Are you a hard-working middle-class American struggling with financial insecurity? You are not alone. According to statistics, one in three middle-class families is facing financial difficulties.
But what is considered the middle class in America, really? Some define it by income, others by lifestyle. If you pay your bills on time, hold down a stable job, save money for a rainy day, you’re considered to be middle class. It also means anyone earning between 67 percent to 200 percent of the median income.
Despite this perception, most of these families are scared about their financial stability. Why is that? Is America’s middle class becoming lazier as some politicians depict or their stagnant wages fail to keep up with the rising cost of living? According to a new OECD report, the latter is the reality for many middle-class families.
If statistics is anything to go by, the middle class life isn’t fairing that well.
According to a report by Pew Research, the size of middle class shrunk by nine percentage points from 1971 to 2016. It also notes that the middle class continues to fall further behind the wealthy. In short, the income gap between the upper class and the middle class is widening.
This is a worrying sign as it threatens economic growth and political stability, according to OECD.
This brings us to the question we’re all asking ourselves, why is the middle class struggling to keep up despite an otherwise solid economy?
Cost of Living is Rocketing
Middle class life is becoming more expensive simply because the cost of living is outpacing households’ income. Housing costs and health care are the biggest challenges among middle-class earners. In fact, housing constitutes the largest portion of their budget. Most people spend 37 percent of the total income on housing. This is not surprising considering the skyrocketing home prices.
In the past few decades, the majority of median-income Americans have been struggling with housing costs. The house prices are rising faster than family incomes, pricing them out of home ownership. Most of them can’t even make a down payment on a new house.
Home purchases in many metro areas like Los Angeles, San Francisco, and New York have dipped. Less than 30 percent of the homes there were affordable to middle-class Americans.
The prices are projected to rise at twice the speed of inflation and pay according to property market analysts. This trend poses a major risk to millennials as they are less likely to gain middle-class membership, which was easily accessible a few decades ago.
To help middle class own homes, governments are advised to offer financial support for loans and tax relief. Consequently, eliminating or curtailing mortgage interest rates can provide a lift to the housing market.
Housing is not the only concern for moderate income households. One-third of this group don’t have enough savings to cover an emergency of $400. This means even the modest unexpected expense like repairing a car or air conditioning can disrupt their financial health.
Having so many people lack emergency savings for minor crises is not good for the economy, considering middle class is seen as a cornerstone of a strong economy.
While the rising costs of housing, health care, child care, and education makes it a bit challenging for middle-income households to come up with a solid emergency savings fund, experts at Americasaves.org recommend stashing away $500 for a start.
Financial experts also advise people to save 5 percent to 10 percent of their paychecks until it covers three to six months’ worth of living expenses.
Wages Aren’t Keeping Up
As stated earlier, wages aren’t keeping up with the rising costs of living. This might not make sense considering the positive economic trends witnessed in the recent past. According to an article published by Forbes last year, it outlines this as a management issue rather than an economic issue.
Companies are sitting on cash instead of raising wages. Top organizations are registering billions of dollars in revenue growth instead of investing in the salaries of its employees.
It’s good for the economy if companies start investing more in people. This can help strengthen America’s middle class that’s slowly shrinking.
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