The Challenges of Attaining - and Staying in - the Middle Class
As opposed to the past, it is increasingly more difficult to gain a foothold up the economic ladder – and stay there.
Hello there, Talking About Money Community, I am wishing you well. 🙏🏽
In this post I want to discuss what it takes to enter – and remain in – the middle class in the United States. To be clear as to what constitutes the middle class, it is defined as in between two-thirds and double the median annual household income. For a household of four in 2018, “middle class” was somewhere between $60,000 and $180,000.
Look at those numbers again. The difference between $60,000 and $180,000 is a big range. Of the households of four that you serve, how many earn at least $60,000? Depending on the cost of living where you are located, you could have many clients or you could have only a few, since $60,000 translates into approximately $30/hour for one full-time worker, or two full-time wage earners each making $15/hour.
What about the upper end of the range, those households making $180,000 annually? You might look at that number and think that there is no way that those folks would ever need your help, as those are households with one worker making $90/hour or two full-time workers making $45/hour. How could they possibly ever be in need of assistance?
The reason why the middle class is in its current fragile state can be distilled down to a few reasons. This is what Richard Reeves of the Future of the Middle Class Initiative at the Brookings Institution calls the “three H’s”—housing, health care, and higher education. Let’s look at the impact of each of the three H’s in turn:
The Impact of Housing on the Middle Class
The first article that I want to share with you is a February report released by the National Association of Realtors (NAR) called “The Double Trouble of the Housing Market.” Their data show that since 2019, a typical home is about $80,000 more expensive that before the pandemic. This is coupled with a housing shortage, hence the “double trouble.”
First, this report looks at housing affordability. It states that in the past three years home prices have risen 30%, while wages rose just 12%. Households earning $50,000-75,000 (maybe a few of these households are your clients?) can only afford around one-third of the available housing stock (as compared to being able to afford 40% of available listings as recently as 2019).
But to acquire a home mortgage, first you need to find a home to make an offer on, and this has gotten worse since pre-pandemic times. According to NAR, in 2019 there were 450,220 homes available for buyers in the $50,000-75,000 income cohort, as opposed to this year when there are only 165,280, less than half.
If you think back to 2019 and remember that your clients were having a tough time affording the available housing stock in your area, and you have this feeling that the market is in even worse shape today, you are right.
The Impact of Health Care on the Middle Class
The second article that I want to share with you is by Jonathan Walker at Elevate’s Center for the New Middle Class called “Americans Feeling the Sting of Inflation in Gas, Healthcare Costs.” What Jonathan found from those that he surveyed in 2021 was that 10% more respondents with non-prime credit scores (maybe a few of these households are your clients?) reported that they were experiencing “a lot” of strain from the cost of healthcare, both insurance costs as well as out-of-pocket expenses than they were just three years ago.
This is backed up by a report issued in January 2022 by the Commonwealth Fund titled “In 37 States, Workers’ Health Insurance Premiums and Deductibles Take Up 10 Percent or More of Median Income.” On average, they found that by 2020 the cost of health insurance premiums and deductibles for an average household amounted to a little over $8,000. Furthermore, in 2020 there were 37 states with workers who were at risk of spending more that 10% of their total annual earnings on healthcare costs. Finally, they found that workers at lower-wage companies tended to contribute more per month to their family health insurance premiums than did workers at higher-wage firms.
As you can surmise, the higher cost of health care has implications in general for household financial management and more specifically, for housing affordability among your clients. If your client is already paying upwards of $8,000/year on healthcare costs, how quickly can they be expected to save for a down payment on a home that you want to help them purchase?
The Impact of Higher Education on the Middle Class
As is considered common knowledge by now, having a college degree enhances your ability to gain entry into the middle class. According to the Pew Research Center in their May 2022 article titled “Black and Hispanic Americans, those with less education are more likely to fall out of the middle class each year,” in a 2021 study, 23% of adults with a bachelor’s degree or higher moved up income tiers, while only 9% with higher education moved down. Juxtapose this to those who have earned less than a high school degree – only 7% of those adults moved up an income tier, while 28% of them moved down.
Going from bad to worse, it appears that fewer Americans overall are pursuing higher education. The final article that I would like to share with you is from Jon Marcus at The Hechinger Report called “Another million adults ‘have stepped off the path to the middle class.’” In it he cites statistics that since the start of the pandemic, one million fewer students have enrolled in college, and over the last decade, the drop has been three million.
Furthermore, this significant shortage in people with college degrees will mean fewer people with high skill jobs and lower tax revenues for society (though social service usage is expected to rise). Those most affected by this shift include the children of low-income families (maybe a few of these households are your clients?), meaning that class- and racial-inequality will expand. According to the article, people without college educations are less likely to vote, less likely to volunteer, and more likely to divorce, leaving communities and households alike with greater instability.
The vast drop in college attendance could encourage colleges and universities to reimagine themselves in order to attract and retain college students, but that is yet to be seen.
I did not intend this post to be all doom-and-gloom, but alas, that is where we have arrived. In the theory of “everything affects everything,” I think that we need to take a more holistic view of the challenges that face our clients. Had you considered that rising health care costs lead to lower rates of home ownership among your clients? Or have you realized that with fewer members of your community with college educations, there will be fewer volunteers to count on to support local initiatives?
What do you say…?
How successful have you been in the recent past in supporting your clients in pursuit of a middle class life?
What’s your observations on the causes that keep your clients from achieving their goals?
Share your thoughts with this insightful and supportive (and did I mention good-looking?) community, either in the Comments below or on LinkedIn. Thanks, stay safe, and be well.
