Many middle class Americans are feeling less prosperous. In fact, Americans are two times more likely to feel financially insecure than secure. The American middle class is starting to think of itself as the working class. But why is this happening? Here are 11 reasons the middle class becomes poor and stays poor.
National income has increased for the last 50 years. However, the middle class has experienced very little income growth in the last few decades. This stagnation is a result of uneven income distribution, where the upper income quintiles have seen significant growth while the middle class has not. As a result, the middle class is shrinking. It made up 61 percent of the U.S. population in 1971 but is now down to 50 percent due to lower or stagnant household income.
In the past, children grew up to have better lives than their parents. But with stagnant incomes and falling wages, this is no longer true. A college degree has become crucial in improving economic prospects for middle-class children, providing a clear financial advantage in the modern job market. Only 50 percent of boomers’ children grew up to experience higher incomes. Ninety percent of boomers born in 1941 or older experienced higher incomes.
Rent is up 6.1 percent nationally, but pockets of the country have seen double-digit rate increases. Buying a home is no longer the American dream, as higher interest rates and low inventory have demolished that goal.
From 2020 to 2021, new car prices increased 17.2 percent. Used vehicles did worse, with a 32 to 36 percent increase. Although the increases have become lower, they're still rising. Between 2021 and 2022, new car prices rose 5.8 percent.
Car insurance is a necessary evil. You must have it, but it has become hard to pay. Between 2023 and 2024, car insurance increased up to 20.6 percent. Car insurance takes a significant chunk out of the budget and just pushes the middle class down further
In 2023, Americans spent $11,582 on daycare. The average middle class household earning between $43,350 and $130,000 means median household income rings in at $65,000. Taking childcare off the top brings the median family income down to $53,418. But you still need to pay car insurance, food, rent and other expenses.
All medical costs have increased. Between 2021 and 2022, healthcare spending increased by 4.1 percent, but that amount has accelerated. Just to give you an idea, the presumed less expensive outpatient medical services increased by 8.3 percent between 2023 and 2024. Non-prescription drugs were not immune to increased costs. From 2023 to 2024, they rose 9.2 percent. The result is that even more money is disappearing from the middle class.
The number of Americans who can’t pay their monthly bills has increased. The temporary pause on federal student loan payments during the pandemic provided a brief respite for many middle-class families who feel financially overwhelmed. They reached a new high of 41 percent in October 2022. The number of Americans living paycheck to paycheck also increased six percent. That inflated an already large number, with 78 percent living paycheck to paycheck.
We already mentioned that the median household income is $65,000. Despite having relatively high salaries, many upper middle class families experience financial struggles and frustrations, feeling unable to afford basic necessities like housing, healthcare, and education due to increasing costs. But how much is coming out of that check? The average American household spends $6,081 per month to run their household. That comes down to $72,967 per year. This circles back to 41 percent of American unable to meet their fiscal obligations each month.
Many middle-class families in the United States are living paycheck to paycheck, with little to no savings to fall back on in case of an emergency. A recent survey found that nearly 40% of middle-class households would struggle to cover a $400 emergency expense, such as a car repair or medical bill. This lack of emergency savings is a major concern for middle-class families, as it can lead to financial instability and stress.
Middle-class households are often forced to rely on credit cards or other forms of debt to cover unexpected expenses, which can further exacerbate financial difficulties. The inability to afford an emergency is a symptom of a broader issue: the erosion of economic security for middle-class families. As income inequality continues to rise, middle-class households are finding it increasingly difficult to make ends meet, let alone save for the future.
Policymakers must prioritize solutions that address the root causes of economic insecurity, such as stagnant wages and lack of affordable healthcare. By tackling these issues head-on, we can help restore financial stability and peace of mind for middle-class families.
Because of stagnant wages, many Americans turn to credit cards to finance their life, large purchases and emergencies. The average balance per individual is $6,501. As of March 2023, the average American paid $430 monthly on that credit card debt. Once more, with the median at $65,000, that's a chunk of the monthly income and does more harm to the middle class.
Education and job training are critical components of a path forward for middle-class families, as they can provide the skills and knowledge needed to compete in the modern economy. Middle-class households often face significant barriers to accessing affordable education and job training programs, which can limit economic mobility. Policymakers must prioritize solutions that address these barriers, such as investing in programs that provide free or low-cost education and job training.
By supporting workers and families in their pursuit of education and job training, we can help ensure that the benefits of economic growth are shared by all. Education and job training programs can also help address geographic disparities, as they can provide workers with the skills needed to compete in the modern economy. By promoting education and job training, we can help ensure that middle-class families have access to the resources they need to succeed.
Addressing the need for education and job training is critical to promoting economic mobility and reducing income inequality. By investing in the future of our workforce, we can create a more inclusive and prosperous economy for all.
The middle class has been slammed with stagnant wages and high expenses over the past few decades. This only drives the middle class shrinkage and drives them to poverty levels.
