Middle class - worse off than the numbers show

[Engineer]

http://finance.yahoo.com/blogs/dail...orse-off-than-the-numbers-show-181906188.html

I've wondered about this for some time, and now an article shows up showing that the gains at the top are skewing the averages (but not the medians) of the middle class....the declining middle class.

The "average" American worker earns about $44,000 per year and saves around 4% of his income. And the "average" household has a net worth of approximately $710,000, including the value of homes, investments, bank accounts and so on. But many Americans, needless to say, fall well below those benchmarks, which fail to capture widespread financial distress

Wow, middle class looks great in that respect.....but wait, there's more...much more....

The rich have always skewed wealth and income data to some extent, since they pull up averages and make ordinary people seem a bit better off than they really are. But the outsized gains of the super-rich during the past 25 years have become so disproportionate that some measures of prosperity may be losing their relevance. “When wealth and income are as concentrated as they are, examining the ‘average’ consumer or ‘average’ investor makes little sense,” economists at Bank of America Merrill Lynch wrote in a recent report.

Well shit, there went my sunshine....

The homeownership rate has been declining since 2004 and now stands at 65%; some economists expect it to keep falling. The percentage of Americans who own stocks has been falling, too, and is close to a record low. So fewer people have been taking advantage of a housing recovery and a long bull market in stocks, which is how a growing amount of wealth is being concentrated among fewer people.

Average income has been increasing, dragged upward by the mushrooming paydays of the 1%. But median income, which represents the midpoint in the distribution of income, has been falling. Median household income, adjusted for inflation, is now about $53,000, according to Sentier Research. That’s about 7% lower than it was in 2000 — one sure sign middle class living standards have declined.

Bah, they are wrong. There is no way that we are declining, especially after gaining 6 million McService jobs. I demand an investigation.....get those people back in here...turn those machines back on...turn those machines back on!!! (from Trading Places).

 

[BoberFett]

Weird, I thought all that stimulus and quantitative easing was going to trickle down.

 

[Engineer]

Weird, I thought all that stimulus and quantitative easing was going to trickle down.

There is no trickle down....only 'fast flow up'. Everyone knows this.

Doesn't take a rocket scientist to see that corporate balance sheets are swelling as are the stock accounts of those at the top (1% owning over 80% of all stock market wealth (or was that 90%?)). Easy money is flowing to the top.....just crumbs for the peons on the streets.

 

[gevorg]

 

[spacejamz]

How can the average American save when they are forced to buy $100/month data/text plans, $130/month for cable/satellite with 8 channel DVR's, 70" flat screen TV's, two $35K cars in driveway, $450K home, pay for all their kids' soccer and gymnastic expenses, vacations in Aruba, weekend dinners with friends at the Cheesecake factory....after all of that, saving for kid's college expenses, remodeling the kitchen and master bathroom, building the home theater room with 120" screen and 4k projector....it just never ends....

 

[Engineer]

How can the average American save when they are forced to buy $100/month data/text plans, $130/month for cable/satellite with 8 channel DVR's, 70" flat screen TV's, two $35K cars in driveway, $450K home, pay for all their kids' soccer and gymnastic expenses, vacations in Aruba, weekend dinners with friends at the Cheesecake factory....after all of that, saving for kid's college expenses, remodeling the kitchen and master bathroom, building the home theater room with 120" screen and 4k projector....it just never ends....

and all on the average pay of $44,000, and even that's skewed by the top 1%.

Why can't I do any of that on more than $44,000? Why, damnit?

Yep, home ownership dropping for last 10 years, pay after inflation is lowest in 14 years, average age of cars on road is at an all time recorded high of over 11 years. Yep, middle class is doing great....up to their asses in debt too.

https://www.youtube.com/watch?v=r0HX4a5P8eE

 

[Mai72]

I've had the luxury to work and travel in Asia. It used to be that we had the best. Our way of life was just better. Not the case anymore. I've felt like the rest of the world has caught up to us and we are being left behind.

 

[Fanatical Meat]

How can the average American save when they are forced to buy $100/month data/text plans, $130/month for cable/satellite with 8 channel DVR's, 70" flat screen TV's, two $35K cars in driveway, $450K home, pay for all their kids' soccer and gymnastic expenses, vacations in Aruba, weekend dinners with friends at the Cheesecake factory....after all of that, saving for kid's college expenses, remodeling the kitchen and master bathroom, building the home theater room with 120" screen and 4k projector....it just never ends....

