Seven things the Middle Class can no longer afford

[athena53]

Did everyone read the same article.

The article states that many middle income earners can no longer REALLY afford these items. Yes the middle class can spend the money but the article explains the consequences very well.

They said a vacation would require a sacrifice of not buying another big ticket item.

The article is saying middle income people shouldn't buy a new 32k car .

OK, I'll admit I didn't read it and thought it was another whiny story about how tough it is for the average person. It sounds like she was telling people to set priorities and they can't have it all. Good message.

I hung out on CruiseCritic when DH and I were planning cruises to Alaska and the cruises listed in the sig lines of many regular posters is mind-boggling. Some do 3 per year. Every once in awhile they start a "how do you pay for this" thread. Many live near the ports so they don't need to pay airfare and can jump on last-minute deals. Some, like DH and I, go cheap on cars and eating out so we can travel the way we want to. Still, when I wandered through Ketchikan before our trip back home, I was amazed at how much $$ you can spend on shore excursions.

• "Flightseeing" by helicopter, plus "sled dog experience"- $489
• Fishing- $160 + $20 for license
• Two hours of flightseeing by amphibious plane- $229
• Ziplining $175
• Taku Glacier Lodge and feast (Wild Alaska King Salmon), including flight- $280
• Walking tour- $45. (Mine was free. )

People do this at every port. Hey, it's once in a lifetime, right? And the charges above are per-person, too. The jewelry items in the store windows(Diamonds International, Tanzanite International, etc.) were positively gaudy. Plenty of other stuff to buy and ship home: gourmet popcorn, salmon, etc. I looked at the people stocking up on Patagonia and North Face gear at one store and wondered if they were saving anything for retirement or their kids' educations.

I'm sure that for some people it really was once in a lifetime- maybe just before the oldest goes off to college- but there are so darned many of them in all those big ships that I really wonder.

 

[Independent]

She actually addresses that in the video. New built homes are no longer being bought by entry level home-buyers, but by the upper middle class and above. Basically, there are no longer entry level homes being built-- all the new houses are move-up homes and the middle class is for the most part living in older homes.

The size of the house bought by the median-income two parent, two child family that she filtered for went up by a bathroom or a bedroom (but not both). So some creep, but nothing compared to the size change in new homes.

I think "percent of newly constructed houses purchased by first time home buyers" is a reflection of rates of new family formation rather than general economic trends.

When there were a lot of newly married couples or first time parents relative to the total population, then there was probably a good market for entry level houses. Let's say after WWII or maybe when the boomers were having their first children.

If there is anything going on today that's stressing young couples, it's probably student debt incurred for degrees that don't have good income potential.

 

[purplesky]

I think "percent of newly constructed houses purchased by first time home buyers" is a reflection of rates of new family formation rather than general economic trends.

When there were a lot of newly married couples or first time parents relative to the total population, then there was probably a good market for entry level houses. Let's say after WWII or maybe when the boomers were having their first children.

If there is anything going on today that's stressing young couples, it's probably student debt incurred for degrees that don't have good income potential.

Many people in their 20s and early 30s now live with their parents due to this "race to the bottom economy".

So they are getting married later and not having kids because of the economy.

The entry level new home housing market is terrible because of lower wages and healthcare costs and student loan debt.

 

[clifp]

Many people in their 20s and early 30s now live with their parents due to this "race to the bottom economy".

So they are getting married later and not having kids because of the economy.

The entry level new home housing market is terrible because of lower wages and healthcare costs and student loan debt.

While there is a lot of truth do this. I suspect it is a convenience/not wanting to grow up in a quite a few cases. Very similar to the mama's boys who make good incomes who live it at home in Italy. There were a couple of 60 Minutes shows about them.

One thing to keep in mind is the 2010 census showed that there 11 million new households formed in the 2000, despite the Great Recession. The average household size continues to shrink down to 2.58 person/household down considerable from the 3.29 in the 1960. This despite the average family size remaining constant at 3.14. A smaller household size means that even with modest growth in the median household income that means there is more money per person to spend.

