This report was originally published by Daisy Luther at The Organic Prepper
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.
Photo Credit: Pew Research Group
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.
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.
Economics 101.
There is a child’s rhyme. “Seldom lend and never borrow, that will save a lot of sorrow.”
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Just heard $9.00 a Gallon of gas in 3 years.
It’s either going to pay for the WAR we will be in or the final
AXE for the Middle CLASS.
Stay tuned SAME BAT TIME, SAME BAT STATION ……
Not easy to believe that when the US is about to become self-sufficient in fuels.
Sounds like even the author doesn’t have a proper grasp on reality.
“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.”
Most of us can’t do EITHER. “Both” isn’t even part of the equation.
the blame-e that’s where I’m at. Barely surviving. Me and my 3 children had to move into a homeless shelter for the first time October 2017 and right now I’m renting a 1 room efficiency at a crappy hotel because all the shelters are full. Work 60hrs a week as a waitress and no help. That chart shows a middle class family putting 3G’s away a month in SAVINGS alone!!! I’d be able to rent an apartment and pay ALL my bills on half that a month with a few dollars left over! I haven’t gotten myself new clothes or a haircut or really anything in years. If I had extra money to burn I’d buy myself contact lenses and backup glasses. Middle class. Pffft. There is barely any middle class left, and it was designed that way by the elite. Now there’s only the destitute and downtrodden poor, and the wealthy elite.
I want to grow my own food but I can’t find bacon seeds.
2018, you can find bacon seeds in small containers marked ‘bacon bits’ Just be certain you get the real kind and not anything marked ‘artificial’. -:)
Expectations have risen over time. An example we’re retired in SW Florida. A home built in the 1960s to 1980 or so was 1300-1600 sq/ft. They’re now intermingled between 4000 sq/ft homes on lots that were purchased with a fully useful nice home that was torn down to build the McMansion. This is very very common. My toys as a kid cost little, today kids electronic doodads are a $1000 or more. I caught the caboose of the good job train that was ending in the 1980s going out of HS into a major Chemical Plant then leaving to work in an oil refinery. That just doesn’t happen anymore and jobs like that certainly don’t exist here in SW Florida for the masses.
Kevin2, oh yes, how times have changed, and not necessarily for the better. I’ve been fortunate enough to just RENT a 1300 sq./ft. home since 1999. My vehicles have ALWAYS come from private owners for cash only. The most I ever paid for one was $4000 and that was back in 1997. The only homes I’ve seen built in my area in the past 10-15 years have been the McMansions. And yes, our toys of the era were dirt cheap compared to the junk that’s popular with kids today. If I was a parent I wouldn’t even buy any of that. There’s nothing wrong with the simple and basic toys I grew up with, especially board games. Plus kids need to spend more time outdoors instead of being inside so much playing computer games. The simpler toys were also educational and taught some useful things to kids. I don’t think any educational toys are even made anymore. I had a pretty good job when I was in Miami back from 1975-1982 but left after my wife was killed. I suffered for awhile after coming back to Memphis but I worked my way up and now doing better than ever. With no credit card debt or loan to worry about I’ve bought the hell out of prep supplies over the past 10 years. Saving up now for an old truck from the 90s. Should be able to get something about July. The only thing the author got right is ‘figure out your priorities’. People nowadays don’t even know which way is up. I’ve always known my priorities; nothing to figure out for me. The bottom line is live within your means and put up something for a rainy day.
The Deplorable Braveheart
I’m glad things are on the up for you.
I for the most part I got lucky as the industries around me hung in longer than most although they still got decimated later on. The 101 year old oil refinery I retired from is still running, never shut down although its on its third owner. I never liked debt and kept it at minimal mortgage only and paid that off as fast as possible. A great abundance of people live to impress other people and it costs them a fortune to do so. That is the driver for them. The road is off a cliff.
Kevin2, we have very few real industries left, such as what you retired from. I couldn’t even think about retirement, not in THIS economy. I just turned 61 in March. Next year I’ll be eligible to collect some Social Security but I’m just going to leave it alone until I’m eligible to collect the full amount. That is, IF we still have a country left at that time. I’m not convinced SS will still be around at that time. I don’t hold my breath on anything. As for debt, people who control access to credit have always kept me away from it so in a number of ways I’m better off. I’ve always been a stickler for living within my means. People can say what they will but I know I’ve always done something right.
Dep BH has a shity credit score and nobody will lend him money to buy a dependable car. Like he even has a choice. Nice spin dopey. And since he has no credit, he has propety or house either and is a renter, and helps pay off the mortgage for his landord. Thus spends his days posting his bs here then dies living in his 2000 Odysee Van, broke at his Cuzz’s BOL in N GA. But his Oddysee van has new shiney motor mounts 3 to be exact.