Great point if you know someone who fits this description. I haven't since around 2008 maybe 2010.

 

[Londo_Jowo]

Great point if you know someone who fits this description. I haven't since around 2008 maybe 2010.

Come down to Houston, there are people who live like that down here. Cinco Ranch, Katy, Woodlands all have high dollar areas.

Personally my income and wealth have been increasing since January 2009. I'm currently making 40% more than I did in December 2008. I just interviewed for another position with the company and it should come with a 10%-15% salary increase due to it not being an exempt (paying overtime) position.

 

[Mai72]

How can the average American save when they are forced to buy $100/month data/text plans, $130/month for cable/satellite with 8 channel DVR's, 70" flat screen TV's, two $35K cars in driveway, $450K home, pay for all their kids' soccer and gymnastic expenses, vacations in Aruba, weekend dinners with friends at the Cheesecake factory....after all of that, saving for kid's college expenses, remodeling the kitchen and master bathroom, building the home theater room with 120" screen and 4k projector....it just never ends....

Nobody is forced to do any of the things you just mentioned. This is the issue. People are spending money on sh*t they don't need!

You should read "Start Late, Finish Rich." The author talks about the Latte effect. You basically eliminate most/all small expenses. Get rid of the cable and don't purchase smartphones. Stop buying coffee from Starbucks. Make your own at the house. That type of stuff.

 

[Mai72]

Come down to Houston, there are people who live like that down here. Cinco Ranch, Katy, Woodlands all have high dollar areas.

Personally my income and wealth have been increasing since January 2009. I'm currently making 40% more than I did in December 2008. I just interviewed for another position with the company and it should come with a 10%-15% salary increase due to it not being an exempt (paying overtime) position.

It's the same in NJ. These people have $500k homes and pay $10k in property taxes. They drive 2 cars, have a pool in their back yard, etc..

BUT... They don't have accumulated wealth. Both mom/dad make good money but how long could they possibly last if they both lost their jobs? They know how to spend, but they don't know squat about investing and saving. How can they have a high consumption lifestyle. The sad thing is their children will do exactly what their parents are currently doing. They will expect to live the same lifestyle that they had when they were living at home. They to will become high consumption adults.

Check out "The Millionaire Next Door." The book was written 15-20 years ago, but the principles in the book are timeless.

 

[sandorski]

Part of the problem with Debt is that much of it is just people trying to have what they are accustomed to. Most of that accustomization(word) occurs when they are Children. Given that affluence amongst the Middle Class was greater not too long ago, people have higher expectations than what their Income allows in a secure manner.

Along with that, Children most often have no idea of how Money/Income/Debt works. All they see is the Stuff, not what it takes to acquire it. Back in the 50's/60's, Incomes allowed a very large portion of people to acquire all the latest and greatest Stuff without overburdening Debt. In fact, Debt was much harder to take on as Regulation was quite stringent. As the Middle Class began losing Purchasing Power, Debt acquisition became easier and people began replacing their lost Income with Debt, most likely without even realizing that they were doing it.

Falling prices on many things has certainly helped the situation somewhat, but an increase in Income is the only cure for maintaining that Lifestyle. It's near impossible to have all the Latest/Greatest anymore though, there's just too much diversity and that in itself is a large part of the problem. If people were a little more Niche focused they could have their little thing of distinction and not be drowning in Debt at the same time.

That's sorta how I see it anyway.

 

[Mai72]

Falling prices on many things has certainly helped the situation somewhat, but an increase in Income is the only cure for maintaining that Lifestyle. It's near impossible to have all the Latest/Greatest anymore though, there's just too much diversity and that in itself is a large part of the problem. If people were a little more Niche focused they could have their little thing of distinction and not be drowning in Debt at the same time.

A larger income means that most people will just spend more. They don't necessarily save anything. My father was making $150k at one point. He was clueless when it came to money. He handed the money to my mom and this was a terrible mistake. She loved to spend and this is what she did. My mom passed away 3 years ago and she left my dad with a ton of debt.

