The collapse of the middle class?

[FUEGO]

I don't buy it. Is the middle class really worse off than they were 30 or 40 years ago? Better cars, bigger houses, better cheaper technology making life more convenient, more entertainment choices, etc etc. Jobs aren't particularly hard to come by for most (the 92% that are employed). Sure, times have changed. But were the good ole days really that good?

 

[Aiming_4_55]

Defining middle class continues to be a moving target same as salary. It really depends on alot of factors.

 

[rescueme]

Defining middle class continues to be a moving target same as salary. It really depends on alot of factors.

True.

For instance, I'm not "middle class" - I have no class at all ...

 

[oneils]

I am not an American, so I cannot really comment on the squeeze of the American middle class. However, I guess I can say something about the Canadian middle class.

The way I see it, today's middle class just has more options available (or become more consumerist depending on how you look at it) to them compared to 50 years ago. Now your options are:

- put your kids in all kinds of extra-curricular activities after school (and drive them around in the family's second car - pay for sports/music equipment)
- give your kids cell phones
- go to disney land
- take overseas vacations
- watch all kinds of programming on a super duper cable package
- download all kinds of entertainment over your high speed internet
- buy two-three computers for the family
- buy two-four tvs for the family
- buy digital cameras
- buy personal digital music/video players (ipods etc.)
- send your children to an out of town/state school and maybe pay their expenses
- buy organic foods
- buy designer clothes and accessories
- buy brand new high tech appliances for the kitchen and laundry
- renovate the home with high end furniture and finishings...

This is just stuff off the top of my head. Progress has just led to so many options and stuff to buy. I mean I can imagine what a typical family did 50 years ago:

- sent their kids to play in the park (no extra-curr. activities)
- had one radio
- had one car and carpooled
- went camping or visited relatives for a vacation
- sent the kids to trade school or local college (reduced education costs)
- bought used furniture
- bought department store clothes
- bought used appliances
- skipped everything else on the list above.

The way I see it, the Canadian middle class is really suffering from an abundance of choices and lifestyles. We just have to pick the one that fits our resources.

 

[RetirementColdHardTruth]

I am not an American, so I cannot really comment on the squeeze of the American middle class. However, I guess I can say something about the Canadian middle class.

The way I see it, today's middle class just has more options available (or become more consumerist depending on how you look at it) to them compared to 50 years ago. Now your options are:

- put your kids in all kinds of extra-curricular activities after school (and drive them around in the family's second car - pay for sports/music equipment)
- give your kids cell phones
- go to disney land
- take overseas vacations
- watch all kinds of programming on a super duper cable package
- download all kinds of entertainment over your high speed internet
- buy two-three computers for the family
- buy two-four tvs for the family
- buy digital cameras
- buy personal digital music/video players (ipods etc.)
- send your children to an out of town/state school and maybe pay their expenses
- buy organic foods
- buy designer clothes and accessories
- buy brand new high tech appliances for the kitchen and laundry
- renovate the home with high end furniture and finishings...

This is just stuff off the top of my head. Progress has just led to so many options and stuff to buy. I mean I can imagine what a typical family did 50 years ago:

- sent their kids to play in the park (no extra-curr. activities)
- had one radio
- had one car and carpooled
- went camping or visited relatives for a vacation
- sent the kids to trade school or local college (reduced education costs)
- bought used furniture
- bought department store clothes
- bought used appliances
- skipped everything else on the list above.

The way I see it, the Canadian middle class is really suffering from an abundance of choices and lifestyles. We just have to pick the one that fits our resources.

I don't think you got the point here. Even though people are doing this the total spend on these things is still significantly less than dollar adjusted costs of those items in the past.

For example 1 tv today costs 1/10 of the cost of a TV in the 50's. Yes we have Cable and Internet, but that is less than the adjusted costs of just a phone line in the 50's.

Yes we eat out a lot more, but the cost of those meals is less than the grocery costs in the 50's.

What has happen is our fixed housing costs are out of control and thats why the middle class are in a massive squeeze.

 

[misty57]

How about interest paid on debt? What proportion of middle class incomes is spent on interest to purchase cars or pay off revolving credit?