Okay, I’m torn. TharSheBlows’ comment was funny as all get-go…but…Dep Braveheart has been on here for a longgggg time and I like his comments. Is it wrong to laugh?
TharSheBlows buying a new car is a scam. I have never, nor will I ever, buy a new car from a dealer or take out a loan to buy a vehicle. I buy privately with cash.
You’re a low-life stalker, aren’t you?
The middle-class is about the same as always. We’re the ‘peons’ (and you can spell that with 2 ‘e’s). Slightly better off than slaves. Not much has changed in the last 1000 or so years.
I have several skill sets that have always (except for my military time) allowed me to earn decent money. You need skills and an education. The man that taught me how to build boats was apprenticed as a shipwright, apprenticed as a machinist, and earned a mechanical engineering degree from Brown university. He never wanted for anything, but he lived VERY humbly.
I never buy high value stuff that is new, I buy used and fix it. Houses, cars, boats, lawnmowers washers, dryers, you name it. Virtually everyone of my text books in college were used. We use to shop GoodWill for my silk work ties and other clothes like a used snowmobile suit that I wore while commuting in wintertime Seattle on my used Honda Goldwing(40 mpg).
Middle class is shrinking because they forgot how to make do on what they earn.
I had all the toys, probably more than most, because I kept within my budget, which always included savings.
Middle class is not shrinking, it is committing suicide.
rellik
I loved working with engineers that liked engineering. That sounds crazy to many but the guy with dirty finger nails. I found them more heavily in the Merchant Marine / Kings Point Graduate, next Mechanical Engineers. The guy who took apart lawn mowers and TVs to see what is inside are the ones I like. The guy or woman who was just good in science and math but not inherently curious are not. They need to get an MBA and plant themselves behind a desk leaving engineering for the real engineers and technicians.
“Middle class is shrinking because they forgot how to make do on what they earn.”
The middle class is shrinking because of the Free Trade industrial evisceration. One can manage on less of an income but in the end its still less of an income.
rellik – you and I it’s a shame most probably we’ll never meet up. I’m in Florida, you I think in Hawaii if I recall. But… I do marine electronics (nav/comm, radar, sonar, autopilots, sat systems and on-board networking specialist) and too, like you, have built boats. Mostly commercial fishing boats. Been in engineering and/or construction most of my life as well. Function as a freelance IT (commercial/residential from servers to desktops) to augment income. I’ve always been the type to take 2 or more broken ‘whatevers’ and make one good one out of them. It’d be great to sit and swap tales. You’re so right – if a man can make it, any other who gives it a shot should be able to re-make it. Skills are the biggest need we all need to cultivate in ourselves.
Rellik, you can say that again about today’s middle class cutting their own throats. I’ve always bought used myself, especially with cars and manage with them as long as possible. When I need a major item I go browsing on Craigslist to see what’s available. In July I’ll finally have enough money saved up to get an old truck. I’ve never had the first damn loan or credit card for anything and don’t want them either. Being debt-free is awesome and definitely has advantages.
In the last few years DepBH has blown through at least a half dozen used cars that turn into non working junkers. Then what you got? Nutting. Bought my last Brand New SUV back in 2009. Still only has about 48K miles. Runs great and still looks new, and I paid it off in about 4 years. Been driving this like new vehicle now for 9 years, free for the last 5 years. And will drive it another 10 years for free. Only costs in 9 yrs have been for 1 set of new tires, oil changes every 6000 mikes and brakes once in 9 yrs. Thats it. New vehicle drive for free. And I did that with about an 800 credit score. With no credit you buy another clunker every 6 months and bogged down with repair bills constinantly. I like dependent vehicles not wasting time repairing them.
Keep your wants less than your needs. No debt,no cable,basic phone. The middle class doesn’t have those high paid union jobs anymore. everything is global now. You are competing with over 7 billion people now for resources. Someone will do your job for less somewhere and your job may end up in India or Africa or anywhere. The good ole days are gone.
In 2030, the definition of lower class is that you live in a single width mobile home and drive a ten-year old car. You are middle class, if you have a double width and drive a car under ten years old. If you are retired on Social Security, you will live in a cardboard box with a door and windows drawn on it in crayon. I hope that I am wrong!!!
Still I doubt any of you would trade your life experiences and position for a shot to start over young with a fresh slate. The demolition of freedom and survivability in a few short decades is the stark reality. To bring children into this frightening debacle is pure insanity.
aljamo
Thats telling and true. It speaks volumes for the future.
