and her husband Stuart moved to Wallingford a few months ago looking for a bigger house and a community of peers. In their old neighborhood, crammed into one of the smallest houses on the block, they felt poor. Now, living in a five-bedroom colonial on an acre of land, they feel a lot better about money, even though their actual finances haven't improved.

Dave and Emily Mendell, who live a few doors from the Wrights, moved to town two years ago for the good public schools, but there's another reason they feel good about their life in this neighborhood. Here the Mendells' family income puts them above average. "We wouldn't feel comfortable in a place where most people made more than us," says Dave Mendell.

Who would? Assessing how the neighbors are doing financially and what that means about how we are doing is practically a national pastime. The guessing game starts off as harmless pillow talk and community pool chatter, an outgrowth of natural curiosity. Just how much money must Susie and Bob have to be able to afford that new kitchen, three cars and a family safari? Then too, every homeowner has a vested interest in the financial well-being of his or her neighbors. Homeowner associations have long understood that nothing raises the value of a home more than an expanse of trim lawn and well-kept homes on either side.

But the finances of those around you affect more than just the perceived value of your property. They also, like it or not, help shape how much you spend and save and color your perceptions of your own financial well-being. Robert Frank, an economist at Cornell University and author of Falling Behind, calls the desire to match what the neighbors spend, remodeling project for remodeling project, lavish party for lavish party, "luxury fever." Not only can it prompt you to spend beyond your means, but it can also lead you to a false sense of how you are doing financially. Because when you see the guy down the block with so much more cool stuff than you have, you can't help but assume he is financially better off—even if the real truth is he just can't keep his credit card in his wallet. Without pulling back the veil of polite secrecy that neighbors maintain about their financial status, it's hard to tell.

This story helps pull back that veil on three families on a street called Willow Lane in an idyllic upper-middle-class American suburb. (Wallingford is so idyllic, in fact, that it was No. 9 this year in our annual rankings of the Best Places to Live.) The Wrights, the Steins and the Mendells are strikingly similar at first glance. They moved to town recently, are in their late thirties and early forties, grew up in middle-class families, graduated from good colleges, have professional jobs and are raising young kids. All three earn a comfortable living and borrowed about $300,000 to buy their homes.

In terms of their financial security, however, they are at quite different places. What's more, none of the families had an accurate picture of how they are doing, in part because they unconsciously measured themselves against their neighbors, and their assessment of those neighbors is wrong. The Mendells and the Steins, for instance, thought they were better off than they are, while the Wrights, who feel they are struggling to keep up in Wallingford, actually have saved the most. But the critical thing these families discovered is this: When you pull back the veil of your neighbors' finances, you see not only them but yourself more clearly.

In Debt and in Denial

Four months ago, Marni Baker Stein and Stuart Stein moved to Wallingford, paying $468,000 for a five-bedroom house on an acre of land on Rabbit Run, around the corner from Willow Lane. In their old neighborhood in Wayne, Pa., the Steins felt poor in comparison with other families and unequal to the task of keeping up with their neighbors' conspicuous consumption. Evidence that people were wealthier was everywhere. "Even the three-year-olds were dressed in designer clothes, all the way down to their shoes," says Stuart, 40, a sound technician. "You don't buy expensive shoes for a kid. Kids' shoes should come from Target."

The move to Wallingford has, almost magically, made them feel a whole lot better about their finances. That's because, the Steins say, a lot of people in the neighborhood seem to be at the same level as they are. Yes, there are still some houses that are bigger than theirs, but even those houses have Tauruses parked in the driveway. Says Marni, 40, an administrator at the College of General Studies at the University of Pennsylvania: "You don't hear about people going to Aspen for Thanksgiving here."

In reality, moving to Wallingford hasn't improved the Stein's finances. In fact, despite a seemingly comfortable combined income of $132,000, their cash flow is a little bit worse than before because they have a bigger mortgage and higher property taxes. All told, their house payments now run $32,000 a year, up from $22,000 in Wayne. Their other big expenditure: $26,000 a year for a full-time nanny for their three children, Eva, 3, and twins Neve and Lila, 2. Then there are all the myriad costs of a young and growing family, from diapers ($70 a month) to groceries ($800).

But the biggest drain on the Steins' finances is their lingering debt, run up mostly to pay for costly fertility procedures. In late 2001 after a year of trying and no baby, Marni learned the couple were going to need help to get pregnant. Health insurance covered only part of the treatment that followed: three failed attempts at artificial insemination, followed by in vitro fertilization. Thankfully, the IVF worked on the first attempt. After Eva was born, Marni become pregnant again the same way—this time with twins. Their total out-of-pocket maternity costs: $32,000.

The Steins say they never questioned whether to pursue treatment, even though they didn't have the money to pay for it. They figured they could cover the bills with a credit card and pay off the balance over time. "We rationalized it by saying the cost is similar to buying a nice car," says Marni. "And kids are worth a lot more than a car, so it seemed cheap."

But if spending whatever it took to have kids didn't seem like much of a choice to the Steins, what they subsequently did about their debt was. They mostly ignored it, paying only the minimums and adding to the balance when big bills cropped up, like repairing the roof and their air conditioning. They now owe nearly $39,000 on five different cards, including nearly $1,200 on an American Express account with an interest rate of 30.21%. The minimums alone run the family $700 a month.

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