The real source of middle-class money woes

After the 'lost decade' of the 2000s, average Americans are still suffering from 3 persistent economic ailments.

By MSNMoney partner Sep 12, 2012 12:45PM

US News & World ReportBy Kimberly Palmer


There are many reasons middle-class Americans feel squeezed right now: The high unemployment rate (8.1 percent), rising cost of college tuition, or the fact that close to one-third of homeowners are underwater. But it's a combination of three other factors that led the Pew Research Center to label the 2000s a "lost decade" for the middle class: declining household income, shrinking net worth, and a smaller middle class.


"Income peaked in 1999 and it has not yet returned to that peak," says Paul Taylor, a coauthor of the report and the executive vice president of the Pew Research Center. "It's the first decade in modern U.S. history where that's the case," he adds.


While income tends to be more volatile as people lose and gain jobs, Taylor says net worth is also a valuable measure of financial security, because it indicates whether people are able to afford an unexpected medical bill or other unplanned expenses. "It's enormously important to people's sense of economic well-being," says Taylor.


Pew measured the size of the middle class by defining it as those earning between two-thirds and double the national median income. Around 51 percent of Americans fell into that category in 2011, compared to 61 percent in 1971. Taken together, these numbers show that "the middle has gotten poorer and smaller," says Taylor.


Survey respondents' perceptions of the economy and their own well-being also reflect those negative numbers. Among middle-class adults, 85 percent said it was more difficult now than it was 10 years ago to maintain their standard of living, and most respondents also agreed that "It is more difficult to get ahead today than it was 10 years ago." Meanwhile, the majority of middle-class respondents said they "had to reduce household spending in the past year because money was tight."


Respondents also estimated that it takes a household income of $70,000 a year for a family of four to live a middle-class life. (Pew estimates that the median income for a four-person household is just under that figure.)


Young people had a particularly rough decade. Their income declined and a greater share are unemployed now than 10 years ago. In addition to the challenging job market, Taylor points out that the housing market was rough on young people as well. Many of them bought their first homes at bubble prices, and then watched as those homes lost value, and in many cases became worth less than the money owed on them.


"That's affected people of all ages, but older adults tend to have purchased their houses longer ago, already paid of their mortgages, and purchased at pre-bubble prices," explains Taylor.


Young adults, in fact, were the only age group where the percentage of people who describe themselves as "middle class" declined between 2012 and 2008. In 2012, 4 in 10 young adults labeled themselves "lower class," compared to just 1 in 4 in 2008.


Adults age 65 and older fared best over the last decade; their income grew the most—10 percent—between 2001 and 2011. Taylor attributes that to the fact that many sources of income for older Americans, such as Social Security and proceeds from retirement accounts, are fixed, so they are relatively immune to economic swings.


Still, Americans have managed to retain their optimism, especially over the long term. Most respondents said their own standard of living beats that of their parents at the same age. Given the growth in income over four decades, that statement rings true: Since 1970, median household is up 32 percent. "Over the long haul, in the long arc of their lives, Americans are doing better, but they had a very bad decade," says Taylor.


Respondents also drew a distinction between their own personal finances and those of the country, and they tended to be more optimistic about the former. More Americans believe their children's standard of living will be better than their own than believe it will be worse (43 percent versus 26 percent).


"It's a phenomenon in survey research: 'The world is going to hell, but I'm doing okay,'" says Taylor, adding, "It's hard to beat the optimism out of the American public."

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Sep 14, 2012 1:03PM

sadly, we make more now than we ever have yet we are struggling more than ever too.  my house pmt is 600 less a month than before so you would think I would have surplus of extra money to save..not happening.  gas prices are so high we can barely afford to drive to work.  my weekly grocery/necessity trips just keep going up and still we run out of food.  utilities are getting out of control as well.  we have had to resort to timing our showers to try and keep our water bill affordable.  we keep the house a lot warmer than we like to keep the lights on.  I pay a fortune for health insurance but my deductibles and copays are so high I can't even afford to use it.  we don't go out to eat except fast food once a week to give me a break on cooking and cleaning up that mess.  I don't go shopping unless my daughter needs clothes or school supplies.  we stay home and do nothing fun but there's still nothing left like a few years ago.  i don't have the ultra expensive cable, or any frivolous things like that.  we cut our home phone off 12 years ago and there aren't any extras left to cut....thank you government for caring more about everyone else in foreign countries than fixing our problems over here and getting the economy better and the cost of living more manageable.  I saw we vote EVERYONE out and start from scratch.  too bad we can't fire them all.