 

[Walt34]

It sounds like everyone on here is a millionaire.

No, only half of one, but if you include the future value of the pension and SS, then yes several times over.

 

[purplesky]

While there is a lot of truth do this. I suspect it is a convenience/not wanting to grow up in a quite a few cases. Very similar to the mama's boys who make good incomes who live it at home in Italy. There were a couple of 60 Minutes shows about them.

One thing to keep in mind is the 2010 census showed that there 11 million new households formed in the 2000, despite the Great Recession. The average household size continues to shrink down to 2.58 person/household down considerable from the 3.29 in the 1960. This despite the average family size remaining constant at 3.14. A smaller household size means that even with modest growth in the median household income that means there is more money per person to spend.

Well if my son lives at home in his 20s he will definitely be saving big money to buy a house while living in my basement.

 

[daylatedollarshort]

Many people in their 20s and early 30s now live with their parents due to this "race to the bottom economy".

So they are getting married later and not having kids because of the economy.

The entry level new home housing market is terrible because of lower wages and healthcare costs and student loan debt.

I do think the middle class overall is stressed but some of it is simply poor decision making, like borrowing 6 figures to get a degree from a private school for an unmarketable major. When has that ever been a good idea. Students now get more financial rope to hang themselves with, but some of the blame has to be on the students and their parents.

I don't see a lot of our kids' friends with accounting, engineering or IT majors from public schools back at home and unemployed. Mike Rowe has a foundation to close the skills gap between the jobs that exist and what kids are studying:

"It’s not about this is bad or this is good. This is a skills gap. […] It’s another inconvenient piece of the narrative that nobody ever talks about. There are three million jobs available right now. Companies like Caterpillar are struggling to find, for instance, heavy equipment mechanics.”

The bottom line, Rowe said is that, “We are lending money we don’t have to kids who can’t pay it back to train them for jobs that no longer exist. That’s nuts.”

Mike Rowe: The 'Dirty' Jobs Alternative to a College Degree | Fox News Insider

 

[EastWest Gal]

I read her book Two Income Trap years ago and would put it on my top ten of all time best financial books list.

As far as the video, I agree with many of her points, but house size is one variable the middle class still has control over. House sizes have crept way up over recent decades, it is not just buying schools:

"According to the National Association of Home Builders, the average size of a new single-family American residence in 1950 was 983 square feet. Today, it is nearly 2500 square feet."

The Righteous Small House: Challenging House Size and the Irresponsible American Dream by Jason McLennan — YES! Magazine

This is not something I thought a lot about when we were younger. If we had, we would have gone smaller - lower home prices, insurance, taxes, upkeep, utilities, etc.

She also addresses a problem that families with children face: Buying a house in a decent school district, (and reasonably near your place(s) of employment). When we bought our first house, a townhouse in Silicon Valley, everything was marked up about $100K if the residence was in the Cupertino School District. Just checked a few houses on Zillow and found that it is still true. A 1000 square foot older house in Cupertino is listed at $1.8 million ($1700/sq ft) and a similar size house, quite a bit newer, is listed at $725K, or about $700 sq/ft. However, the lot was 80% larger in the Cupertino house. Just trying to find anything affordable in certain parts of the country is insane. The same is true in our area in PA, but not to that extreme.

Also, in some areas, the smaller houses are atrocious with out of date wiring and fixtures. Older homes also have the problem of lead in the pipes and the paint, which again limits one's options. The point is that there is so much outflow for housing and transportation and that two incomes are needed to make it work. If anything goes wrong, some families do indeed go bankrupt.

 

[daylatedollarshort]

She also addresses a problem that families with children face: Buying a house in a decent school district, (and reasonably near your place(s) of employment). When we bought our first house, a townhouse in Silicon Valley, everything was marked up about $100K if the residence was in the Cupertino School District. Just checked a few houses on Zillow and found that it is still true. A 1000 square foot older house in Cupertino is listed at $1.8 million ($1700/sq ft) and a similar size house, quite a bit newer, is listed at $725K, or about $700 sq/ft. However, the lot was 80% larger in the Cupertino house. Just trying to find anything affordable in certain parts of the country is insane. The same is true in our area in PA, but not to that extreme.