I believe that part of the problem is that too many people get into debt way too early in their lives. If they grew up in the middle class, they want all the middle class trappings from the get-go and are willing to make payments to get them. How many kids starting out would go without a computer, cable or satellite TV, the internet, and a cell phone (with unlimited minutes and texting)? How many are willing to drive a clunker car or get their furniture from the Goodwill until they have the CASH to buy at middle class levels? How many want to live in the really nice apartment complex instead of one that may be more suited to their level of income?

Yes, there are those who are devastated by an illness or job loss, but I think there are many who just overextend themselves from the get-go.

 

[haha]

This is just stuff off the top of my head. Progress has just led to so many options and stuff to buy. I mean I can imagine what a typical family did 50 years ago:

- sent their kids to play in the park (no extra-curr. activities)
- had one radio
- had one car and carpooled
- went camping or visited relatives for a vacation
- sent the kids to trade school or local college (reduced education costs)
- bought used furniture
- bought department store clothes
- bought used appliances
- skipped everything else on the list above.

Just as a matter of record, my family was definitely middle-middle class. I was a kid more than 50 years ago. Using us, and our neighbors as data, every thing you say above is wrong. Though we did often entertain ourselves after school, my Dad paid for me to go to a judo dojo during high school, still during the 50s, and several summers but not all we got to go to camp. My father supported a wife, 4 children, his MIL and MIL's sister. All the kids went to parochial school for which he paid tution. They did have one car, until about 1960, then 2, and often newer cars than many here report. We had one TV, a "hi-fi" record player, and enough clock radios to have them scattered all over the house. We had a yearly vacation usually to a nearby lake, but rarely camping and never sponging off relatives. No one of his 4 kids went to trade school, though 2 of the 4 went to nearby universities and lived at home during that time. They never bought anything used, and never bought anything shoddy.

Something you did not mention above, but really improved his quality of life- he never did DIY stuff, other than interior painting. He had a handyman, a very good one, for jobs, remodeling etc around the house and yard, and a mechanic for cars. We children had to help out with childcare, yard maintenance, occasional outdoor painting jobs like fences. We also did some of the more unskilled jobs in the kitchen- salads, some sauces and of course dishwashing. After I was off at college they even got a dishwasher.

I would like to make a meta-statement. There is a lot of very unifomed bs on the internet, passed out as fact. An opinion does not equal a fact.

Ha

 

[DblDoc]

Just as a matter of record, my family was definitely middle-middle class. I was a kid more than 50 years ago. Using us, and our neighbors as data, every thing you say above is wrong. Though we did often entertain ourselves after school, my Dad paid for me to go to a judo dojo during high school, still during the 50s, and several summers but not all we got to go to camp. My father supported a wife, 4 children, his MIL and MIL's sister. All the kids went to parochial school for which he paid tution. They did have one car, until about 1960, then 2, and often newer cars than many here report. We had one TV, a "hi-fi" record player, and enough clock radios to have them scattered all over the house. We had a yearly vacation usually to a nearby lake, but rarely camping and never sponging off relatives. No one of his 4 kids went to trade school, though 2 of the 4 went to nearby universities and lived at home during that time. They never bought anything used, and never bought anything shoddy.

I would like to make a meta statement. There is a lot of very unifomed bs on the internet, passed out as fact. An opinion does not equal a fact.

Ha

What oneils posted is a pretty good reflection of my growing up middle class in the 60-70's in Canada. Its not the 51st state of the US - although it looks more and more so than it did. I blame it all on cable and the internet.

DD

 

[Tadpole]

And once people grew up with outhouses and a cave man might be a middle class cave man if his tribe had an average hunting ground.

Perhaps, instead of saying the middle class is disappearing, we might be better off saying that the standard of living of the middle class is declining or less than projected expectations.

 

[oneils]

Just as a matter of record, my family was definitely middle-middle class. I was a kid more than 50 years ago. Using us, and our neighbors as data, every thing you say above is wrong. Though we did often entertain ourselves after school, my Dad paid for me to go to a judo dojo during high school, still during the 50s, and several summers but not all we got to go to camp. My father supported a wife, 4 children, his MIL and MIL's sister. All the kids went to parochial school for which he paid tution. They did have one car, until about 1960, then 2, and often newer cars than many here report. We had one TV, a "hi-fi" record player, and enough clock radios to have them scattered all over the house. We had a yearly vacation usually to a nearby lake, but rarely camping and never sponging off relatives. No one of his 4 kids went to trade school, though 2 of the 4 went to nearby universities and lived at home during that time. They never bought anything used, and never bought anything shoddy.

