May 28, 2010

The Country's in the Crapper

According to the Bureau of Labor Statistics, the national median wage was $32,390 per year in 2008 [due to the recession, that number has probably fallen 5 to 7 percent since then]. In March 2009, the average earnings for full-time Federal employees were $74,403.

12 Ways to Determine If You're Still Middle Class

August 11, 2010 - We get the occasional complaint from readers who think that our content is not pertinent for the ‘average’ American. In our defense, we don’t have a clue what average American means and if you know his or her name and address - please send it our way because we’d like to invite him over for an interview. It’s fair to assume however, that the average American is middle class.

That’s a very vague social and economic designation but it’s a label most Americans are comfortable with. We have millionaires that consider themselves Middle Class being waited on by minimum wage workers who also identify themselves as Middle Class. It’s all very confusing and the term has lost whatever meaning it was supposed to have. In the U.K. the vast majority of people that we consider Middle Class would be considered "Working Class". We're fantastic marketers in the U.S. hell bent on making everyone feel good.

Being middle class has always been a state of mind more than anything else. People are now middle class by a process of elimination. If you’re not poor or destitute and if you’re not rich, you’re supposedly middle class. So, we’ve come up with a way to determine if you’re still eligible for the middle class label. If you’re not something else, you’re Middle Class. Read these 12 points of elimination to see if you still qualify as "Middle Class".

  1. You’re not middle class if you’re one of the 40 million Americans on food stamps. One out of five children lives below the poverty line. So, they’re not middle class either.

  2. The 7.8 million millionaires in the United States are not middle class, although most of them still walk around wearing middle class hats. Even if all your wealth is tied up in your house in San Francisco, you always have the option of selling it, moving to a cheaper locale and retiring. Not Middle Class.

  3. The ratio of the average top executive's paycheck to the average worker's paycheck is like 300 to one in large corporations. If you’re the executive, you’re not middle class. Even if you happen to screw up, you've got a golden parachute in place to ensure that you never have to enter the ranks of the Middle Class ever again.

  4. The bottom 80 percent of American households hold less than 10% of the liquid financial assets. If you’re in the top 20%, don’t call yourself middle class, unless we can get the bottom to realize that they are Working Class. And if you’re part of the bottom 50 percent of income earners in the United States, you and 150 million Americans collectively own less than 1 percent of the nation’s wealth. So you’re not Middle Class either. You might think you are middle class based on your income, but you're not. That leaves the 30% in the middle and by all accounts, that figure is shrinking faster than a bullet train.

  5. If you’re the average Federal worker, you're probably middle class because you earn 60% more than the average private sector employee and of course, you have some of the richest benefits that will ensure a nice retirement. Just remember it took thirteen trillion in deficit spending to keep you in the middle class and we can’t run 1.4 trillion annual deficits forever. Enjoy it while it lasts.

  6. More than 40% of Americans who are employed are now working in low paying service jobs. Chances are if you’re in the service industry, you’re not middle class even if you do have a middle class car payment.

  7. If you’re one of the 60% of Americans who live paycheck to paycheck, you might be living a Middle Class life style but maybe you really can’t afford it. Two out of five Americans don't contribute anything to retirement savings. They might be Middle Class now but they won’t be for long. You can’t live a Middle Class life style on just a social security check.

  8. If the stats are to be believed, 43% of Americans have less than $10,000 saved up for retirement. That’s a price of an entry model car or a jazzed up refrigerator with a built in stereo. You’ll still retire on a social security check and you won’t be Middle Class even if you keep the refrigerator.

  9. The 400 richest Americans have more wealth than 155 million Americans combined and top hedge fund managers make $900,000 an hour. They’ll never be Middle Class again and they won’t have to read this article to discover that factoid (unless they’re one of the Hunt brothers.)

  10. One out of every four American workers have postponed their planned retirement age. You want to know why? Well, it’s likely because they want to retain their middle class amenities (or the debt they accumulated maintaining it) until they decide to throw in the towel just short of their 85th birthday.

