The Demise of the Middle Class & The Amercian Deam

The rising cost of living, coupled with stagnant wage growth is squeezing the middle class out of existence and strangling the Amercian Dream.

The American dream is going down the toilet. Some would say the flush button was pushed long ago. Now, even the middle class are struggling to meet the cost of the basic necessities of life.

The American dream has been exported to all the Western World. Once it was believed that if you were a good citizen, went through the schooling system and got a good education, you were set for life and would have no problems providing for your family. You would have no problem getting a good job, with good benefits. You would be able to afford a comfortable house, not luxurious, but comfortable and cozy enough to raise your family in, and you would always be able to put healthy food on the table.

But Harvard University’s Joint Center for Housing Studies 2017 State of the Nation’s Housing Report shows that close to 39 million American households can’t afford housing.

The report says that home ownership continues to decline, driven by a relentless increase in home prices across the US, while wage increases have not kept up. The report says that in 2016 the homeownership rate fell to 63.4 percent, the 12th year of declines in a row.

Rent is Also Increasing

With many people being pushed out of homeownership, the demand for rental properties increases. “The surge in rental demand that began in 2005 is broad-based, including several types of households that traditionally prefer home ownership.” Harvard’s report said.

But rental costs have also been rising since 2007. Emily Dreyfuss, wrote in, in December last year rentals have been pushed out of reach for many middle-class families, especially in cities with high demand for housing such as Denver, Colorado, and Austin, Texas. She defined middle-class as a household making $50,000 to $125,000 per year.

“In 2016, the capital required to sign a lease on the average-priced $3,500-a-month apartment in San Francisco often topped $12,000, owing to requirements for first and last month’s rent plus security deposits and a broker fee,” she wrote.

Not Just a US Problem

But it is not just the US that is experiencing this problem. Research undertaken by the Trust for London found that between April 2014 and April 2016 private rents rose twice as much in London as the rest of the UK. Now, you might think oh, but that’s London. That’s typical big city demand for all the movers and shakers moving there. But the research found that rents had risen much faster for properties at the lower end of the market, which had increased by almost 15 percent, an increase nearly four times higher than the rest of the UK.

Borrowing Just to Survive

The Harvard housing report mentioned earlier says that in 2015 one-third of US households, 39 million of them, spent over 30 percent of their income on housing costs. Of those households, 19 million spent of over half of their income just to cover their housing costs.

Similar trends are occurring around the developed world — the UK, Australia, Canada and New Zealand.

The BBC reported in September 2016 that according to a survey by the website, 32 percent of UK workers are surviving paycheque to paycheque.

This is taking a psychological toll on people. Many people are struggling but are too ashamed to admit it and ask for help. A 2014 survey by the UK housing charity Shelter found that 25 percent of people would feel too ashamed to ask for help to pay their housing costs. The percentage is even higher at 40 percent when it comes to admitting to family and friends that they were struggling financially.

Hilary Osborne, writing in the Guardian, says the housing charity Shelter warns that “One in five people borrowed money to meet rent or mortgage payments in 2013.”

“Many are taking on risky loans to keep their financial problems secret from friends and family.”

Risky loans are the payday type loans that come with high-interest rates and therefore cost more in the long run. So people become trapped in a vicious spiral of borrowing at expensive interest rates to pay the everyday costs of living and then having to find money to cover the cost of that borrowing.

Returning to the Trust for London study, over 40 percent of Londoners don’t have enough money to fund a decent standard of living. Their definition of a decent standard of living is one where you can afford food, shelter, clothing, and enough money to “Buy a child’s birthday present or going for an occasional meal out to maintain friendships and work relationships.”

Get a New Job

Some people might think those struggling should simply move out of the expensive cities and move to a cheaper city. But many people need to work to earn a paycheque to survive, and the work is largely found in those expensive big cities, there is little work in the smaller, cheaper cities, and for what little work is available there is a lot of competition.

So, what about finding a job that provides a larger paycheque? This appears to be a false solution, as the bigger paycheques are in the areas where the cost of living is more expensive.

Consider this story from the UK’s Guardian in February this year — Michelle a tech worker at a data science startup in Silicon Valley in California earns a six-figure salary, she is only 28 years old. She says that her only chance of buying a home is to find a partner and combine their incomes. “The concept of home ownership is really truly out of reach,” she said.

