Middle-class income is rising.
Or is it?
The U.S. Census Bureau recently put out some encouraging news for the quote-un-quote middle class. Average household income rose above $61,000 for the first time in history and the national poverty rate has declined as well (at least as far as the U.S. has defined the poverty rate).
That’s the good news.
The bad news is that households with middle-class earning still harbor significant anxiety about money.
In a newly released MassMutual study, 48% of Americans aged 25 to 65 with an annual household income of $35,000 to $150,000 said they worry about money at least once a week. All told, more than one-third of middle earners identified as feeling “not very” or “not at all” financially secure, including those at the top end of that range.
Using the middle class as the benchmark to measure overall national prosperity is tricky — because policy assessments and measurements deal in absolutes. $59,000 in income isn’t functionally much different than $61,000 but a cutoff has to be applied in order to model poverty and wealth projections. So the idea of a “middle class” can occupy many forms. In fact, several models have been proposed, from measuring income, to wealth, to consumption, to aspiration and demographics. Personally, I find “aspiration” the most compelling though probably the most lacking in hard data — mostly because it represents the story we tell ourselves about what a “middle class” is.
As the legend goes, households of the middle class represent the “nuclear family” — two working parents, each owning cars and their home, 2.5 children and hope to retire someday. Doesn’t seem too lavish or an exceptional stretch of the American Dream does it?
I’m not sure how in 2018, $61,000 in annual household income gets anywhere close to this.
Consider the following numbers. The average cost of homeownership is $200,000. A task made complicated and financially untenable if you’re unable to save for a 20% down payment due to your income going to more urgent bills (such as rising rent). Owning a (single) car averages $8,469 annually. The average cost of student loans is $39,400 for those who used a college degree to raise their household income and tuition costs $25,290 annually for those who are working towards it. 2.5 children, of course, aren’t cheap — with a $10,972 average cost of childcare (per child). Retiring isn’t guaranteed in the U.S., and generally speaking, you have to save for retirement yourself, especially if you aren’t fortunate enough to get a match from your employer. Financial planners recommend having twice your salary saved by the time you’re 35, yet over 1 in 2 Americans have less than $1,000 in their savings. In short, the math simply doesn’t add up. $61,000 in annual household income cannot sustain the lifestyle that the middle class aspires to achieve.
I read headlines like that paint these small gains in a positive light and fear that we’re not being honest with ourselves about reality. There’s a financial catastrophe looming for entire generations — starting with mine, the “entitled” millennials. Subsequent generations face greater financial challenges than we did. For example, my undergraduate tuition (from an alma mater that I believe is doing their best to keep tuition rates low) has nearly doubled since I enrolled as a freshman. Coincidentally, the University of Illinois has recently announced free tuition to “low-income” families earning less than…wait for it, $61,000 a year.
Yet, even with these kinds of efforts by higher education to try and reign in tuition costs, it’s only one piece of the puzzle for the middle-class, American dream. Unless the math changes, there will be generations of people who will be unable to retire, unable to own their home, and given the state of affairs today, will have questionable access to health care, if at all.
As the saying goes, compound interest is the 8th wonder of the world, and if a generation can’t start building their retirement funds, reducing their debt and investing in home equity today, it’s going to be a crisis that will be virtually unsolvable in the decades to come. What is our society going to do when we have generations too old or sick to work that don’t own their housing or have enough money to pay for it? Where will they live? How will they survive? And how much compassion are we realistically going to build into our systems of social support? These aren’t abstract questions — but an economic certainty.
There’s, of course, no simple solution to give a promise of prosperity back to a middle-class. I wish it would become a national, fact-based debate but I won’t get my hopes up given how well we’ve done with that lately. But if we’re going to solve this looming crisis, if we’re even going to identify and debate solutions we have to truly understand the scope of the problem, and that comes with accepting an ugly truth about the financial struggles of the majority of this nation. We’re in a big trouble.
We need to redefine the “middle class.”
