Today’s American middle class lifestyle

America is built around and for the middle class, although this point also can be argued upon, including by me. However, the middle class in one way or another is the backbone of the American society and small entrepreneurship is a driving force of American economy.

However, the gap between the wealthiest Americans and middle- and working-class Americans has more than tripled in the past three decades, according to a June 25 2007 report by the Center on Budget and Policy Priorities and it can cause long-term damage to the middle class and even to the whole American society structure.

Report from September of 2010 shows the problem is continuing to rise. “The top-earning 20 percent of Americans -- those making more than $100,000 each year -- received 49.4 percent of all income generated in the U.S., compared with the 3.4 percent earned by those below the poverty line, according to newly released census figures. That ratio of 14.5-to-1 was an increase from 13.6 in 2008 and nearly double a low of 7.69 in 1968.

A different measure, the international Gini index, found U.S. income inequality at its highest level since the Census Bureau began tracking household income in 1967. The U.S. also has the greatest disparity among Western industrialized nations.

"Income inequality is rising, and if we took into account tax data, it would be even more," said Timothy Smeeding, a University of Wisconsin-Madison professor who specializes in poverty. "More than other countries, we have a very unequal income distribution where compensation goes to the top in a winner-takes-all economy."

Among the 2009 findings:

--The poorest poor are at record highs. The share of Americans below half the poverty line -- $10,977 for a family of four -- rose from 5.7 percent in 2008 to 6.3 percent. It was the highest level since the government began tracking that group in 1975.

--The poverty gap between young and old has doubled since 2000, due partly to the strength of Social Security in helping buoy Americans 65 and over. Child poverty is now 21 percent compared with 9 percent for older Americans. Every fifth child in the United States lives in poverty!!! Am I only the one who wants to scream my lungs out about that??!! Is that the American way??? Is that the society we want to live in and leave to next generations??? Just for the information, in 2000, when child poverty was at 16 percent, elderly poverty stood at 10 percent, although in my mind even those numbers should not be a norm in any part of the world.

November 24th, 2006 “USA Today” published an article with the title “Wealth gap swallows up American dream”. This article is written about real estate and homeownership situation in the US not long before the crisis broke and hurt many people, especially in the middle class. Author of course couldn’t know for sure what was coming next, years of deep recession, countless foreclosures and even more shrinking middle class. But the article was spot on the current at the time issues, so it is interesting to remind ourselves what was happening then.

I will quote a couple of interesting points from it. “Elsewhere across the USA, the megarich are still snapping up homes in such enclaves as Vail, Colo., and Beverly Hills, and often paying cash. Sales of homes above $5 million are up 11% this year and are on track to break another record, according to an analysis by DataQuick Information Systems for USA TODAY. As for the national average, by contrast, sales are off about 8%. Prices fell in September for a second-consecutive month, partly because they'd soared beyond the reach of many.

“There's the rich, and then there's everything else, in terms of the economy but also in terms of social class," says Edward Wolff, a New York University professor and expert on the wealth gap. He likens it to the social divisions of the 1890s, adding: "If you don't counteract the extreme inequality trends, I see some social upheaval coming. That's my worst fear."

Homeownership is the No. 1 source of wealth-building for middle and lower classes, and the housing boom made millions of homeowners "house rich." But over the past five years, once you account for inflation, incomes for these groups are actually down. Many low- and moderate-income families are spending home equity just to maintain their lifestyles.

Nationwide, nearly 90% of homeowners who refinanced homes from July through September took cash out of their property — the highest level in 16 years, according to Freddie Mac.

And while rising home prices mean rising wealth, they also mean larger mortgages. For the middle class, the ratio of debt to net worth has nearly doubled since 2001 and is now in dangerous territory.

The number of homeowners who spend 30% or more of their income on housing has jumped to 35%, up from 27% in 2000, leaving little or nothing left to save. By contrast, incomes for the rich are rising, protecting them from the downsides of real estate cycles.”

