Life and Debt on Willow Lane
by Stephen Gandel

October 8, 2007

[Continued, page 2]

The result is that the Steins live mostly from paycheck to paycheck, saving very little. They have contributed just a few hundred dollars to retirement accounts in the past year (current value: $88,000) and have nothing saved for college.

Still, Marni's plan to solve her family's financial problems is not to cut spending and pay down the debt. Her idea involves going further into debt so that she and her husband can get additional training to help boost their income. Marni is working on a Ph.D. that will add $18,000 in student loans to the Steins' balance sheet by the time she finishes next year. Stuart plans to take a $5,000 management course. "I don't think watching our expenses will be enough," says Marni. "The only way we really could be better off is if we make more money."

Living the High Life

Dave and Emily Mendell do make more money than the Steins. Much more. Dave, 39, teaches fourth grade in Wallingford's elementary school. Emily, 38, is vice president of strategic affairs for the National Venture Capital Association. Together their annual income is $250,000. On Willow Lane, theirs is the biggest house on the block.

But for the Mendells, earning more money hasn't been the ticket to financial security their neighbors imagine it would be. Like the Steins, the Mendells are behind in saving for retirement, especially considering their high income and the fact that they'd like to stop working by the time they're 60. They've saved very little for college for sons Noah, 9, and Chase, 7.

True, like the Steins they're paying more for housing in Wallingford. Their five-bedroom colonial cost $100,000 more than the house they sold in nearby Broomall when they moved to Willow Lane two years ago. And their taxes have quintupled to $20,000 a year.

But what really diverts cash from their savings kitty is the cool stuff they like to buy. For instance, Dave, who loves to surf, recently bought an $800 custom-made, handcrafted board. He has three guitars, plus a fourth for Noah. For the kids they bought a trampoline and a swing set for the backyard. Emily, nearly a black belt, spends about $3,400 a year on karate lessons for herself and the boys. Dave prefers yoga classes ($1,200 a year). The Mendells would also like to finish their basement ($30,000), and Emily wants to trade in the family's minivan for a Mercedes M-Class ($40,000). Then there were the separate vacations Dave and Emily took to Costa Rica over the past year and the family trip to the Grand Canyon (total for travel: nearly $8,500).

That still leaves $600 a month unaccounted for. Emily, who says she has a problem saying no to her kids, admits some of it is spent on impulse purchases for the boys, who regularly return from trips to Target with a new toy. "When we're at the mall and they ask me to buy something, what do I say? 'We can't afford it'?" asks Emily. "We can."

But the price of the high life is, well, high: The Mendells contribute only $12,000 a year to their retirement and have just $176,000 saved in those accounts so far. That's less than a tenth of the $2 million they'd need to retire at 60, even taking into account Dave's teacher's pension. And the Mendells haven't put what savings they do have into the kind of growth investments that could help bail them out. In fact, nearly half of their retirement contributions now go into cash.

Just as the Steins' debt doesn't bother them, so the Mendells don't seem concerned about how little they've saved for retirement. They say their parents managed their retirement just fine and they were not as well off. And they don't think they're spoiling the kids; Noah and Chase have to do chores to earn their allowance. Recently Emily did get nervous about their lack of college savings and opened 529s for the boys, planning to deposit $500 a month in each account. But at that rate, they'll only save enough to cover about half the cost of the kids' college education. True, that's better than most families manage, but most families don't make $250,000 a year.

Still, the Mendells don't worry about whether they're spending away their future. "We question whether we are too nervous about spending," says Emily. "Should we be enjoying our life more?" Dave says he knows a lot of people in Wallingford who spend more than they do. Plenty of his surfing friends have houses at the shore, but he and Emily won't buy a second house because it's out of their budget. "We're not penny pinchers, but we can't spend without thinking about it either," says Dave. But he adds somewhat wistfully, "That would be a nice goal."

Stretching to Fit In

When Ernest and Miriam Wright traded in their downtown Philadelphia row house for a four-bedroom on Willow Lane 2½ years ago, they hoped to swap city life for a suburban idyll. No more urban anonymity and late-night howls from the drinkers at the bar next door. By and large, they found what they were looking for. Other families on the block welcomed the Wrights and invited them to join their regular get-togethers. Daughters Jillian, 4, and Lauren, 2, quickly found playmates. Their dead-end street is silent, even in the summer, by eight. And there was a bonus: The bigger house in the burbs actually cost less than their home in Philly (though they did take out a larger mortgage to pay for it), giving the Wrights a $100,000 cash cushion.

But the price of fitting into their new neighborhood has turned out to be a lot higher than the Wrights bargained for. With a bigger mortgage and higher property taxes, they're spending nearly $1,000 more a month on housing than they did in the city. Then there are the incidentals of life on Willow Lane. Landscaping cost $1,500. Remodeling the 20-year-old kitchen cost $25,000. They've upgraded to a Subaru Outback from a Volkswagen Jetta. And next year they'll spend $13,000 to send Jillian to kindergarten at a private school in the more exclusive part of town—even though the town's highly rated public schools are a major draw for Wallingford.

Jillian attends preschool there now. And being in a school with freer-spending families has already influenced the Wrights' habits. Miriam says she lays out nearly twice as much on Jillian's clothing as she did before they moved, shopping at stores that she used to dismiss as too expensive. She says, "All the other girls are dressed that way, so I spend more."

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