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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394Comments
Sep 14, 2012 2:22PM
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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! 
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I agree with you Sam McCue.  Albert Einstein said that right!  It wasn't the last 12 years  of the left or right pointing fingers. It been over the last 50 years of the left and right pointing finger.  It doesn't matter what side is in the office they will bring us down.  We the people have just got to get more involved and quit having the government continuing getting bigger. 
Sep 14, 2012 2:16PM
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Why is it harder to get ahead?  Because the Fed keeps devaluing our money.  Period.
Sep 14, 2012 2:15PM
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compare your income to the worlds at  gloalrichlist dot com , its very interesting!  Think different about how we live.
Sep 14, 2012 2:15PM
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On 7-19-12 repubs block the vote to remove tax breaks for companies that take Americam jobs offshore. The same bill would give tax breaks to compnies that would bring American jobs back. WHY? Because repubs like keeping their investment returns and paychecks in offshore accounts where they can hide the money from paying American taxes. Bain, Romney's company is being investigated for making financial accounts spin into accounts that are turned into accounts, to be taxed as capital gains investment money, instead of a pay check money they originated as with higher tax rate! REPUBS HATE AMERICAN WORKERS OVER$$$$$$$$

Sep 14, 2012 2:14PM
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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 2:13PM
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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 2:09PM
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The main problem is that the middle class works for a living.  Obviously we're subhuman.  The superior man makes money the old fashioned way, he inherits it.

If you "supervise" or "manage" for a living, don't get smug.  You're next.  Sooner or later there'll be another round of deregulation, & the wealthy will cook up a way to scam you out of your money, probably through your credit cards.

It starts when something representative of your personal creditworthiness is vastly inflated.  It could be your stock porfolio (see Roaring Twenties), your car (see Planned Obsolesence), your savings (see Savings & Loan Scandal), or your credit score (see Great Subprime Mortgage Scam).  After you've been cheated out of every penny they can get, the scam artists will point out that your bankruptcy left much of the debt outstanding.  Then they'll rob the government (see Bailout),

Sep 14, 2012 2:09PM
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Maybe the "standard" of living needs to change!  Debt is dumb, cash is king and the paid off home mortgage has taken the place of the BMW as the status symbol of choice! 
Sep 14, 2012 2:08PM
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Ummm, as of today, Obammy is still our Socialist leader, right? That's why we can't catch up.
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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.

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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 2:07PM
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The old man had it right (as usual).

 

"We can't solve problems by using the same kind of thinking we used when we created them (because) no problem can be solved from the same level of consciousness that created it.   

We shall require a substantially new manner of thinking if mankind is to survive."  Albert Einstein

Sep 14, 2012 2:05PM
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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 beer...in 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 charity...it's not charity...it's time for them to pull their weight.
Sep 14, 2012 2:05PM
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Oh yeh, that let the market manage itself Greenspan managed,Republican advantage plan really screws ya, so how about some more they say! Except this time they will use SSI and Medicare money for the marketing funding!
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The funny part is the majority of people in first and second world countries ignorantly refuse to acknowledge the true underlying issue to all this madness and chaos.  The true cause behind all this turmoil isn't mentioned in this article.
Sep 14, 2012 2:04PM
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The reason we can't catch up is because the fed and the government are morons, rewarding the people who do wrong at the expense of the ones who do right. 

 

I believe that our democracy is doomed! 

 

There has been soooooo much smoke up my **** from the Democrats that it puffs smoke rings.  An ordinary american housewife can run this country better than that idiot in the oval oriface.

Sep 14, 2012 2:02PM
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Ross Perot was a good candidate. I threw my vote on him twice. Just think where we would today, HOW MUCH THAT GONNA COST?
Sep 14, 2012 2:01PM
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Is anyone really surprised that this is happening? Until policies and legislation are catered to the working/middle class, we all have no shot at reversing this trend.
Sep 14, 2012 2:00PM
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Ya know, theres nothing more I can cut back or cut down on.Way worse off than 4years ago.      
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