San Francisco is the least affordable housing market in the country:

Is Tech Money Good For San Francisco’s Middle Class? An Economist’s Perspective | TechCrunch

If I had a middle class income I wouldn't expect to be able to live in Cupertino. I am not sure that housing market is indicative of the problems of the middle class in he U.S in general. Home prices there have been bid up due to tech worker salaries, lack of buildable land due to the geography, investors from outside the U.S., the climate, the scenery, and building laws.

Robert Shiller said last August on U.S. housing in general:

"Affordability is still good compared to any time over the last 50 years. Mortgage rates are still around 4½ percent; that's not high. Homes are still roughly, in real terms, where they were 25 to 50 years ago," he said."

 

[growing_older]

It sounds like everyone on here is a millionaire.

Maybe as we get close to retirement, but many of us got there from middle class income. As consumers, we bought a smaller house than the bankers said we could "afford" if we took a maximum mortgage. When the old car wouldn't go, we bought a new-to-us car (used), so we could be sure to avoid new debt and pay off the student loan. We were able to afford vacations by camping or staying with friends. I don't believe it is accurate to say all these things are now so expensive that middle income people cannot afford them. I think it is still the case that people who LBYM can make choices and have all these things. Maybe there are more temptations with expensive cable, cellphone, latte and "upscale" everything, so maybe it's harder to make LBYM choices, but I know plenty of people who are being responsible with middle incomes and will likely retire millionaires as well, and plenty who are not. But the ones who are not aren't trapped because they cannot afford the same choices their same income peers, they are trapped because of the choices they make.

Low income people may be "trapped" and unable to afford these seven things, but middle income people can still make the same choices that middle income people used to make. Middle income people could never live upper middle lifestyles without overspending their means, and they still can't.

 

[athena53]

Middle income people could never live upper middle lifestyles without overspending their means, and they still can't.

I agree. DH and I did manage some spectacular trips using reward programs, including a long weekend in Brazil in 2000 and a week in Paris last year with Business class flights, also $1,000. We gave up other stuff we didn't care about. You can't have it all and that's OK.

 

[purplesky]

I do think the middle class overall is stressed but some of it is simply poor decision making, like borrowing 6 figures to get a degree from a private school for an unmarketable major. When has that ever been a good idea. Students now get more financial rope to hang themselves with, but some of the blame has to be on the students and their parents.

I don't see a lot of our kids' friends with accounting, engineering or IT majors from public schools back at home and unemployed. Mike Rowe has a foundation to close the skills gap between the jobs that exist and what kids are studying:

"It’s not about this is bad or this is good. This is a skills gap. […] It’s another inconvenient piece of the narrative that nobody ever talks about. There are three million jobs available right now. Companies like Caterpillar are struggling to find, for instance, heavy equipment mechanics.”

The bottom line, Rowe said is that, “We are lending money we don’t have to kids who can’t pay it back to train them for jobs that no longer exist. That’s nuts.”

Mike Rowe: The 'Dirty' Jobs Alternative to a College Degree | Fox News Insider

Well just 20 years ago(for sure 30 years ago) just about any college grad with any degree could go find work and make enough income to pay down their student loans efficiently and live on their own. Companies were investing in people.

We have outsourced the USA to death and this is what we get now. Millions of college grads moving back home.

The reality is that Corporate America is just not really investing in America.
Shareholder value is the only priority now.
I think 20 years ago many Americans would have been upset with Corporations dodging taxes and parking (hiding) money offshore.But Its just business as usual now.
Didn't the EU instruct Ireland recently to stop allowing corporations to park money offshore with ridiculously low tax rates.

It just seems ridiculous that Corporations are hoarding trillions in cash offshore and at the same they are not really hiring or giving raises.

So this is the world we now live in. Its been great for the top 10%.




Yes kids definitely have to be very careful now with college degree choices.

 

[Independent]

Many people in their 20s and early 30s now live with their parents due to this "race to the bottom economy".