I'd imagine that my parents aren't the only ones who operate like this. Instead of being proactive and investing most would rather spend.

 

[Atomic Playboy]

I'd imagine that my parents aren't the only ones who operate like this. Instead of being proactive and investing most would rather spend.

What's the point of money if not to spend it? I don't mean spending every dime you earn and going into debt, mind you, but I also don't understand the mentality that you need to hoard and save every penny until you die. At what point is it OK to actually spend money to improve your lifestyle? The extremes at either end strike me as equally stupid.

 

[Fanatical Meat]

A larger income means that most people will just spend more. They don't necessarily save anything. My father was making $150k at one point. He was clueless when it came to money. He handed the money to my mom and this was a terrible mistake. She loved to spend and this is what she did. My mom passed away 3 years ago and she left my dad with a ton of debt.

I'd imagine that my parents aren't the only ones who operate like this. Instead of being proactive and investing most would rather spend.

Everyone is like this excluding all the exceptional AT folks. People spend what they earn. When I made 30k more per year I did too. My 401k savings were higher to match but the small stuff I never worried about. If I needed a new NVIDIA card I'd just buy one from new egg. Now finances need to be planned better. Its part of life yes earning less sucks and yes I get concerned that if this continues the extra 401k money won't be enough to cover me but at some point the job market will turn around and things will balance. All of us will have similar spending habits going forward as people who lived thru the Great Depression.

 

[BoberFett]

There is no trickle down....only 'fast flow up'. Everyone knows this.

Doesn't take a rocket scientist to see that corporate balance sheets are swelling as are the stock accounts of those at the top (1% owning over 80% of all stock market wealth (or was that 90%?)). Easy money is flowing to the top.....just crumbs for the peons on the streets.

But the Democrats around here keep saying that the problem was that the stimulus wasn't bigger. I can only assume that means that if the stimulus were bigger, then more would have trickled down.

 

[BoberFett]

I don't remember Bush being in the White House for the past 5 years.

 

[Mai72]

What's the point of money if not to spend it? I don't mean spending every dime you earn and going into debt, mind you, but I also don't understand the mentality that you need to hoard and save every penny until you die. At what point is it OK to actually spend money to improve your lifestyle? The extremes at either end strike me as equally stupid.

In "The Millionaire Next Door" the author says that if you want to be wealthy you need to sacrifice. You only spend money on things you absolutely need.

If you had a chance to buy a $10k Nissan Sentra or a $40k BMW what would you do? Both cars are going to get you to the same places. The difference is the BMW is a high status car. Most people would choose the BMW because they are concerned with status. In turn, they will probably never be rich because they are too concerned with status. The other person who is saving and investing diligently is more likely to pick the cheaper car.

Middle class people invest in things that depreciate. Wealthy people invest in things that appreciate/make them money.

 

[IronWing]

But the Democrats around here keep saying that the problem was that the stimulus wasn't bigger. I can only assume that means that if the stimulus were bigger, then more would have trickled down.

As two thirds of the stimulus was in the form of tax cuts and not new spending I guess we've definitively demonstrated that cutting taxes as a method of stimulating the economy is bunk.

 

[IronWing]

http://finance.yahoo.com/blogs/dail...orse-off-than-the-numbers-show-181906188.html

I've wondered about this for some time, and now an article shows up showing that the gains at the top are skewing the averages (but not the medians) of the middle class....the declining middle class.



Wow, middle class looks great in that respect.....but wait, there's more...much more....



Well shit, there went my sunshine....



Bah, they are wrong. There is no way that we are declining, especially after gaining 6 million McService jobs. I demand an investigation.....get those people back in here...turn those machines back on...turn those machines back on!!! (from Trading Places).

The 65% home ownership rate doesn't account for the amount of equity owned. If we adjust the ownership rate for equity the situation is much bleaker.

I'll have to go diving into the census and bls data to bring the graph up to date.

Edit: If you are wondering why it looks like the adjusted ownership rate is on a path to dip below the free and clear rate it is because in 2009, for folks who had mortgages the aggregate debt owed exceeded the aggregate market value of the properties mortgaged (the mortgage paying population, in aggregate, was upside down).

 

[Genx87]

4% savings? Well...

