If
you’ve noticed that it takes a lot more money to live the middle-class American
Dream than it used to, you aren’t alone. Buying a house, saving for retirement,
and putting your kids through college while living comfortably is a whole lot
harder than it once was. Being part of the middle class sure isn’t what it used
to be.
Despite
the rosy outlook on employment numbers, things have become incredibly difficult
for many families. They’re deeply in debt, living paycheck to paycheck, and
without an emergency fund. Let’s take a look at what the media is saying about
the middle class.
First of all, what IS “middle
class”?
There
are many different definitions of middle class, and a lot of it depends on
where you live. “Easy,” you may be thinking. “Just live somewhere with a lower
cost of living.” Unfortunately, it isn’t that easy, because when you move to an
area with a lower cost of living, you’re likely to get paid less for your
occupation.
Once upon a time, the middle
class was the largest group of Americans. Now, according to the Pew Research Group,
it is closely matched by people in the low-income class and the high-income
class. The image below shows the stats for 2014.
(Link to website for data)
According to Quentin
Fottrell, the personal finance editor for MarketWatch, “middle class” is tough
to define:
There is no universal
definition of the middle class. The Pew Research Center often uses the middle
wealth quintile, the middle 20% of Americans’ income and wealth. Other
economists have said it’s defined as making 50% above or below the median
annual income. Most Americans regard a college education as a critical
component to becoming middle class. Some 71% of people with a college degree
consider themselves middle class versus just 58% of people with a high school
diploma or less, according to a 2012 survey by Gallup. And yet college
graduates in 2017 are shouldering $1.3 trillion in student debt.
Previous
studies suggest those who identify as middle class as higher than 50%, but also
indicates that the middle class is shrinking. Those who identify as middle
class has fallen to 59% in 2010 from 62% in 1991, according to a separate
report by the Pew Research Center, a nonprofit think tank in Washington,
D.C. (source)
Other
sources cite variables like savings, net worth, debt, and spending to determine
whether a family is “middle class.”
These
two calculators will help you compare your income to others in your area:
For
the purposes of this article, we’re going to go with Pew’s definition of
the middle wealth quintile.
The middle class is shrinking
The middle class is getting
smaller. According to an article on Quartz:
Pew
defines middle earners as anyone who earns between two-thirds and twice the
median household income in a given year. In 2014, this included a three-person
household earning between $42,000 to $126,000 per year. In 1971, 61% of
households were middle earners by this standard. By 2015, only 50% were. (source)
The Pew Group said:
After
more than four decades of serving as the nation’s economic majority, the
American middle class is now matched in number by those in the economic tiers
above and below it. In early 2015, 120.8 million adults were in middle-income
households, compared with 121.3 million in lower- and upper-income households
combined, a demographic shift that could signal a tipping point, according to a
new Pew Research Center analysis of government data. (source)
Both
of the above articles state that more people are getting pushed into the higher
income class than are sliding into the lower income class, which sounds great,
initially. But when you look at it more closely, those in the middle class are
far less wealthy than they used to be:
…middle-income
Americans have fallen further behind financially in the new century. In 2014,
the median income of these households was 4% less than in 2000. Moreover,
because of the housing market crisis and the Great Recession of 2007-09, their
median wealth (assets minus debts) fell by 28% from 2001 to 2013…
…The
gaps in income and wealth between middle- and upper-income households widened
substantially in the past three to four decades. As noted, one result is that
the share of U.S. aggregate household income held by upper-income households
climbed sharply, from 29% in 1970 to 49% in 2014. More recently,
upper-income families, which had three times as much wealth as middle-income
families in 1983, more than doubled the wealth gap; by 2013, they had seven
times as much wealth as middle-income families. (source)
It’s getting harder and harder
to thrive on a middle-class income
The middle class isn’t what
it used to be. Once the “American Dream,”middle-class families are struggling
for several reasons. Despite their incomes, they owe more and have saved less
than ever before. If you can dig through the politically charged
introduction and get to the statistics in this NY Mag article, you’ll
find the following:
The percentage of families
with more debt than savings is higher now than at any point since 1962, while
the median American family’s net worth is lower than it’s been in nearly a
quarter-century…
…So,
this is what a “good” economy now looks like in the United States: shrinking
household wealth; soaring middle-class debt; wage growth that can’t keep pace
with the rising costs of housing, healthcare, and higher education; job
growth concentrated in part-time positions;
widespread retirement insecurity; and more wealth-less
households than America has seen for 56 years. (source)
Having more debt than savings
is called “negative wealth.” One-fifth of American households fall into this
category. Of course, $1 trillion in credit-card debt and $1.4 trillion in student loan debt has to
take a toll eventually, right?