It’s not just the young ones on six-figures that feel this way. In the same article, the Guardian reports a woman with a partner in her 50s who works in digital marketing for a major telecoms company in Silicon Valley as saying “We make over $1m between us, but we can’t afford a house.”

Silicon Valley has some of the highest rents in the world and the high cost has had a negative impact on the community as it has displaced valuable members such as teachers, firefighters and other occupations of the middle class.

Ok, so forget moving city, let’s move to another country. The United Arab Emirates (UAE) attracts many ex-pats with lures of high salaries. But according research done in 2015 by insurance giant Zurich International Limited “Those lucky enough to receive a company bonus may get excited at the prospect of a bumper pay packet during the bonus season in March and April, but the reality is that the majority of people in the UAE are using this extra cash to settle debt or pay bills.”

Many Are Struggling

So, it appears that the middle class is already going down the economic toilet. Many people are getting into a similar situation to Katherine Whittaker as reported in the Guardian in January 2014. Katherine, a mother of two who lives in Barnsley in the UK told the Guardian “It’s very difficult when it comes to making ends meet and paying for the roof over our heads.”

“It’s absolutely horrible trying to juggle the rent and other bills,” she said.

“I’ve borrowed from family and I’ve had to ask the bank for an overdraft just to keep our heads above water. It’s a constant worry thinking about finding extra money.”

I’m sure we can either all relate to that, or know someone that can.

This is not just a problem that the poor are suffering from. While the one percent increase their wealth, the 99 percent, the rest of us suffer. Yet we deny that there is a problem, even though it is right before our eyes.

University of Texas expert on housing and the middle-class Mechele Dickerson told it is very hard to get people to understand that the affordable housing crisis is not for the very poor.

“A family that makes $100,000 can’t afford to buy a house in most US cities,” she said.

The modest savings that used to be associated with the comfortable middle class have evaporated as increases in the cost of living, coupled with stagnating wage growth has dried up any money put aside.

To make ends meet, families are not buying enough food for their households or they are substituting with cheaper, less nutritious foods, which is jeopardizing their children’s health the Harvard University 2017 State of the Nation’s Housing Report said.

Harvard’s Joint Center for Housing Studies senior research associate Jennifer Molinsky said that families with children are cutting back severely on food, and older people are cutting back on health care.

Strategies We Can Use to Get Through

Let’s not chocolate coat this issue, things are grim. But nothing lasts forever, so if we have some strategies to ride out this tough period we will make it through to the other side and there will be plenty of opportunities for those who have prepared.

One of the first things we can do is look at ways to reduce our expenses. At first glance, it seems as though nothing can go, but this is a time to make a tough call and be honest with ourselves. It is a time for necessities and not wants.

New clothes, eating out and vacations are all prime candidates for the financial chopping board. Next, take a long hard look at all those things that require you to make monthly payments.

Cell phones are a major culprit in this category. Are you using all the minutes on your phone plan? Can you downgrade to a cheaper one? Also don’t be afraid to ask your provider for a customer loyalty discount, otherwise switch to a cheaper provider.

Stop using credit cards. Chop them up if you have them. They have some of the highest interest rates around, and their ease of use makes them particularly dangerous, they’re designed that way.

Contact the people you owe money to, your creditors, and see if you can negotiate with them to make smaller payments over a longer period. This will help your cash flow by reducing your monthly cash outlay.

Some mortgage and student loan providers allow you a period of reduced payments if you are experiencing financial hardship, don’t be afraid to take advantage of this.

Sometimes you just have to take on a second job to bring in additional income. But be careful of taxation here. In some countries, the tax rate on secondary income is so high that it almost makes taking on a second job not worth it. You could ask for a raise at work, but given the pitiful wage growth in the last few years, good luck with that one.

Also, take an inventory of your belongings. What do you really need to keep and what could you sell to help bring in some extra cash?

Remember that your first priority is providing the basic needs for you and your family before you think about paying your creditors. Food, a roof over your head, and keeping the heating and hot water on are your number one priority, then everyone gets paid.

It’s tough out there for most of us at the moment, but remember this is doable. You can and you will get through this.

If you liked this, click the💚 below so other people will see this here on Medium.