Why middle-class Americans don’t have $400 in savings?

Recently, I watched President Obama give his commencement speech at Howard University in which he told the class of 2016, who are predominantly African American, that this was the best time to be born in our country’s history and that times had changed and improved in America.  That got me thinking about our country’s demographics in general, and for whom else times have changed and improved.

I recalled back in December 2013, I read a policy memo published by the Hamilton Project entitled “A Dozen Facts about America’s Struggling Lower-Middle Class.” In the report, the term lower middle class was defined to include those with an income between 100% and 250% of the federal poverty level, or between roughly $15,000 and $60,000 adjusted for family size and composition.  The report listed startling statistics facing this segment, including the facts that:

  • More than half of families in the US earn $60,000 or less per year
  • Struggling lower middle class families are almost equally headed by single parents and married couples
  • Nearly half are headed by an adult who has attended college
  • Nearly one third rely on income support from a government program

Two years later, the headlines illustrated an unchanged story:

Okay, so the middle class was still struggling, I got that – but what I was ill prepared for was the raw manner in which these headlines translated into difficult and unimaginable choices for working families in the world’s most advanced economy.

First, I was shocked when I read “Dilemma over Deductibles, Costs Crippling Middle Class,” a story published in USA Today in which the authors detailed anecdotes of Americans willing to forgo much needed health care checkups and medications because they couldn’t afford the cost. The authors stated that median income in the US was around $53,000 and a quarter of Americans had no emergency savings at all.  Because health related expenses can arise unexpectedly and are necessary, people who skip or skimp on care face declining health problems along with financial stress that leads to spiraling debt.

Besides, it is not just healthcare that the middle class cannot afford.  A mere six months later, I learned, “The Middle Class is Struggling to Make the Rent,” which found “one in five renters households making $45,000-$75,000 a year are considered cost burdened” because they spend more than 30% of their income on rent. Notably, the report stated, “across the income scale, renters who are cost burdened spend less on food, savings and health care.”

So basically being in the middle class means you have a roof over your head, but you need to compromise on meals and doctors visits to survive.

Which brings us to the present.  While much has been written about poverty, low-income demographics, and the financially underserved, the middle class is wrongfully assumed to be either managing or thriving economically. In fact, only a few fortunate ones are able to make ends meet while the rest are living under severe financial stress and experiencing an economic abyss.

Adding to this economic misery there has emerged a hidden struggle that includes carrying the secret shame that defines living paycheck to paycheck.  Another moniker has emerged, and just when I thought I’d heard it all.

“Financial Impotence.”  It is spot on so kudos to the author, Neal Gabler.  He rightfully states that financial insecurity “has many of the characteristics of sexual impotence, … not the least of which is the desperate need to mask it and pretend everything is going swimmingly.” In “The Secret Shame of Middle Class Americans,” Gabler admits to being one of the 47% without adequate savings.  He discusses various factors contributing to the increased desperation and precarious state of America’s middle class finances, and recognizes debt as one of the culprits.

Debt, I find, is a seductive and insidious quagmire that many working Americans resort to because they both perceive, and realistically for many, have no choice but to undertake to survive.   Credit cards give immediate relief for those without cash liquidity, but are coupled with high interest rates and fees.  Viable options for those with little or no credit, like the financially underserved are much more difficult.  For them, payday lenders, car title loans, and pawnshops thrive by charging ridiculously high interest and fees. Additionally, the underserved incur and consider bank overdraft fees, non-sufficient funds (NSF) fees, and late fees amounting to billions of dollars annually as normal living expenses because of their vulnerable financial condition.

Today, the headlines are stagnant; The Middle Class is Struggling in all 50 States. “The Middle Class Struggle Is Real – And Increasingly Hard.”  According to a survey conducted by the Federal Reserve Board, a whopping 47% of Americans do not have the means to come up with $400 in an emergency.  A recent Pew Survey found 60% of American households have experienced a financial shock in the past year and over half found that setbacks made it harder to make ends meet. So when, as Gabler says, life doesn’t cooperate, where is their lifeboat?

Median household income in the US (adjusted for inflation) has been in a decline since 1973.   The middle class does not feel poor; they are poorer. The question is what can be done about this unfortunate state of affairs. Employer sponsored financial wellness benefits may not turn the tide of decades of stagnation, economic distress, or failure of policy reform and governmental intervention.  However, employers can give employees a viable no debt solution that allows them to access their earned income in real time when life does not cooperate.  Employees could at least stave off further decline and begin rebuilding. Remember what Mark Twain said: “The secret to getting ahead is getting started.”

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