I have been holding off on this series for a while.  Because I was hoping there would be some good news to include as a “happy ending”.

But, real life doesn’t always yield those happy endings.   Sure, there is some change- but not often does it include that happy ending..  Let’s start with the fact that the Great Recessiom is over-  unemployment is down, employment is up, and wages may be increasing (ok, by 1% or so) for a slew of workers.

There’s lots of other data that swears the Great Recession is over, too.  Since 2013, the Federal Reserve Board has been surveying (annually) Americans to discern their “feelings” about the economy.  What did they find?

49% of part-time workers want more hours (not very surprising) and about 29% of all employees expect raises in pay.  But, only 27% feel their prospects have improved and 19% thought they were worse off.

Those are great feelings- but what about the underlying facts behind the numbers.  47% of those surveyed had no clue how they could pay for an emergency that cost $ 400.  These folks- most of whom are “middle class”- have no savings- and would either sell something or check to see if they could use their credit cards to pay this bill.   For $ 400!!!!!!!

This is not just for this year, though.  Back in 2014, Bankrate surveyed Americans and discerned that only 38% could cover a $ 500 car repair bill or $ 1000 emergency room bill.

Pew (as in Pew Research) found that 55% of Americans would be devastated if they lost their income for a month- since they lacked the funds to bridge the gap.  71% knew they didn’t have enough money to cover their current everyday expenses- even while working full time.

An older study, back in 2011, by Lusardi, Tufano, and Schneider (Brookings Institution) found that ¼ of the folks who were in the upper middle class ($ 100K to $ 150K) couldn’t raise $ 2000 in a month- if they had to.  If that doesn’t scare you, the next series of data will.

It shouldn’t surprise you that median net worth has decreased 85.3% in the past 30 years (1983 to 2013) for the bottom quintile of Americana; it dropped 63.5% for the second lowest quintile, and about 25.7% for the middle quintile.  Oh, those drops occurred while the top 1% had dramatically increased their net worth.  Moreover, in those the bottom 2 quintiles, about 1/4 of the folks in their prime working ages (24 to 55 y) had ZERO net worth.  The middle quintile, with an average income of $ 50K had but 6 days of cash on hand.  The next higher quintile (from 60 to 80% of incomes) had all of 5.3 months of reserves.

Which is probably why the US Commerce Department is trying to redefine the middle class  (Middle Class in America, 2010). Instead of using the median pay rates (which would yield very dismal results), they would prefer to use aspirations.  They want to use home ownership, cars for each adult in the home, being covered by health insurance, taking a family vacation, and the desire to send their kids to college as the “definition”.  By the way- those attributes means a family of four would need $ 130K in income- about twice the median family income in the US.

As a comparison, Pew defines middle class the conventional way- those making between 2/3 and twice the median household income.  That range comes to about $ 45K to 125K in income- for a family!

The reasons for these failures, however, is not simply the poor economic conditions in America.  It’s the financial knowledge our citizens possess.  Most Americans are simply financially illiterate. (Some 65% of those in the prime working age, as defined above, failed to demonstrate financial knowledge in a pop quiz.)

So, we not only have to find ways to increase our citizen’s income- but improve their ability to manage the money they have.  It was less of an issue when income was continually rising.  But, with fewer reserves, the need to conserve cash and use wisely what we have is a far more critical life skill.

Share this: