10 Things the Middle Class Can’t Afford Anymore
Middle class benefits are being revoked in the name of affordability. Because of several factors including stagnant wages, rising costs, and politics, being a member of the American middle class is quickly losing what little prestige it has remaining.
Are you 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, 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.
Discretionary income is not so easy to find. We’ve created a list of ten 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 are even necessities.
A vacation is an extra expense that many middle-earners cannot afford without sacrificing something else. A Statista survey found in 2014, 54% of people gave up purchasing big ticket items like TVs or electronics, so they could 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%).
The work environment is so competitive and demanding these days, even workers who receive paid time off often skip vacations. In 2014, Americans failed to use a total of 429 million days of paid leave. In fact, 40% of American workers cite the heavy workload awaiting their return as the top reason for not leaving the office, while 22% don’t want others to see them as “replaceable.” Yet research shows that vacation improves productivity and enhances personal health.
2. New vehicles
While many consumers take a great deal of pleasure in buying a new vehicle, a report from Interest.com shows many households are stretching dollars more than they should. Out of the nation’s 25 largest cities, Washington D.C. is the only place where families can truly afford a brand new car, according to a simple calculation. The online consumer finance company used what is known as the 20/4/10 rule to determine affordability. This means people put down at least 20%, finance it for no longer than four years, and not let the total monthly vehicle expense (including principal, interest, and insurance) exceed 10% of gross income.
High price tags don’t necessarily stop Americans from driving new cars. According to Experian, the average loan amount for a new vehicle at the end of 2016 hit $30,621, the highest level on record. The average loan term for a new vehicle is 68 months. Even used vehicle loans have an average duration of 66 months. About a third of all new vehicle transactions are leases — a typical method to purchase more car than you should. Meanwhile, the average monthly payment for new and used cars totaled $506 and $364, respectively.
3. Student loans
Since student loans are passed out like candy in America, virtually anyone can attend college. However, that debt may prove to be unaffordable in the long term if you overpaid for your degree. While college graduates typically experience lower unemployment rates and higher lifetime earnings than high school graduates, members of the middle class are finding out the hard way that student loans can wreak havoc on budgets.
Over the past decade, total college debt in America has surged 84% to over $1.2 trillion, according to the Federal Reserve. Approximately 40 million consumers have at least one open student loan, with the average balance totaling nearly $30,000 per borrower. More than 11% of college debt is officially at least 90 days past due. However, due to deferment, grace periods, and forbearance, the Federal Reserve admits the true delinquency rate on student loans is roughly twice as high. In comparison, credit cards have a delinquency rate of 8.2%.
4. Emergency savings
Nearly half of Americans are placing almost nothing aside for the future. According to a Bankrate.com survey, 18% of respondents are saving nothing at all, while another 28% are saving no more than 5% of their incomes. Overall, fewer than one in four Americans are saving more than 10% of their incomes, including one in seven who are saving more than 15%. Only 35% of households with annual income between $50,000 and $75,000 are saving more than 10% of their incomes.
A separate Bankrate.com report finds a mere 38% of Americans have enough money in their savings or checking accounts to pay for life’s little surprises, such as a $500 car repair or a $1,000 emergency room visit. If a financial emergency arises, 22% plan to cover the bill by reducing spending elsewhere, 16% say they will borrow money from family and friends, and 12% expect credit cards to fill the hole — potentially leading to even bigger problems down the road.
5. Retirement savings
The golden years aren’t just becoming tarnished, they’re becoming extinct. The National Institute on Retirement Security (NIRS) reveals some of the most depressing stats on retirement available. Out of all working age American households, the median retirement account balance totals only $2,500. Households near retirement age have a median balance of $14,500 — not even enough to replace one year’s worth of expenses for most older adults.
A retirement without some kind of employment is becoming a thing of the past. According to a new report from Transamerica Center for Retirement Studies (TCRS), 20% of all workers expect to continue working as long as possible in their current or similar position until they can’t work any longer, and 41% envision transitioning into retirement by reducing their hours or by working in a different capacity that is less demanding. Only one in five workers plan to immediately stop working and fully retire when they reach a certain age or savings goal.
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.
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.
People will often 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 issues (like cavities or infections).
8. Skipped paychecks
You know the situation is dire when even those with decent incomes can’t afford to skip a paycheck. Nearly one-third of households making $75,000 or more a year live paycheck-to-paycheck at least sometimes. A separate report from the Brookings Institution finds that around 38 million American households live hand-to-mouth.
Making ends meet each month has been the top financial priority for three consecutive years, according to Bankrate. In 2014, 41% of Americans are most financially concerned with paying bills, up from 36% in 2013 and 32% in 2012. Staying current or getting caught up on bills is the most common priority across all age groups, but highest among those ages 50-64, when Americans should be concerned with unaccomplished retirement goals instead of the monthly bills. The second most concerning financial priority is paying down debt.
9. Child care
Kids are expensive. The U.S. Department of Agriculture estimates it costs almost a quarter-million dollars to raise a child to age 18. Housing is the largest component of that estimate, but child care expenses also take up a significant portion and don’t appear to be getting cheaper anytime soon. The WSJ finds child care expenses are rising nearly twice as fast as overall prices, and in 41 states, sending a 4-year-old to full-time preschool exceeds 10% of a median family income. Full-time preschool is more expensive than pubic college tuition in 23 states, and care for an infant costs more than rent in 17 states.
10. Going to the movies
There’s nothing like seeing your favorite superhero on the big screen with surround sound, but that doesn’t always justify the price of admission. Many people aren’t going to the movie theater as often as they used to, and a big reason is the price. According to a recent report from PricewaterhouseCoopers, rising ticket prices is the biggest reason for movie theater dissatisfaction across all age demographics.
Ignoring the convenience of watching movies at home instead of an auditorium packed with annoying strangers, it’s not hard to see why more Americans are choosing to skip the movie theater for cheaper alternatives. The average movie ticket costs nearly $9. That’s roughly $36 for a family of four before you even get to the overpriced concession stand that’s marked up in order to keep ticket prices lower and the theater in business. By the end of the two-hour outing, a family could easily spend $60. In contrast, $60 buys the middle class six months of Netflix and all the movies and shows their eyes can handle.
Additional reporting by Eric McWhinnie.