  11. Last year, 1.4 million Americans filed for personal bankruptcy. A lot of them will never be Middle Class again.

  12. If you're one of the millions of Americans that has seen wage stagnation for the last decade, you might have been Middle Class, but eventually you won't be. Unfortunately, you're not alone, if you look at a chart of labor costs over the last 10 years, it is rapidly approaching zero and trust me, the health care component is definitely positive meaning wages are increasingly negative.
The sad reality is that fewer and fewer ‘average’ Americans qualify as Middle Class. Even if they do qualify in terms of income, a vast majority don’t have the sense of security that used to come with a Middle Class paycheck because they can’t know for sure if they’ll have the same job for very long. When you break down the numbers and take into consideration the absence of job security and defined pension plans, it might be that only one in five workers really qualify as middle class.

The undeniable fact is that this generation of American workers will probably have a harder time maintaining a Middle Class standard of living and adjusting to that reality will require that they get more bang out of every dollar they earn. On that count, there is one positive indicator that says that an increasing number of Middle Class aspirants are ‘getting it.’ The savings rate is going up. . .If you really want to remain a member of the middle class, don’t depend on higher wages, watch your money and make the best of the wages you currently earn. Otherwise, you might not be Middle Class for much longer.

To the Federal Employee Debate. This just released on USA Today:

Federal workers have been awarded bigger average pay and benefit increases than private employees for nine years in a row. The compensation gap between federal and private workers has doubled in the past decade.

Federal civil servants earned average pay and benefits of $123,049 in 2009 while private workers made $61,051 in total compensation, according to the Bureau of Economic Analysis. The data are the latest available.

The federal compensation advantage has grown from $30,415 in 2000 to $61,998 last year.

Read the full article.

Seven Stressors Sapping the Middle Class (Excluding Federal Employees, Federal Contractors, Military and Public School Employees)

U.S. News & World Report
March 16, 2010

We all know about keeping up with the Joneses. Now, the Great Recession and the jobless recovery have introduced a new socioeconomic phenomenon: slip-sliding with the Smiths.

Working harder for less is the new normal—for those lucky enough to have a job. Millions of families are giving up comforts they long took for granted, such as restaurant meals, new clothes, vacations, spacious cars, home improvements, and cable television. College funds and retirement savings have taken a hit, and some families have been forced to downsize their homes or, worse, submit to foreclosure. Little wonder that record numbers of Americans tell pollsters it's getting harder to get ahead and that they worry their kids' standard of living may fall rather than rise.

The obvious culprit is a terrible job market that has left 15 million Americans out of work and millions more working less than they would like. But several economic trends have been stressing the American middle class for a decade or more, and the recession intensified those pressures as well.
  • Healthcare and college costs, for example, have been rising unabated.

  • Seniors who are living longer require more late-in-life care, with the costs often borne by their middle-aged kids.

  • A turbulent economy, meanwhile, has hammered away at incomes, job security, and net worth—and even led the White House to create a "middle-class task force" that gives the problem an official hue: "It is harder to attain a middle-class lifestyle now than it was in the recent past," declared a recent task-force report.
Politicians want to help, with dozens of proposals in Washington and state capitals to create jobs, subsidize living costs, and prove that elected officials care. But most governments are running out of money, and many of the political proposals are hollow, vote-seeking gestures.

Americans, meanwhile, are relying more on themselves by cutting spending, saving more, changing their lifestyles, and re-evaluating their careers.

As a halting economic recovery evolves, here are seven stressors that middle-class Americans need to address in order to maintain their standard of living:

  1. Falling income

    The pinch that many families feel comes from incomes that have fallen while other unavoidable costs have continued to go up. From 2000 to 2008, median household income after inflation was basically unchanged, the weakest performance since at least the end of World War II. And that was mostly before the recession. Economists estimate that once additional data are tallied, they will show that median real income fell by 5 to 7 percent during the recession.

    That's a huge drop that seems unlikely to reverse itself anytime soon, since a weak job market means that even those who have jobs are far less likely to get raises. And many people have absorbed pay cuts or taken new jobs that pay a lot less than they used to earn.

    A sudden loss of income can be devastating for those with a lot of debt and little savings, which unfortunately includes far too many Americans. Even so, people are adjusting. There's been a stutter-step increase in the savings rate, which, if it lasts, will help pad rainy-day funds. Shoppers are buying fewer extravagances and more discount merchandise. And after a 20-year borrowing binge, Americans are paying off (or defaulting on) record amounts of debt.