Something you did not mention above, but really improved his quality of life- he never did DIY stuff, other than interior painting. He had a handyman, a very good one, for jobs, remodeling etc around the house and yard, and a mechanic for cars. We children had to help out with childcare, yard maintenance, occasional outdoor painting jobs like fences. We also did some of the more unskilled jobs in the kitchen- salads, some sauces and of course dishwashing. After I was off at college they even got a dishwasher.

I would like to make a meta-statement. There is a lot of very unifomed bs on the internet, passed out as fact. An opinion does not equal a fact.

Ha

I guess I cant really define the typical canadian middle class lifestyle of the 50-70s I can only base my perception on the experience of my parents and their cousins. So your point is understood.

Do you think your father could support the same lifestyle today in the same profession? Would he be squeezed?

The theme seems to be that increased cost of housing makes it difficult. But from what I've seen home ownership has gone up and house sizes have also gone up. So if we adjust for that have housing costs really increased? Blargh.

 

[haha]

I guess I cant really define the typical canadian middle class lifestyle of the 50-70s I can only base my perception on the experience of my parents and their cousins. So your point is understood.

Do you think your father could support the same lifestyle today in the same profession? Would he be squeezed?

The theme seems to be that increased cost of housing makes it difficult. But from what I've seen home ownership has gone up and house sizes have also gone up. So if we adjust for that have housing costs really increased? Blargh.

Oh yes, not only would he be squeezed, it would be flat out impossible.

Professor Warren addresses this house issue better than I could, with voluminous data. The short answer is this larger houses are not the explanation. Also, many moves to these somewhat larger houses were not for the carrot of a larger house, but the stick of collapsing conditions in the city centers. To they increased cash and lifestyle costs due to commuting. To live in space large eough to raise a family close to the center of an economically vibrant city in a neighborhood that won't get your kids killed takes very meaningful money.

Ha

 

[clifp]

I've been impressed with Warren's efforts on financial regulations. So I want to keep the video separate from her work on the CFPB.

But, I wasn't as impressed with this lecture.

Me neither but I am interested in a discussion of what is needed in financial regulations.

I also like Elizabeth Warren and find her fast rise as a public figure fascinating. Since the 2007 lecture on the middle class has been discussed previously, maybe there's interest in posts on Ms. Warren and her current challenges as a lightning rod. (Apolitically, I hope.)

Clif, I think one reason Professor Warren is so fascinating is she is the antithesis of an "academic" public figure. In fact, I would say her rise is due in large part to the fact that she uses plain language effectively. She was a state high school debating champion and it shows.

Take away the financial lobby, the grandstanding processes of Congress, the debates over "qualifications" and some of her opponents' personalization of a policy discussion...I think the Elizabeth Warren / consumer protection agency debate comes down to this:

Warren's view on financial services offered to consumers: “We need a new model: If you can’t explain it, you can’t sell it.” The financial service companies who see this model as a threat to their profits are opposed.

Taking sides on the debate raises an interesting dilemma for those on the board with a conservative view on the role of government. All across the political spectrum, those of us on ER.org are generous with consumer-friendly advice: "pay down your credit card every month", "stay away from annuity contracts you can't understand", "use no-load index funds - there are a lot of funds out there that have hidden fees", etc. On the other hand, a smart bunch like this recognizes there's is a strong, legitimate case to be made that societal economic health is risked when industries are over-regulated.

I think you raise excellent points. One of the things that I've really learned since I've retired is there was a hell of lot about money management that I didn't know. Most site like ER didn't exist when I retired. The other thing I have come to understand that despite my ignorance I was much wiser about investments than the vast majority of folks. I've also come to appreciate that there is a tiny group who really understands the gory details of financial, a small group who is knowledgeable, a large group who is pretty ignorant but trainable, and a larger group who is pretty much clueless and lacks either the aptitude and/or the interest to ever become financially savvy. Needless to say very few forum members fall into the last group.