So they are getting married later and not having kids because of the economy.

The entry level new home housing market is terrible because of lower wages and healthcare costs and student loan debt.

I have to wonder how many of those kids living with their parents borrowed money for college degrees that sounded like they led to fun jobs (let's say "communications", thinking I'll be an on-air TV reporter) without understanding that the job market for those jobs was already saturated.

I expect that there was a time when nearly all four year college grads got "good" jobs, but that was because nearly all four year college grads were either very bright or very well connected. Their brains or their connections got them the jobs.

Now we've pushed more marginal students into four year schools, pushed loans at them (college "financial aid package" letters routinely treat loans as "aid"), and we're getting more marginal grads with lots of debt.

Many parents and kids thought that any college degree was supposed to be a guarantee of an above-median job with a comfortable lifestyle. Now people have the degree and can't afford the lifestyle.

And, yes, that means they are likely to defer marriage and parenthood and home purchases.

 

[marko]

Well if my son lives at home in his 20s he will definitely be saving big money to buy a house while living in my basement.

Have a friend with a 43 y.o. son doing the same thing!!

 

[marko]

Now we've pushed more marginal students into four year schools, pushed loans at them (college "financial aid package" letters routinely treat loans as "aid"), and we're getting more marginal grads with lots of debt.

.

Worse yet, many of them aren't 'grads' and are just $100K-in-the-hole dropouts!

 

[purplesky]

I have to wonder how many of those kids living with their parents borrowed money for college degrees that sounded like they led to fun jobs (let's say "communications", thinking I'll be an on-air TV reporter) without understanding that the job market for those jobs was already saturated.

I expect that there was a time when nearly all four year college grads got "good" jobs, but that was because nearly all four year college grads were either very bright or very well connected. Their brains or their connections got them the jobs.

Now we've pushed more marginal students into four year schools, pushed loans at them (college "financial aid package" letters routinely treat loans as "aid"), and we're getting more marginal grads with lots of debt.

Many parents and kids thought that any college degree was supposed to be a guarantee of an above-median job with a comfortable lifestyle. Now people have the degree and can't afford the lifestyle.

And, yes, that means they are likely to defer marriage and parenthood and home purchases.

Yes its hard to believe that middle-class wages on avg. in the USA were actually higher 21 years ago in the year that current college grads were born.

The median wage is lower now than it was 5 years ago and lower than 15 years ago.

Globalization and outsourcing brought our standard of living(lifestyle) way down.

Technology disruption in the job market is a big issue now for all jobs.

Anesthesiologist being replaced by robots and CRNAs is a interesting area.
The next 15 years will be interesting in the job market.

There is so much disruption now in the economy its hard to tell exactly how things will turn out.

Tesla,airbnb,Applepay,google self driving cars,Amazon,UPS using natural gas for their fleet,Digital classrooms,Uber,etc, are all going to change the job market in different ways.

I wonder what college is going to look like in 18 years for a baby being born today.

 

[purplesky]

Worse yet, many of them aren't 'grads' and are just $100K-in-the-hole dropouts!

Yes many kids don't even finish college and walkaway with a student loan payment. Its crazy.

 

[Hamlet]

Here in the Minneapolis area, most of the lower-priced homes are either in "bad" parts of Minneapolis itself, or in the older first ring suburbs. They typically have lower-rated schools than the rich parts of Minneapolis itself, or the newer outer-ring suburbs.

I'm in an area of one of the outer suburbs that is split between one district that is considered good and one that is considered less good (but not terrible). The home values reflect that pretty dramatically. Now that we have kids, we are looking to move into the good school district (as well as get a little bigger house). I'd estimate that the district change will add about 50k to the price of a 300k home.

I will pay it gladly in this new winner-takes-all economy though. We are moving in the direction of having no real middle class, IMO. I expect that my daughter's generation will be 20% high income workers and 80% $10/hr or less workers, with little in-between. I will make sure that she has every chance possible to be in that 20%. I will bid that house up, and since I can afford it, it won't be a problem for my family. The people I outbid will just have to make do with the other school district.