I have a good memory of the 1960’s and 1970’s, my dad was a pilot, so he made pretty good money. But I also remember the average family had one income earner; with a decent home, a new vehicle every 5 or 6 years, a nice family vacation each year, and could still save some money. There are several reasons for a shrinking middle class and diminishing standard of living/quality of life, but the biggest reason is that gov’t and corporate powers colluded and finally succeeded in getting two people to work for the price of one. Now, there are actually more women in the work place than men. With more income made disposable the price of EVERYTHING has risen dramatically including homes, yet wages and salaries are stagnant for decades, average middle-class debt is huge. And, because of two incomes, all levels of gov’t collected far more taxes.
It now takes two working to have the approximate standard of living as a single earner had 40 to 50 years ago. The quality of life has continue to diminish however; taxes were lower, schools were better, we left our home unlocked even when the family left for a few days, we were able to go outside as kids and be gone all day without supervision (even miles away from home), we didn’t eat GMO food, neighbors and friends looked out for each other, crime was basically non-existent, everyone people went to church (most still do), we as kids openly carried our guns and would shoot all the time (no one freaked out-never saw any deputies even care about it), we even drove cars before old enough to get a driver’s license, and there are many more examples. Still see Confederate flags waving though. Even here in the South which is by far the freest part on the US, there are not the freedoms today that we experienced as kids.
The point is, when we see the middle-class is not the same as it was, it must be understood in both economic terms and of our rights, liberties, and freedom.
HTF is one to reduce debt when the worthless POS government have their teeth into you for eternity called Fnn taxes especially property taxes!!!
The Middle class of today is indulated with expenses that were not even thought of when I was a kid. I was born in 1955, so grew up in the sixties and early 70s. Dad was small businessman, mom schoolteacher, total middle class, decent house but no mcmansion, had all we needed but nothing extra. My dad never had to shell for us kids for a bunch of things Dad has to pay for today. No cell phone service, no internet, no mp3, no fancy phone to buy, no $130 tennis shoes (forgot the brand, I had those white sole black flat bottom cheapy tennis shoes), and no designer clothes ect. I had a basic bicycle and everything else just basic, nothing like the kids have today. The point I make here is that the middle class was easier to survive prior to the electronics and other revolutions we deal with today. Give us a football, or baseball ect and an empty building lot nearby and we were happy. Do real middle class kids today even play backlot football/ baseball ect , or only play games on their apple computer? Looking back,,,, many could argue the pros and cons but does anybody else think it was better and healthier both physically and mentally to grow up before the gadget revolutions? KF
A couple of years ago I was cardio walking on a rather mild 55 deg Christmas Day at about 1:00 in the afternoon and there wasn’t a kid on the street, in the park…….nothing. In my day, the later 60s we would have been riding the new bicycle, got a team together for a ball game. I have no doubt that they were all in front of a video screen with snacks at their side getting a jump on future heart blockages.
The prices at the gas pumps dictate whether Americans are riding in the cars or behind the cars pushing them! Start shopping for some good mules.
Happiness = Satisfaction over Desires. It’s a mathematical equation of which an individual only has control over “desires.” But in the end, that is a lot of power over one’s own happiness.
My twin daughters and I recently had a conversation regarding the “state of the world” and how previous generations had failed their successors. I explained to them that the only failing that I recognize is when people were convinced to live beyond their means due to the marketing of “payments” instead of price. I went on to explain that my Father explained to me as a child that if I didn’t have enough money in my pocket for something, that I could not afford it. There was no shame in that, but if it was something that I truly “needed,” the only shame would be in not earning enough money to get it later.
Enjoyed this infromercial.
What does she expect, some sort of socialist hell where the top 25% that earn and achieve $$$$ have it all taxed away to pay for the lavish lifestyles of the 75% unemployable and idiotry entitlement classes?
its time to start picking cotton
It surprises me how many Americans grew up middle-class and still consider themselves as middle-class even though they no longer are. Since they’re happier with the illusion, leave them with it and don’t tell them the truth!
When the Individual Retirement Account (IRA) was invented in 1974 my future CPA told me “this is a good deal.”
My response “not really it is a differed tax for low, middle, upper class.
It will be destroyed since it encourages thoughtful planning for future savings based on an assumption that you can handle your own money affairs.”
It was flawed from inception. There should have been no limit on the maximum amount allowed as an IRA contribution which was defined from $1,500 from 1975 to 1981, $2,000 from 1982 to 2001, $3,000 from 2002 to 2004, $4,000 from 2005 to 2007, and $5,000 from 2008 to 2010.
If you run the numbers you have lost money due to inflation which has destroyed these IRA systems.
At the current maximum rate on IRA investment 1.2 % for 36 months. Using the current inflation rate for the United States is 2.4% for the 12 months ended March 2018, as published on April 11, 2018 by the U.S. Labor Department. 2.4% * 3 years = 7.2% you have a minimum net loss of 6% over 3 years for your one investment.
Since money was decoupled from any tangible asset like gold, silver or any rare valuable metal. We are in a world of hurt folks since the world economies are totally insolvent with no backing.