Sep 14, 2012 1:03PM
They are missing it again!!  Gas a 4 bucks a gallon is where the pinch is.  This drives up the price of everything from clothing to food.  That is the problem!!!  If I could fill up my truck for 20 bucks I would have alot of extra cash!!!
Sep 14, 2012 1:52PM

I grew up in a middle class home.  We had one television set, one telephone, one car (that my parents shared).  We lived in an 1800 square foot home with three bedrooms.  We ate at home most nights, and packed a lunch for school most days. We went out for dinner every other week as a family, and were treated to McDonalds about once each month.   I had a bicycle that I paid for out of my paper route money, and generally received a couple of toys and clothes for Chistmas.  Life was good.

Sep 14, 2012 1:06PM
way to much greed and corruption in the govt  for the middle class to catch up
Sep 14, 2012 12:52PM
Simply put, the government is no longer looking out for the American people, the middle class, those in poverty, none of us. They are only looking out for their wallets, their off shore accounts, their power and of course the corporations that keep all those things a float. I think it's a sad day when in all honesty I don't want to vote for president because I think all the parties are corrupt and at the end of their four year term, will have done nothing that helped the middle class. After all the problems we are facing today with the middle class barely being able to keep their homes is purely at the fault of our government and greedy CEO's. They all have more money than they can spend in their lifetime, their children's lifetime and their children's children's lifetimes, hell I'm sure it even goes farther than that. Why not spread the wealth? I mean really what were the people thinking elect officials who have invested interest in companies like Goldman Sachs? I think if there was every a time for a revolt of the people now is the time to do it. Romney is a snack and Obama is a liar so.. who ya gonna pick the snack or the liar?
Sep 14, 2012 12:46PM
Number ONE reason: Shipping jobs overseas
Sep 14, 2012 1:01PM
Politicians are only a small part of the problem. The real problem is greed at the top. All the money is being taken by the people at the top..... CEO's, corporate execs, bankers, etc. While the guy at the register is making 8 bucks an hour, the CEO is making 24 million a year ($461,000 per week). There is no rhyme or reason other than greed, and the fact that most people are just animals with no conscience or soul.
Sep 14, 2012 2:13PM
Until politicians stop voting on PARTY LINES, instead of what if best for the country we will continue to decline. Why are we paying congressmen to do that? You could train a monkey to do the same and they work for bananas.
Sep 14, 2012 3:10PM
No industry, no middle-class! What do you think created the middle class?

The politicians are doing nothing to encourage more industry in America. 
Sep 14, 2012 3:49PM

Personally, it is the high cost of utilities that has my head spinning. I am a single income household. Everything I have is paid for because I purchased used / fixer upper etc and paid it off working three jobs , within five years of graduating nursing school. Still, my hours have been reduced and therefore the utilities, cost of gasoline , insurance and taxes are eating me alive. Why is it that even when we own something in this country we NEVER REALLY OWN IT.  If you think you do , try NOT PAYING YOUR TAXES for a while and see what happens. Or try having your ulities turned off and roughing it and see how fast the local government wants to claim/ and or condemn you out of a house. All I know is this. By the time I pay the utilities and gas to go back to work , I often dont buy groceries because the money simply isnt there. Mandatory this and mandatory that.  If I would not have had the good sense to purchase an older used mobile home and do the work myself to fix them up ,......or even if I had chosen to rent (as my teenage son at the time longed for me to do) I WOULD NOW BE HOMELESS OR LIVING WITH MY GROWN CHILDREN.!  I watch HGTV and see the prices of homes.....100,000.00,      200,000.00,       300,000.00  .....half a million dollars... and then you can figure in the finance charges, mandatory insurances, fees and Interest = NEVER GONNA LIVE TO SEE IT PAYED FOR.  Yet the people are always saying " IT FEELS SO WONDERFUL TO FINALLY OWN A HOME"  or "WE ARE SO PROUD TO FINALLY BE HOMEOWNERS".  Stop fooling yourselves, UNTIL ITS PAID FOR , YOU ARE NOT A HOMEOWNER  and even then you better "watch your back" or it will be taken for some reason or the other. And another thing, while Im at it. Why is it that the welfare goes to those without jobs. In theory sounds really great, But in reality , if you work and try to earn your own way you just cant get any help. LAND OF THE FREE? Not unless your a foreigner Home of the brave     "WE HAVE TO BE  BRAVE BECAUSE BRAVERY  IS ABOUT ALL WE HAVE LEFT ! " and even when we are scared to death we will forever wave that flag and proclaim our love for this country because for now anyways, we can hold up our heads and say "we are Americans" even if we dont buy the BS abou tthe American dream ..............


Sep 14, 2012 1:58PM

We need a new party with this platform:


1) Tariffs on foreign-worker-made goods to bring jobs back


2) Close the overseas bases & bring the troops home to guard the borders


3) Next country that attacks us or supports terrorists we don't invade; we bomb them into the Stone Age and don't rebuild them. Let them starve, too


4) Eliminate government subsidies, period. (unless developing NEW industries that need help until they can stand on their own and get phased out)


5) Eliminate corporate personhood, but also put limits on lawyers. (tort reform)


6) Eliminate all private financing of political campaigns.


7) Repeal the Patriot Act, NDAA 2012, etc. End the relentless march to a police state.

Sep 14, 2012 2:05PM
It's because the middle class is too busy supporting the lazy welfare leeches that have no desire to push themselves.  I'm sick of paying for other people's kids and cable tv and this world, you work hard or you don't eat...why do we give the lazy what they need while they pop out their 7th kid to their 5th boyfriend...and we call it's not's time for them to pull their weight.
Sep 14, 2012 3:35PM
It is now wonder that  the middle class is struggling. I consider myself as one of the middle class. We pay over half of our income to some form of tax, ( income, property, sales, excise, vehicle,etc) And then with the cost of insurance, vehicle, costs to get to work, mortage, and health insurance, there just isnt much left.  It seems like you cant get ahead unless you can get some form of government handout. And if you are like me, there just aren"t any. I wouldn't want one anyway. And yet it seems that the government always has money for subsidies for farmers, oil, special interest and so on. And I will bet that many of these folks dont pay any income tax at all. Only 40% of Americans pay income tax. Ill bet themiddle class pays the largest percentage.  Gee, I wonder why the middle class is struggling?
Sep 14, 2012 4:28PM

This is not going to STOP!!







Sep 14, 2012 2:22PM
You can't run a country on just service jobs alone we need to start making products here again.  Now the only jobs that are left that are decent are goverment and there being cut.  We spend too much money on stupid things like oil wars! 

stop supporting the other countries and  get the USA out of the hole before we become a 3rd world country

the middle class need to stop voting in the rich, famous, and wealthy and let the middle class rule this country...just because you have money does not mean you know how to rule a country


Easy question to answer   --- I as a middle class pay for the poor and pick up where the rich try to find loop holes not to pay   ----  too tired to fight about it.

Sep 14, 2012 1:03PM

From the numbers and the dates they measure, how can Mitt blame Obama for the problems of the middle class today.  Seems like we had a Republican president in office during eight of those years.


The rich have the money and time to buy and influence the government.  Money talks, according the the Supreme Court, and the rich have the money to control the government.  The rich are rich because they had to make someone else poorer by taking their money.  Congress has messed up the economy by allowing the rich to munipulate the laws in their favor.  Corporations only exist to make profits and the best way to make profits and keep them is to influence Congress to write laws that fovor corporations.


Looke at the trade agreements, the tax laws, investment laws and you will see that Congress has made it easy and profitable to move jobs and companies overseas.  Congress has allowed our nation to fall out of first place in many categories and I believe that happened because the average citizen has lost his ability to change Congress due to the rich and corporations using their money to keep their boys in Congress under their control.

Sep 14, 2012 2:14PM
We should set the wages for the government positions. If they don't like it they can go somewhere else. They need to know that there's always someone who is willing to take their place. Take the vote for them to give themselves a raise away. They need to be treated like we are treated and only then they may understand.
Sep 14, 2012 3:23PM
The reason the middle class can't catch up is that the Fed doesn't want us to catch up.  Remember Greenspan always worrying about "wage inflation"?  Well, he and Bernanke have subdued that fear.  Wages are down.  Profits are up. Food and utitlites and gas are up.  The middle class is turning into the serfs of this nation.  Uncle Sam is playing the willing lapdog.
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