 

[Zaap]

What's the point of money if not to spend it? I don't mean spending every dime you earn and going into debt, mind you, but I also don't understand the mentality that you need to hoard and save every penny until you die. At what point is it OK to actually spend money to improve your lifestyle? The extremes at either end strike me as equally stupid.

He's right though. I wouldn't say saving and investing is an extreme. Its being smart and being prepared for the future vs too many people who are going to have a really rude awakening in the future.

His example is solid. The guy who buys the 10k car and pays himself the other 30k and invests it properly, ends up getting where he needs to go, and eventually has a used car worth a fraction of its original price.... oh yeah and a shit ton of money in the bank. The jackass who had to have the 40k car paid himself nothing, got where he needed to go, and eventually has a.used car worth a fraction of its original price... and an empty bank account. First guy will likely retire happy... 2nd guy will eventually hope that bitching and whining to some politcian about rich people will get him by.

 

[spacejamz]

In fact, Debt was much harder to take on as Regulation was quite stringent. As the Middle Class began losing Purchasing Power, Debt acquisition became easier and people began replacing their lost Income with Debt, most likely without even realizing that they were doing it.

You have to love those "payday" lender type companies who finance used cars, Rent a Center furniture stores, etc whose slogan is "Get the Credit You Deserve!!!" which is typically targeted towards people with bad credit scores...

 

[Mai72]

He's right though. I wouldn't say saving and investing is an extreme. Its being smart and being prepared for the future vs too many people who are going to have a really rude awakening in the future.

His example is solid. The guy who buys the 10k car and pays himself the other 30k and invests it properly, ends up getting where he needs to go, and eventually has a used car worth a fraction of its original price.... oh yeah and a shit ton of money in the bank. The jackass who had to have the 40k car paid himself nothing, got where he needed to go, and eventually has a.used car worth a fraction of its original price... and an empty bank account. First guy will likely retire happy... 2nd guy will eventually hope that bitching and whining to some politcian about rich people will get him by.

Saving doesn't sound fun. It isn't a fun activity. At least in the beginning saving can be a drag, but in the long term it pays off in big ways. I wish my parents would have sat me down and explained this to me. They were spenders so this was not to be. Saving starts at home. Parents need to be positive role models when it comes to finances. If the parent is not a saver the chance that their children will save is going to be small.

You don't need to stop purchasing items. Just do it cautiously. This is what i'm currently trying to do. I have a lot of ground to cover and it sucks. I wish I could say that I hope to retire soon, but this isn't the case. I'm probably going to be working for a long time.

Maybe I should have gotten into government work. After 25 years you get to retire with a healthy pension and benefits. Imagine starting at 25 and having the chance to retire at 50. All on the public dime.

 

[Cozarkian]

What's the point of money if not to spend it? I don't mean spending every dime you earn and going into debt, mind you, but I also don't understand the mentality that you need to hoard and save every penny until you die. At what point is it OK to actually spend money to improve your lifestyle? The extremes at either end strike me as equally stupid.

The problem is most people set their desired short-term spending level and then save the leftovers, whereas it is financially wiser to set long-term saving goals and spend the leftovers (caveat: short-term emergency fund saving takes precedence).

1. Figure out how much income you expect you will need when you retire, what age you would like to retire, and how long you anticipate to live. Then calculate how much you need to save monthly from now until retirement age to meet that goal.

2. Figure out how much you need to save to meet long-term investment goals such as college, housing, fancy cars, or expensive vacations, start saving those. Calculate what you need to save to meet those goals.

3. Figure out how much you need to save for short-term investment goals such as less extravagant vacations, new furniture, upgraded TV, etc... Calculate what you need to save to meet those goals.

4. Determine how much money you would have left over if you started saving for #1, #2 and #3. Find a way to budget your expenses within those leftovers.

Now that you've budgeted how to live, it's time to start saving. Save 3-6 months of your monthly expenses (#4) to fix your car, feed your family if you lose a job, or pay for other emergencies. Then start saving for #1, #2 and #3 while living within your budget of #4. When your income increases, you can add the extra income to your #4 monthly expenditures, because your #1-#3 goals are already fully financed (you might also increase your #3 goals). You'll be in a much better position than spending your current income and hoping you'll get raises so you can save for #1, #2 and #3 later.