Hopefully, the pendulum will swing back again, and the middle class will thrive again, but its not something I'm betting on.

I guess I don't see that personally because in the Bay Area a lot of the cost is in the land, so many of the lower cost subdvisions are made up of newer homes out in the boonies. The urban areas with the older homes are often where the prices are higher because of the location and proximity to jobs.

 

[StickInTheMud]

Yes its hard to believe that middle-class wages on avg. in the USA were actually higher 21 years ago in the year that current college grads were born.

The median wage is lower now than it was 5 years ago and lower than 15 years ago.

Globalization and outsourcing brought our standard of living(lifestyle) way down.

Despite all of this, the United States still offers a standard of living that satisfies virtually every need. It is my belief that older Millennials will seize on this reality and be one of the happiest generations of Americans in recent history.

Older Millennials, such as myself, graduated college right at the beginning of the recession and quickly adjusted our expectations about what a happy, comfortable life really is. We were forced to, and that's not such a bad thing.

The younger millennials, the ones who have either just graduated from college, or who may still be pursuing an education were largely shielded from this event through the financial support of their parents. They'll continue to waste precious retirement money on needless consumption unless another recession hits them while they're still young.

Right now, at the beginning of my career, I have a family with a wife, two children, and a single income less than $50k a year. No one in this family has a need that goes unfulfilled. After all the expenses, we still manage an ample emergency fund of approximately 1 years living expenses, no debt, and retirement savings that put me on track to retire between 50-55 using very conservative estimates.

Maybe I can't buy everything on the list that started this thread, but I don't need everything on that list in the first place. The inability to afford all of these things is not a condemnation of our economy, it's a cultural shift akin to a market correction; an economic reality that gets us back to a place we should have been all along... at least for my generation.

 

[Hamlet]

I think what is important to understand is that previous generations had a lot more leeway to make mistakes than the current generation. It's not like the Boomers were brilliant decision-makers and that they all optimized their life choices. They could go to college and flunk out, and it wasn't life-changing amounts of money. They could flunk out and still find a job that put them in the middle class. That isn't true for the Millenials.


There is less room for mistakes these days. It seems like most Boomers don't want to believe that their generation was extremely lucky, and that a large percentage of Boomers who were successful then would not be if they came of age today. They are looking at mistakes that all generations make when they are young and foolish, and thinking that they wouldn't make those mistakes today. They seem unable to remember that they made many of those same mistakes 40 years ago.

I'm an X-er, and I thought it was a little tougher for my generation, but we had it easy (economically) compared to today's generation.

I do think the middle class overall is stressed but some of it is simply poor decision making, like borrowing 6 figures to get a degree from a private school for an unmarketable major. When has that ever been a good idea. Students now get more financial rope to hang themselves with, but some of the blame has to be on the students and their parents.

 

[daylatedollarshort]

I think what is important to understand is that previous generations had a lot more leeway to make mistakes than the current generation. It's not like the Boomers were brilliant decision-makers and that they all optimized their life choices. They could go to college and flunk out, and it wasn't life-changing amounts of money. They could flunk out and still find a job that put them in the middle class. That isn't true for the Millenials.


There is less room for mistakes these days. It seems like most Boomers don't want to believe that their generation was extremely lucky, and that a large percentage of Boomers who were successful then would not be if they came of age today. They are looking at mistakes that all generations make when they are young and foolish, and thinking that they wouldn't make those mistakes today. They seem unable to remember that they made many of those same mistakes 40 years ago.

I'm an X-er, and I thought it was a little tougher for my generation, but we had it easy (economically) compared to today's generation.

Our local community college costs $46 per unit. Students can even take many classes online and save on gas. In California familes of 4 can make up to $87K and qualify for significant grant money (not loans, but outright grant) for the public 4 years, and starting this year family making up to $150K get tuition breaks. The cost of attendance for commuters is around $16K per year, less with financial aid and the new tuition cuts for the middle class, at the state schools. A part-time job could bring in $5K of that and tax credits may cover another couple of thousand of so.