I completely agree with Dr. Warren that simplicity is the friend of consumers and generally speaking bad for profits of financial institutions.
We have a real problem in the country in that the tiny group at the top is developing complex financial products, which are often sold by the ignorant but trainable group, to the clueless.

On the other hand it is easy to forget that many of these complex financial products actually solve real problems. While there are always simple solutions to complex problems, there are generally not GOOD simple solutions to complex problems.

I'll use a personal example. In the early 80s inflation was still fairly high and Volcker had raised interest rates to try and tame inflation. In Silicon Valley house prices were raising rapidly but the high interest rates temporarily stopped the rise. At the urging of my parents I started looking for houses, I was only out college two years so didn't have much of down payment nor credit history. On the other hand I did have an Electrical Engineering degree was working on MBA part time and certainly had a promising future.

In order to qualify the mortgage broker proposed a graduate payment, negative amortization 30 year fixed loan. I don't remember the actual loan language, but I certainly understood it. Every year for the first 5 years my mortgage payments would increase by 7.5%/year, because my payments were not enough to cover even the interest payments by year 3, I would owe 105% of the original loan. By year 6 my mortgage payments would be 37.5% higher than I started and if I didn't get pay raise would be way more than 1/2 my paycheck. Despite borrowing from my parents I could only afford 10%, so the interest rate was 13.25% and with PMI the total was 13.75%, which was roughly 2% more than conforming 30 year fixed at the time.

Now for most people and most times, a loan like this would be predatory lending at its worst. My parents eye glazed over as I explained it to them. In fact it was I fine loan for me because I was getting double digit pay raises and while I was struggling for the first year by year 3 it was not hard to make the mortgage payments. After 3 years, the property had appreciated enough that I got rid of PMI, I refi with ARM and for the next 5 years my interest rate and payments declined before I paid of the mortgage.

So it seems to me the regulations should be such that allow somebody like me to take on a risky loan. At the same time they should put the burden of the financial institution to make sure that borrower is in fact qualified and really understands what they are getting into.

 

[samclem]

So it seems to me the regulations should be such that allow somebody like me to take on a risky loan. At the same time they should put the burden of the financial institution to make sure that borrower is in fact qualified and really understands what they are getting into.

And probably the most straightforward way to do that is to assure the lender's own interests lie with assuring the customer can and does repay the loan. OTOH, if the lender can artfully unload that risk (to the government, or to others by less-than-transparent means) then we'll see a repeat of the past. If the lender only "wins" when loans perform for the duration of their term, that's better assurance of proper loanwriting than any new govt consumer protection bureaucracy can provide.

 

[Moemg]

- sent their kids to play in the park (no extra-curr. activities)
- had one radio
- had one car and carpooled
- went camping or visited relatives for a vacation
- sent the kids to trade school or local college (reduced education costs)
- bought used furniture
- bought department store clothes
- bought used appliances
- skipped everything else on the list above.

The way I see it, the Canadian middle class is really suffering from an abundance of choices and lifestyles. We just have to pick the one that fits our resources.

I also was a kid 50 years ago . My Dad was a state trooper and my Mom who was an RN stayed home and raised us . I had three siblings . We went to day camp every summer and usually took tap dancing or some other activity during the winter . One year I took baton twirling and the lighted baton almost ended my life . We all went away to private colleges after twelve years in catholic school . Our vacations were spent at the Jersey shore and my Dad always drove a fairly new Chevy or Plymouth. Our clothes were new . One year we all got record players for Christmas stacked with new records . I always felt we were middle class and I never felt at a loss for anything . In fact I had a picture perfect childhood .

 

[oneils]

I'm starting to think my family was working class poor rather than middle class. Could be.

 

[rockyj]

Do you think your father could support the same lifestyle today in the same profession? Would he be squeezed?

+1 I'd say that pretty well hits the nail on the head. Are folks today, in equivalent jobs, on average, able to maintain comparable lifestyles (including preparing comparably for retirement) than at some other point of comparison - past or future to come? But that would seem incredibly difficult to tease out from the many factors that make up a material standard of living.

Like some others here, I grew up among families (mine included) who all considered ourselves firmly in the middle class. On average we lived in smaller houses, had fewer cars, fewer electronics, etc., - when compared with my cohort today.

