Here’s all you need to know about the fragile state of the American middle class. An online payday-type lender named Elevate Credit sees the middle class as its target market.
“Decades–long macroeconomic trends and the recent financial crisis have resulted in a growing ‘New Middle Class’ with little to no savings, urgent credit needs and limited options,” the firm says on its website.
The new middle class. Lining up to borrow money at triple-digit interest rates.
You probably think of payday lenders as unsavory places where Americans without checking accounts must go to cash a check, or where folks without credit cards rob Peter to pay Paul so they can pay the electric bill. Well, if Elevate is to be believed, triple-digit rate loans aren’t just for the poor anymore.
As part of my Restless Project, I argue often with anyone who will listen that the American economy is seriously broken — and the middle class has a lot more in common with the poor than the rich. Folks who don’t realize this aren’t paying attention, and they’re destined to be surprised when they find themselves shopping for payday loans someday.
How did this happen? Easy. Monthly expenditures are up for families, while incomes are flat. More money is going out, while more money isn’t coming in. Each time costs edge up while income doesn’t, people are closer to the “don’t even have one month’s of emergency savings” category.
The new middle class is the restless class. They might live in a nice-enough house, and even have some nice clothes. But they are one illness or one layoff away from a very uncertain future.
The Pew Charitable Trusts recently broke down the “more money is going out” data is a report blandly titled “Household Expenditures and Income: Balancing family finances in today’s economy.” There’s nothing bland about its content. From 1996-2014, a typical American family spent about 25 percent more on housing, food and other basics. During the 1996-2014 time frame, the biggest expenditure jumps came in housing, which grew from $12,300 annually to $17,000 annually, and health, which jumped from $1,119 to $2,560.
But incomes didn’t keep pace with rising costs. As a result, “slack” — or money left over at the end of the month — is disappearing from the family budget. On average, Americans spent 71 percent of income on the basics in 1996, and in 2014, it was 75 percent, and headed the wrong way.
The recession really exacerbated the problem.
“From 2004 to 2008, median household income grew by only 1.5 percent, while median expenditures increased by about 11 percent,” Pew said. “By 2014, median income had fallen by 13 percent from 2004 levels, while expenditures had increased by nearly 14 percent. This change in the expenditure-to-income ratio in the years following the financial crisis is a clear indication of why and how households feel financially strained.”
Do your own math. The typical household – using “median ” data — saw its spending grow from $29,400 in 1996 to $36,800 in 2014, or roughly $3,000 a month. Using “average” numbers, spending grew from from $43,200 to $54,800 during that span, or about $4,500 a month.
How does your family compare? Recently, I asked readers to share their monthly budgets with me — asking how some families live on less than $60,000 annually — and these figures are in line with what I heard from you. Here’s a typical budget from Texan Matt DeMargel
Child care: $600
Car insurance and gas: $300
(Note, the DeMargel family was lucky enough to pay nothing for child tuition or student loans.)
Even that modest budget requires a roughly $60,000 salary, before taxes. Remember, these are real expenditures, so they must be paid with after-tax, actually-hit-your-checking-account dollars.
Of course, people at the lowest economic rungs struggled the most. Households in the lower third spend 40 percent of their income on housing, while renters in that third spent nearly half of their income on housing, as of 2014. That’s a flat-out terrifying way to live — renting, and giving half your paycheck to a landlord.
But it’s important to note that struggles and anxiety are continuing to reach deeper into that “new” middle class.
Back in 2004, the typical household in the lower third had a little less than $1,500 left over every year after accounting for annual outlays – so-called “slack” in the budget. Just 10 years later, slack for this group had fallen to negative $2,300, a $3,800 decline. These households may have had to use savings, get help from family and friends, or use credit to meet regular annual household expenditures. Those without credit cards turned to products like payday loans.
Slack has all but disappeared from the “middle third” folks as well, however. The typical household in the middle third saw its slack drop from $17,000 in 2004 to $6,000 in 2014. In other words, the “leftover” line on the monthly budget fell from about $1,500 to $500 for America who are solidly middle class, approaching upper middle class. That’s $500 to deal with every emergency car repair, unexpected health issue, or Heaven forbid, a vacation.
No, living without slack is nothing like standing on bread lines. But it is frightening enough to keep you up at night. And it should help you realize that the “new” middle class, the restless class, has a lot more in common with the poor than the rich in America.