    If those trends continue, the typical household may eventually lower costs enough to live comfortably on less income—and enjoy a few new perks if incomes begin to rise again.

  2. Reduced savings/net worth

    When incomes fall faster than expenses, the first impulse is often to make up the difference by borrowing.But banks and credit-card issuers have clamped down on lending, leaving many Americans no choice but to raid their savings to pay the bills. This has happened at the same time that home values have plunged.

    Many homeowners now have little or no home equity, and a topsy-turvy stock market has stabilized more than 25 percent below its peak values from 2007. The result is a net loss of about $12 trillion in Americans' net worth over the past three years, according to the Federal Reserve—about $102,000 per U.S. household.

    A sharp housing rebound or a fresh stock market rally would help recover those losses, but neither seems especially likely. And stock-market gains tend to benefit the wealthy much more than the middle class anyway. So the majority of Americans will have to rebuild their net worth the old-fashioned way: by saving more, spending less, and living more frugally. The savings rate has in fact ticked up over the past year, but not by as much as some economists had expected. That's one sign that it may take a long time for consumers to adjust their behavior and get used to a new financial reality.

  3. High healthcare costs

    The sob stories trotted out by advocates of healthcare reform ring true. Healthcare costs rose by 155 percent between 1990 and 2008, according to the White House's middle-class task force, while median household income rose by just 20 percent. That means medical costs take an increasing share of take-home pay for virtually every family.

    A separate study from 2009 found that 62 percent of all personal bankruptcies stemmed from medical problems that overwhelmed family finances. Even if Washington passes healthcare reform, rising medical costs seem likely to pressure the family budget for years, forcing many to simply spend less on other things.

  4. Child-care/elder-care expenses

    Many families have maintained their standard of living because both parents work. Between 1990 and 2008, for example, hours worked by both parents in a typical middle-income family increased 5 percent; in a middle-income single-parent family, hours worked spiked by 13.4 percent. That leaves less time for taking care of kids, aging parents, and anything else that needs attention—and the added costs of paying somebody else to do it.

    Data from the recession may show that child- and elder-care costs have eased as more people find themselves involuntarily stuck at home. And as Americans simplify their lives, some moms and dads may decide that it makes sense for one parent to spend more time at home instead of working to pay for a bunch of stuff the family doesn't really need.

  5. College costs

    A typical family with two kids should sock away about $4,200 per year to pay for college. That's a tall order. College costs have risen about 43 percent since 1990, nearly twice the rise in median income. And with state and federal education funds being axed, public universities are hiking tuition and fees.

    A budget crisis in California, for instance, has led to a 32 percent increase in tuition at marquee state schools like UCLA and Berkeley, with more increases likely. Private schools, meanwhile, are struggling with steep drops in their endowments thanks to the financial crisis and the housing bust, which trashed mortgage-based investments.

    The bottom line for many families is that they'll have to take out bigger college loans, with students working more to pay for their own education.

  6. Housing costs

    The cost of financing and maintaining a home soared by 56 percent between 1990 and 2008, thanks to the housing bubble that's now deflating. Many families that bought a home near the peak of the market—say, between 2005 and 2007—are stuck with property that's declining in value and in some cases worth less than the mortgage. That will continue to fuel foreclosures and the stress of making huge housing payments that the family income can barely cover.

    But the housing bust is helping bring prices back down to manageable levels for many families, one break for those who escape the recession with their household finances more or less intact.

  7. False expectations

    For the past 40 or 50 years, Americans have lived by a series of unofficial tenets: A good education guarantees a good job, hard work will bring prosperity, and 40 years of 40-hour-a-week work earns a comfortable retirement. Then, maybe; now, not so much.

    Workers who believe that somebody owes them a comfortable life just because they try hard are risking bitter disappointment in a Darwinian economy, where there are likely to be more losers and fewer winners than we're used to.

    The winners will be those who learn how to adapt, expect nobody to give them anything, and are prepared to work harder in the future than they did in the past. That's how it was in America before anybody ever heard of the middle class, and it may be that way for a while again. The real middle class—the true bedrock of the nation—will be able to handle it.

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