A graduate with a CS or engineering degree could pay back any remaining loans in no time. I do think the days of getting just any degree from any college no matter what the tuition costs and still getting ahead are over. Maybe in some states community colleges and 4 year public schools are more expensive? But here public schools and community colleges in particular can be great values for the money:

Nation's Parents Release Annual Ranking Of Top 50 "Perfectly Good State Schools" | The Onion - America's Finest News Source

This is satire but the Payscale reports on starting salaries by colleges actually show there is a lot of truth in the parents' financial logic.

 

[purplesky]

Despite all of this, the United States still offers a standard of living that satisfies virtually every need. It is my belief that older Millennials will seize on this reality and be one of the happiest generations of Americans in recent history.

Older Millennials, such as myself, graduated college right at the beginning of the recession and quickly adjusted our expectations about what a happy, comfortable life really is. We were forced to, and that's not such a bad thing.

The younger millennials, the ones who have either just graduated from college, or who may still be pursuing an education were largely shielded from this event through the financial support of their parents. They'll continue to waste precious retirement money on needless consumption unless another recession hits them while they're still young.

Right now, at the beginning of my career, I have a family with a wife, two children, and a single income less than $50k a year. No one in this family has a need that goes unfulfilled. After all the expenses, we still manage an ample emergency fund of approximately 1 years living expenses, no debt, and retirement savings that put me on track to retire between 50-55 using very conservative estimates.

Maybe I can't buy everything on the list that started this thread, but I don't need everything on that list in the first place. The inability to afford all of these things is not a condemnation of our economy, it's a cultural shift akin to a market correction; an economic reality that gets us back to a place we should have been all along... at least for my generation.

You definitely will do well because you get it. LBYM and pay yourself first.

Hopefully healthcare costs will get figured out sooner than later. That seems to be a deal breaker for many middle-class families.

Credit card debt also traps people. Been there done that. Not fun.

 

[Mulligan]

Yes its hard to believe that middle-class wages on avg. in the USA were actually higher 21 years ago in the year that current college grads were born.

The median wage is lower now than it was 5 years ago and lower than 15 years ago.

Globalization and outsourcing brought our standard of living(lifestyle) way down.

Technology disruption in the job market is a big issue now for all jobs.

Anesthesiologist being replaced by robots and CRNAs is a interesting area.
The next 15 years will be interesting in the job market.

There is so much disruption now in the economy its hard to tell exactly how things will turn out.

Tesla,airbnb,Applepay,google self driving cars,Amazon,UPS using natural gas for their fleet,Digital classrooms,Uber,etc, are all going to change the job market in different ways.

I wonder what college is going to look like in 18 years for a baby being born today.

With my luck in a few years I will go to my in-network hospital and get screwed over with an out of network bill because I didn't know the anesthesiologist robot was an out of network robot.


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[purplesky]

I think what is important to understand is that previous generations had a lot more leeway to make mistakes than the current generation. It's not like the Boomers were brilliant decision-makers and that they all optimized their life choices. They could go to college and flunk out, and it wasn't life-changing amounts of money. They could flunk out and still find a job that put them in the middle class. That isn't true for the Millenials.


There is less room for mistakes these days. It seems like most Boomers don't want to believe that their generation was extremely lucky, and that a large percentage of Boomers who were successful then would not be if they came of age today. They are looking at mistakes that all generations make when they are young and foolish, and thinking that they wouldn't make those mistakes today. They seem unable to remember that they made many of those same mistakes 40 years ago.

I'm an X-er, and I thought it was a little tougher for my generation, but we had it easy (economically) compared to today's generation.

I am right on the age line to be a X-er or Baby boomer.

When I graduated from high school globalization was really kicking in , so I have witnessed thousands of good paying white/blue collar jobs just disappear in my region.

So many young boomers have kind of experienced the same issues that millennials go through by having to change jobs frequently and not getting a real raise.

 

[purplesky]

With my luck in a few years I will go to my in-network hospital and get screwed over with an out of network bill because I didn't know the anesthesiologist robot was an out of network robot.


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