Saturday, August 04, 2007

Working class millionaires

A nice series in the Times by Gary Rivlin. It does a good job of capturing how real startup people think about wealth, their lives and families.

I'm glad I live in Eugene, Oregon -- easier to resist the hedonic treadmill in this eco-hippy college town :-)

In Silicon Valley, millionaires don't feel rich (check out the video as well).

Living modestly, despite a nice nest egg (this guy is successfully resisting the hedonic treadmill).

Making do, with $10 million (keeping up with the Joneses in the valley -- one of the rare times a journalist accurately describes the "carrying costs" of the wealthy lifestyle; I guess he had help).

Angry commentary from Metafilter, and more from Dave Winer.

...Silicon Valley is thick with those who might be called working-class millionaires — nose-to-the-grindstone people like Mr. Steger who, much to their surprise, are still working as hard as ever even as they find themselves among the fortunate few. Their lives are rich with opportunity; they generally enjoy their jobs. They are amply cushioned against the anxieties and jolts that worry a vast majority of people living paycheck to paycheck.

But many such accomplished and ambitious members of the digital elite still do not think of themselves as particularly fortunate, in part because they are surrounded by people with more wealth — often a lot more.

When chief executives are routinely paid tens of millions of dollars a year and a hedge fund manager can collect $1 billion annually, those with a few million dollars often see their accumulated wealth as puny, a reflection of their modest status in the new Gilded Age, when hundreds of thousands of people have accumulated much vaster fortunes.

“Everyone around here looks at the people above them,” said Gary Kremen, the 43-year-old founder of, a popular online dating service. “It’s just like Wall Street, where there are all these financial guys worth $7 million wondering what’s so special about them when there are all these guys worth in the hundreds of millions of dollars.”

Mr. Kremen estimated his net worth at $10 million. That puts him firmly in the top half of 1 percent among Americans, according to wealth data from the Federal Reserve, but barely in the top echelons in affluent towns like Palo Alto, Menlo Park and Atherton. So he logs 60- to 80-hour workweeks because, he said, he does not think he has nearly enough money to ease up.

“You’re nobody here at $10 million,” Mr. Kremen said earnestly over a glass of pinot noir at an upscale wine bar here.

...A few even choose to jump off the golden treadmill.

That is what Mark Gage, 51, an engineer, and his wife, Meredith, did when they left the Bay Area in 2005 with $3 million or so in assets. They bought a house in Bend, Ore. — “a bigger, much nicer home with dramatic views” — and now Mr. Gage works only when the perfect consulting job presents itself.

Yet the same drive that earned so many of the engineers and entrepreneurs who live here their fortunes keeps them tied to the Valley, which resembles nothing so much as a sprawling post-war suburb, though one whose roadways are thick with cars costing in the six figures.

1 comment:

Anonymous said...

re: carrying costs, from metafilter

wuwei says "In the valley, what would be a 175k home in Nebraska is probably at least 600k" which is true, but it's worse than that. In Palo Alto, the absolute cheapest three bed two bath single family home is $1.15M (down from $1.4M over the past year), and it's kind of a crappy little Eichler (flat roof, no insulation, rusted out radiant heat in the (cracked) concrete slab it's built on, electrical wiring kind of an afterthought, etc.) The next one up IS $1.4M.

If you're willing to live in Mountain View, on the corner of two expressways, in a neighborhood with mediocre schools, where they ain't no Mountain and they ain't no View, you can get the minimum 3/2 for $800K.

In Omaha, there are 20 3/2s under $70K, and for $175K, you get a 5/3 with a three car garage and a shop, and half again as much square footage as the Palo Alto house. That would start around $2.5M in Palo Alto.

The payments on Palo Alto properties are pretty punishing. Already saved up $220K for your down payment? Then you'll only need $7,100 a month more for your Palo Alto mortgage plus at least $1,500 a month for property taxes, $300 a month for homeowner's insurance and another couple hundred a month for flood insurance (you have to buy it -- the feds say you're in a flood zone). Now we're up to $9,100 a month. You probably ought to make at least $270K/year before taxes to afford that, and you won't get a full mortgage interest (or any other) deduction because you'll be subject to Federal and California AMT. So a family making $270K basically lives in a Palo Alto crapshack.

I'm (barely) in the AMT bracket, but I still can't afford a 3/2 anywhere near work right now, so my little family is stuck in a 900 sq. ft. 2/1 with a 45 minute commute. But maybe someday I'll get a few hundred $K (or more!) out of stock options or bonuses if I'm lucky, and my two kids will be able to go to decent schools. And maybe I can sell the house and move to Omaha to pay for their college when it's time for that.

I would keep working even if I had $10M (like many of my luckier friends do), but I would definitely get a 3/2, increase my charitable giving by a commensurate amount, and probably take a vacation. Having a net worth of $1M just gets you a lower middle-class existence here.

I often wonder how people with ordinary salaries get by here, but one answer is that they bought a house a long time ago and still own it. If they didn't do that, then they rent, mostly pretty shabby places. Or they have the commute from hell.

At least it's nice weather here!

[Consciousness disclaimer: I realize that I am in the top half-percent of world income ( says top .01%, and that I'm in the top million earners in the world), and that we are all really lucky to even be alive. I have already made the world a slightly better place for millions of people, but I still would like a house with a bedroom per person or so.]
posted by Hello Dad, I'm in Jail at 12:54 AM on August 6 [4 favorites]

posted by Hello Dad, I'm in Jail at 12:54 AM on August 6 [4 favorites]

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