(http://www.usatoday.com/money/perfi/housing/2006-11-24-luxury-homes-usat_x.htm)

Remember the Financial Wealth Distribution diagram on page 21? 42 percent of financial wealth is controlled by the top 1 percent. Even worse, I will add a bit more statistics here, according to the Wall St. Journal, a 2008 study of wealth in the United States found that the richest .01% (that's one-hundredth of one percent, or 14,000 American families) possess 22.2% of the nation's wealth. Bottom 80% which includes middle class owns only 7% of financial wealth.

“The Growing Gap between Rich and Poor in "Classless" America” article published on October 3rd, 2010 in England at “The Market Oracle” gives some outlook at today’s American situation from – more or less – neutral, not from the US, side.

“A recent report by Ray B. Williams points out that "The U.S. Census Bureau and the World Wealth Report 2010 both report increases for the top 5% of households even during the current recession. Based on Internal Revenue Service figures, the richest 1% have tripled their cut of America's income pie in one generation. In 1980 the richest 1% of America took 1 of every 15 income dollars. Now they take 3 of every 15 income dollars.... Income inequality has been rising since the late 1970s, and now rests at a level not seen since the Gilded Age (1870 to 1900), a period in U.S. history defined by the contrast between the excesses of the super-rich and the squalor of the poor."

According to Paul Buchheit of DePaul University, "In 1965, the average salary for a CEO of a major U.S. company was 25 times the salary of the average worker. Today, the average CEO's pay is more than 250 times the average worker's." The New York Times reported March 31, 2010, that "Top hedge fund managers rode the 2009 stock market rally to record gains, with the highest-paid 25 earning a collective $25.3 billion, according to the survey, beating the old 2007 high by a wide margin." The annual GDP of nearly 90 UN member nations is lower than what these people took home last year. The highest paid manager on the list was David Tepper of Appaloosa Management, who made $4 billion last year."

Throughout their lives, average Americans are taught by their school, church and corporate mass media that theirs is a classless society, and that the notion of classes, class struggle or class war is just left wing propaganda.

Differences in income are acknowledged — but it is claimed that since upward mobility and attainment of the American Dream are available to everyone if they work hard enough, there is only one class despite gradations in wealth. It's called the middle class, presumably with statistical subsections for the very rich and very poor. But the "Dream" and upward mobility have never been available to everyone, and over the last three decades have been substantially reduced for many new generations of working families.

How often do you hear the politicians of the two ruling parties or the government they administer referring to the working class, lower middle class, the lower class or the upper class and the ruling class?

In America, virtually everyone seems to be lumped into the middle class if they are earning between $25,000 and $250,000 a year, which is a preposterous parody of real class relations. Representatives of these two income variants have little to nothing in common except the class to which they appear to have been assigned.”

(http://www.marketoracle.co.uk/Article23189.html)

I apologize if I let me journalistic side come out a bit too much. But I do think all of that information is important to understand the current situation in the United States and the current position of the middle class in it.

I will bring here one more article to your attention. I think an important work done by Timothy Noah for online magazine “Slate” (www.slate.com) called “The Great Divergence”.

“Income inequality in the United States has not worsened steadily since 1915. It dropped a bit in the late teens, then started climbing again in the 1920s, reaching its peak just before the 1929 crash. The trend then reversed itself. Incomes started to become more equal in the 1930s and then became dramatically more equal in the 1940s. Income distribution remained roughly stable through the postwar economic boom of the 1950s and 1960s. Economic historians Claudia Goldin and Robert Margo have termed this midcentury era the "Great Compression." The deep nostalgia for that period felt by the World War II generation—the era of Life magazine and the bowling league—reflects something more than mere sentimentality. Assuming you were white, not of draft age, and Christian, there probably was no better time to belong to America's middle class.

The Great Compression ended in the 1970s. Wages stagnated, inflation raged, and by the decade's end, income inequality had started to rise. Income inequality grew through the 1980s, slackened briefly at the end of the 1990s, and then resumed with a vengeance in the aughts. In his 2007 book “The Conscience of a Liberal”, the Nobel laureate, Princeton economist and New York Times columnist Paul Krugman labeled the post-1979 epoch the "Great Divergence."