Then there’s the ridiculous
cost of healthcare in our country. (I recently had my own bad experience with healthcare
costs.) Those who are on the upper end of the middle class are hit
with premiums well into the thousands of dollars per month for far less
coverage than they had previously.
“Health-care
spending is growing at an unsustainable rate. Insurance and medical costs are
draining the incomes of the middle class—tens of millions of people who earn
too much to qualify for government-subsidized coverage, but not so much that
they don’t feel the bite of medical bills…Health premiums and out-of-pocket
costs wiped out most of the real income gains for a median family from 1999 to
2011, according to an analysis published on the blog of the journal Health
Affairs in 2013.” (source)
Finally, Americans don’t have
much in the way of an emergency fund. A recent study found that a whopping 47%
of us would be unable to cover an unexpected bill of only $400. The middle
class – and often even the upper middle class – are living paycheck to paycheck,
and not always through poor handling of money.
Where the great jobs are, folks
want to make $300,000-400,000 to live a middle-class lifestyle.
Lots
of young people go deeply into debt for an education that will (hopefully) land
them a job in Silicon Valley, New York City, or some other metropolitan area.
After all, that’s where the jobs that start you off at $80,000 a year are,
right?
Unfortunately, these are also
the places in which the cost of living is completely out of reach for those
with middle-class incomes, making it so that to be “middle class,” people feel
as though they need to earn anywhere from $300,000-400,000 per year. This article pinpoints the actual
amount of money you’d need to make in 25 different metropolitan
areas to live a middle-class lifestyle.
While
there’s a big difference between these amounts and the amounts that statistics
show are needed, the stats aren’t showing everything. Sam Dogen wrote an
article about why you need to earn more:
Let
me tell you a sad story: In order to comfortably raise a family in an expensive
coastal city like San Francisco or New York, you’ve got to make at least
$300,000 a year. You can certainly raise a family earning less as many do, but
it won’t be easy if your goal is to save for retirement, save for your child’s
education, own your own home instead of rent and actually retire by a reasonable
age. (source)
Here’s
the budget he put together. If you read the article and look at his review of
the expenses, they aren’t as out of whack as they might sound to those of us
who live outside of the major metro areas.
(Link to website for data)
While I can’t actually
imagine making that kind of money every year, neither can I imagine facing
those kinds of expenses. When your base costs are that high, even hardcore frugality can’t save you.
What’s a middle-class family to
do?
It’s
essential to watch the trends and be ready if things come tumbling down. Here
are the things on which you should focus:
- Building an emergency fund – you don’t want to be one of those
people who can’t handle a $400 emergency, right?
- Reducing your fixed expenses – this will help you through the rough times
- Building a stockpile – this will cut your
costs to the bare minimum during bad times
- Paying off debt –
this will help you live within your means
It’s essential to pay
attention to what is going on in the economy. Jose, our writer from Venezuela,
wrote of numerous warning signs that should
have told him that a financial crisis was drawing near. If you
want to keep up to date with what is happening, subscribe to my newsletter here.
Finally,
maybe it’s time to take a look at the lifestyle for which you yearn. Maybe you
need to focus on simplicity. Maybe you don’t need to keep up with the Joneses.
Maybe, after some adjustment, you’ll find that you are happier without the
stress of competing for that middle-class lifestyle.
Figure
out your priorities. Would you rather have a big house or travel the world?
Would you prefer to put your kids through school debt-free or have a new car
every other year? Most of us can’t do both.
The
only way to be different from those families who are struggling to pay their
$24,650 in monthly expenses is to live differently than they do. Being part of
the middle class isn’t what it used to be. It doesn’t take a financial expert
to see that the US economy, despite the optimism from the White House, is going
to continue to hit most of us hard. Now is the time to make the changes before
they’re forced on you.
Reprinted with permission
from The
Organic Prepper.
Daisy
Luther [send
her mail] is a freelance writer and editor. Her website, The Organic
Prepper, offers information on healthy prepping, including premium
nutritional choices, general wellness and non-tech solutions. You can follow
Daisy on Facebook and Twitter.
Copyright
© 2018 The Organic Prepper
Previous
article by Daisy Luther: 12 Bad Strategies
