CHEAT SHEET
Personal Finance
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During debates and speeches, politicians often bring up the financial
burden that’s placed on the middle class. We talk about the middle
class as though they are this singular entity, who used to thrive until
they underwent persecution by the evil 1%. But, realistically speaking,
the middle class and the 99% are not really synonymous. So, who are the
middle class?
In its discussion of historical middle class societies,
The Economist reports,
“Their members are neither rich nor poor but somewhere
in-between…’Middle-class’ describes an income category but also a set of
attitudes…An essential characteristic is the possession of a reasonable
amount of discretionary income. Middle-class people do not live from
hand to mouth, job to job, season to season, as the poor do.”
Some argue that the most sensible income amount to attach to the
middle class would be the median household income, of around $54,000.
Perhaps, anyone who earns between the 25th percentile and 75th
percentile is a member of the middle class.
Diana Farrell, once Deputy Director of America’s National Economic
Council, told The Economist she thinks a middle class income begins at
the point where a person (or family) has one-third of their income left
over for discretionary purposes after they’ve provided themselves with
food and shelter. In other words, someone who earns $3,000 per month
would have $1,000 left after they’ve paid their mortgage or rent,
utilities, and grocery bills.
Though there is some debate over the exact income a middle class
household brings in, we do have an idea of who the middle class are —
most working class people. Today’s bourgeoisie is composed of laborers
and skilled workers, white collar and blue collar workers, many of whom
face financial challenges.
Bill Maher reminded us a few months back
that 50 years ago, the largest employer was General Motors, where
workers earned an equivalent of $50 per hour (in today’s money). Today,
the largest employer — Walmart — pays around $8 per hour.
The middle class has certainly changed. We’ve ranked a list of things
the middle class can no longer really afford. We’re not talking about
lavish luxuries, like private jets and yachts. The items on this list
are a bit more basic, and some of them are even necessities. The ranking
of this list is based on affordability and necessity. Therefore, items
that are necessity ranked higher, as did items that a larger percentage
of people have trouble paying for.
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1. Vacations
A vacation is an extra expense that many middle-earners cannot afford without sacrificing something else.
A Statista survey
found that this year 54% of people gave up purchasing big ticket items
like TVs or electronics so they can go on a vacation. Others made
sacrifices like reducing or eliminating their trips to the movies (47%),
reducing or eliminating trips out to restaurants (43%), or avoiding
purchasing small ticket items like new clothing (43%).
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2. New vehicles
Very few people who earn the median income can afford to buy a new car or truck.
Interest.com recently analyzed the prices
of new cars and trucks, as well as the median incomes across more than
two dozen major cities, and found that new cars and trucks were simply
not affordable to most middle-earners.
“Median-income families in only one major city [Washington DC] can
afford the average price Americans are paying for new cars and trucks
nowadays.” As of 2013, new cars are priced at $32,086, according to the
study. Mike Sante, Interest.com’s managing editor reminds us, “just
because you can manage the monthly payment doesn’t mean you should let a
$30,000 or $40,000 ride gobble up all such a huge share of your
paycheck.”
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3. To pay off debt
These
debt statistics come from Debt.org:
- “More than 160 million Americans have credit cards.”
- “The average credit card holder has at least three cards.”
- “On average, each household with a credit card carries more than $15,000 in credit card debt.”
Not only do we have large amounts of credit card debt, we also have
student loans, mortgages, cars, and medical debts. Our debt is growing
faster than our income, and many middle class workers have trouble
staying afloat.
Money-Zine evaluated debt growth and income growth
over the past few decades and found that “back in 1980, the consumer
credit per person was $1,540, which was 7.3% of the average household
income of $21,100. In 2013, consumer debt was $9,800 per person, which
was 13.4% of the average household income of $72,600. This means debt
increased 70% faster than income from 1980 through 2013.”
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4. Emergency savings
To provide ourselves with a degree of financial security, we are
supposed to have emergency savings to protect ourselves in the event of
job loss, illness, or some other catastrophe. Most members of the middle
class don’t have at least six months of emergency savings, however, and
some working people have no such savings.
A Bankrate survey found
that only around one out of four households have six months of
emergency money saved, and many of them are in the higher income groups.
Another one-fourth have no emergency savings at all, and the remaining
household have a small to moderate amount of savings, but not enough to
cover six months of expenses.
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5. Retirement savings
If you reach the retirement age with little or no money saved, Social
Security is probably not going to be enough to cover your basic needs.
Even if you want to work for your entire life, you have no way of
knowing whether or not you will be physically capable of doing so.
Although having a lack of a retirement savings is a risky move, so
many people bet on double zero, just hoping that things will work out in
their favor. While some members of the middle class neglect this aspect
of financial planning because they are procrastinating, there are also
some workers who cannot afford to set this money aside.
Nearly half of those who don’t save for retirement say it’s because they simply don’t have the money.
As of late, around 20% of people near 65 have not saved anything for
retirement at all, and the majority of people — 59% — worry that they
don’t have enough money saved for retirement,
according to a Gallup Poll.
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6. Medical care
Medical care is a basic necessity and something we’d think would be affordable for someone earning a middle income.
A Forbes article published data
indicating that workers in large companies — many of whom are members
of the middle class — “face nearly $5,000 in premiums, co-payments,
deductibles and other forms of co-insurance.”
During the past few years, these costs have had a large impact on working Americans.
A report by Feeding America
found that a shocking 66% of households say they’ve had to choose
between paying for food and paying for medical care — 31% say they have
to make that choice each and every month.
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7. Dental work
According to the U.S. Department of Health and Human Services,
“the U.S. spends about $64 billion each year on oral health care — just
4 percent is paid by Government programs.” About 108 million people in
the U.S. have no dental coverage and even those who are covered may have
trouble getting the care they need, the department reports.
Oftentimes, people will purchase medical coverage and forgo dental because it’s so expensive. Plus, dental insurance may
cover only 50% of the more expensive procedures, like crowns and bridges. This leaves those who have insurance with large co-payments.
In many cases, middle-earners will delay or even forego some of these procedures in efforts to save on costs.
According to the CDC, nearly one in four adults between the ages of 20 and 64 have untreated dental caries (like cavities or infections).
