The End Of The American Dream——Half Of US Households Are “Financially Fragile”
DavidStockmansontracorner.com
June 1, 2016
By Simon Wilson At MoneyWeek
What’s it like to be a middle-class American?
Increasingly precarious, it seems. In an article entitled “The Secret Shame of Middle Class Americans” in this month’s issue of The Atlantic, the writer Neal Gabler – an author, film critic and academic – came out as one of the many millions of apparently middle-class Americans who are in fact living in a “more or less continual state of financial peril” – scrabbling around to make ends meet, and mostly failing.
Gabler draws attention to a regular survey by the Federal Reserve, which asks consumers a set of questions, including how they would pay for a $400 emergency. “The answer: 47% of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all”, writes Gabler. “Four hundred dollars! Who knew? Well, I knew. I knew because I am in that 47%.”
Does the data support this?
Yes. Research into this niche area of microeconomics – day-to-day “financial fragility” – has boomed since the Great Recession, according to David Johnson, an economist at the University of Michigan who specialises in income and wealth inequality. A 2014 survey study found that only 38% of Americans would cover a $1,000 emergency medical bill or a $500 car repair bill with money they had saved.
Another academic study found that a quarter of households would definitely fail to get their hands on $2,000 within 30 days in an emergency, and a further 19% would be able to do so only by pawning possessions or taking out a payday loan.
What does this tell us?
On this basis the researchers concluded that nearly half of Americans are “financially fragile” – and that necessarily includes a sizeable chunk of the middle classes, as the details of the studies mentioned above show. Some 44% of middle-income households said they would struggle to raise the $400. Nearly half of college graduates would not cover a $500-$1,000 emergency with savings.
A quarter of people living in households earning $100,000-$150,000 a year (at the higher-income end of the middle class) claim not to be able to raise $2,000 within a month. Even if you take some of this with a pinch of salt – better off households are likely to have access to other forms of net wealth, albeit less liquid – the picture it paints of a middle-class crisis is stark.
Is this a growing problem?
It seems to be. The respected and non-partisan Pew Research Center defines “middle income households” as those whose incomes range between two-thirds the median income to double the median. In 2014, that range of incomes was between about $42,000 to $125,000. For the first time in at least four decades less than half of the population fell into this broad swathe of the “middle classes” – compared with 61% at the end of the 1960s.
Meanwhile, the lower tiers have expanded to account for just under a third of the population. The upper tiers have expanded too, and now account for just over a fifth. In other words, more people are getting poorer and more are getting richer in a gradually more unequal society, as technological change and globalisation drive a wedge between the winners and losers.
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