…During the late 1980s and the late 1990s, the United States experienced two unprecedentedly long periods of sustained economic growth—the "seven fat years" and the " long boom." Yet from 1980 to 2005, more than 80 percent of total increase in Americans' income went to the top 1 percent. Economic growth was more sluggish in the aughts, but the decade saw productivity increase by about 20 percent. Yet virtually none of the increase translated into wage growth at middle and lower incomes, an outcome that left many economists scratching their heads.

Why don't Americans pay more attention to growing income disparity? One reason may be our enduring belief in social mobility. Economic inequality is less troubling if you live in a country where any child, no matter how humble his or her origins, can grow up to be president. In a survey of 27 nations conducted from 1998 to 2001, the country where the highest proportion agreed with the statement "people are rewarded for intelligence and skill" was, of course, the United States. (69 percent). But when it comes to real as opposed to imagined social mobility, surveys find less in the United States than in much of (what we consider) the class-bound Old World. France, Germany, Sweden, Denmark, Spain—not to mention some newer nations like Canada and Australia—are all places where your chances of rising from the bottom are better than they are in the land of Horatio Alger's Ragged Dick.

…Income inequality is a topic of huge importance to American society and therefore a subject of large and growing interest to a host of economists, political scientists, and other wonky types.

…Even Alan Greenspan, the former Federal Reserve Board chairman and onetime Ayn Rand acolyte, has registered concern. "This is not the type of thing which a democratic society—a capitalist democratic society—can really accept without addressing," Greenspan said in 2005. Greenspan's Republican-appointed successor, Ben Bernanke, has also fretted about income inequality.

Yet few of these experts have much idea how to reverse the trend. That's because almost no one can agree about what's causing it.

… The Great Divergence may represent the most significant change in American society in your lifetime—and it's not a change for the better.”

Timothy Noah’s report consists of forty pages of interesting and valuable information, research and thinking. He goes deeply into the reasons why and how the income inequality has grown in last decades and also why it is a very important issue for America that we can’t ignore. I can’t oversell the value of his research. Although I do not necessarily agree with all his opinions and findings, I am advising everyone to read full version of the report to get more information. You can find it at http://www.slate.com/id/2266025/entry/2266026 or at http://img.slate.com/media/3/100914_NoahT_GreatDivergence.pdf as PDF file.

So what is American middle class today and what future awaits it in the near future?

Let’s look at a few characteristics that define the middle class:


               


The biggest issue – as it is seen from the table – definitely is debt. After that go higher income, increased savings and more time off. If you take only lifestyle in consideration, then Americans live pretty well, and definitely better than people in many other countries in the world.

The homeownership rate in the United States in 2009 remained similar to that in other post-industrial nations with 67.4% of all occupied housing units being occupied by the unit's owner.

(SOURCE: US Census Bureau, 2009)

In the United States, there are more vehicles than people with driver’s licenses. Americans own remarkable 246 million vehicles, somewhere around 17% more than people with driver’s licenses. AAA estimates that it costs $8,000 per year for each car owned, which creates a financial burden on cash-strapped Americans.

In 2009 Americans scrap 14 million cars while only buying 10.5 million new ones. The 2009 drop was the only large decline in the past 50 years shows the U.S. Department of Transportation.

Americans commute and spend for gas freely without even counting how much, buy big screen TVs for each room, have lunches and dinners out on a consistent basis and shop for everything in anything possible, from children’s toys to kitchenware to the last novice item on a night shopping network. Especially it was true before the recession started in 2007.

And all of that would be good it if it would be achieved the right way, without the need to put immense burden of unsustainable debt. As I mentioned previously, there is smart debt which in many cases not only necessary, but purely good business decision, however, in the other cases taking debt is not only not smart, but plain… unreasonable.

Today the American middle class has a lot of challenges on its way, and, in my opinion, the level of financial education of the middle class itself will define how well it will be prepared to overcome any obstacles and keep America as the greatest country and itself as its most important asset.