Jack Green, a mythical resident of Orinda California, earns $200,000 a year.  Yet, he’s broke.

Orinda is a very pleasant suburb 15 miles east of San Francisco.  In Orinda, the schools are excellent, crime is low, and the neighbors are friendly.

But Jack is broke.  He cannot save any money.

How can someone earning $200,000 a year, about three times what the average American earns, and be broke?

In Orinda, the median household income was $165,000 a year in 2013, the latest year for which statistics are available.  In California, the median statewide household income for the same year was $60,000.  The income numbers come from GuidestarPro, an organization the collects income data.

Jack, an engineer, has a wife and two young children.  Jack’s wife, Cheryl, stays home to take care of the children,

Jack should be living the so-called the American Dream.  Yet, he has no money at the end of the year.  What is going on?

Let’s look at taxes.  When one considers taxes of all kinds, Jack’s income of $200,000 a year is closer to $100,000.

Taxes on Jack, include — but are not limited to — the federal income tax, the state income tax, sales taxes, property taxes, payroll taxes (Social Security and Medicare) utility taxes, capital gains taxes, gasoline taxes, and perhaps more.

According to an article by the Associated Press (January 9, 2017), raising a child in the United States costs $233,000 over 17 years (or $14,000 a year).  Thus, raising two children can cost $28,000 annually.  (In Orinda, the cost is probably higher.)

And there are other costs, like the monthly mortgage, car payments, food, gasoline, utilities, repairs, and insurance.  These costs can easily reach $60,000 a year.

Taking Jack’s annual income of $100,000 (after taxes) and subtracting $28,000 for raising children and subtracting another $60,000 for bills like the mortgage, food, gasoline, and other costs, Jack is left with $12,000 at the end of the year.

The $12,000 left over should be saved for two major expenses:  (1) a university education for Jack’s children and (2) Jack’s and Cheryl’s retirement.

Today, the cost of one year at a state university, like a campus of the University of California, can run $40,000 a year.  (A private university like Stanford can cost much more.)  These figures come from the College Board.

Thus, four years at a state university can cost $160,000 (at today’s prices).  With two children, the cost would be double:  $320,000.

If Jack has $12,000 left over each year, he would have, after 17 years, $200,000 (17 times $12,000 equals about $200,000). This calculation assumes no inflation, a dangerous assumption.  For his two children, Jack would need $320,000 — ($160,000 times 2 equals $320,000).

Without student loans or scholarships for his children, Jack would not be able to save enough money to educate his two children.

What about Jack’s retirement?  Simply put, Jack has no money left to contribute to his retirement.

Jack could obtain some financial assistance if his wife Cheryl found a job.  Even so, Jack and Cheryl might not have much, if any, money left over for their children’s education or for retirement

If Jack’s or Cheryl’s parents needed some assistance, there would not be any money for the parents.

Something is really wrong in America if a household earning $200,000 a year, cannot save enough money for a university education for the children, retirement, and perhaps some help for mom and dad.

And remember, Jack lives in a nice suburb, Orinda, and earns much more than the average American.

It’s no wonder that Americans are angry — and broke.

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