Some of the difference is hedonistic creep (i.e. choosing larger houses, 2nd or 3rd cars, more communications services, etc.). Some is probably the result of technology advancements or globalization driving down the cost of certain goods and services (e.g. TVs - or the desktop electronic calculator my dad bought for $120 when I was teen that can be bought as a pocket-sized version at Walmart for $3 or less today). Some may be a bit of personal good fortune and upward mobility compared with my cohort from then. Hard to tell overall.

But to add my full measure of uninformed internet BS about which Haha has meta-opined above, it is hard for me to see how a persistent hollowing out of the US manufacturing base, a decades long stagnation of middle-income wages, and an increasing disparity of wealth accumulation can be viewed as healthy trends for sustaining a robust middle class.

Your mileage may vary.

 

[Mulligan]

In my small little world, I thought "middle class" definition was easy to define. Now, I don't think, I know the true answer. Too many variables and perception. Middle class "stability" is a whole other concept. I consider myself comfortably middle class, but if my pension suddenly got cancelled, I would be so poor, I couldn't pay attention within months. Someone who has large assets but only draws down in a yearly manner equivalent of my income could do that indefinitely, but still consider themselves middle class like me.

 

[Midpack]

Do you think your father could support the same lifestyle today in the same profession? Would he be squeezed?

But to add my full measure of uniformed internet BS about which Haha has meta-opined above, it is hard for me to see how a persistent hollowing out of the US manufacturing base, a decades long stagnation of middle-income wages, and an increasing disparity of wealth accumulation can be viewed as healthy trends for sustaining a robust middle class.

And both can be explained by globalization which is/was inevitable. Long ago the world was too "large" to force competition across borders much less oceans and mass production was unheard of. The world got a little smaller and mass production began to expand, but then we entered a period after WWII where our (US) fathers didn't have any competitors. Japan and much of Europe was rebuilding and many other countries suffered under communism, dictators, primitive cultures, etc.

Now that there are dozens of advanced/developed countries and a global economy, US manufacturing is not as competitive, hence the 'hollowing out' leading largely to stagnating middle class incomes. Trade surpluses became (huge) trade deficits. Our currency is not what it once was. Only Americans who are on the leading edge of their industries can still command high wages, leading to increasing disparity of wealth in the US. And again, it was inevitable the US would lose the advantage we had post WWII, it hasn't been due to government policy failures...

 

[samclem]

Now that there are dozens of advanced/developed countries and a global economy, US manufacturing is not as competitive, hence the 'hollowing out' leading largely to stagnating middle class incomes. Trade surpluses became (huge) trade deficits. Our currency is not what it once was. Only Americans who are on the leading edge of their industries can still command high wages, leading to increasing disparity of wealth in the US. And again, it was inevitable the US would lose the advantage we had post WWII, it hasn't been due to government policy failures...

The whole story is really great news for the totality of people on the planet. And the US still enjoys significant competitive advantages over much of the world: mineral wealth, available land, tremendous water resources, a stable government, rule of law, English as a native language, good infrastructure (it's usually cheaper to repair or improve than start from scratch), etc. We're gonna be fine. But the days when one breadwinner with a HS diploma could routinely keep a family of four in a comfortable, healthy lifestyle are gone. That was only possible for 2 generations due to a fluke of history: not before, and probably not again.

 

[Htown Harry]

Me neither but I am interested in a discussion of what is needed in financial regulations...

...So it seems to me the regulations should be such that allow somebody like me to take on a risky loan. At the same time they should put the burden of the financial institution to make sure that borrower is in fact qualified and really understands what they are getting into.

I think we're outnumbered, Clif. I do appreciate the response, though.

 

[Independent]

This is just stuff off the top of my head. Progress has just led to so many options and stuff to buy. I mean I can imagine what a typical family did 50 years ago:

- sent their kids to play in the park (no extra-curr. activities)
- had one radio
- had one car and carpooled
- went camping or visited relatives for a vacation
- sent the kids to trade school or local college (reduced education costs)
- bought used furniture
- bought department store clothes
- bought used appliances
- skipped everything else on the list above.

The way I see it, the Canadian middle class is really suffering from an abundance of choices and lifestyles. We just have to pick the one that fits our resources.

For the record, we lived on one income. My dad was a salesman at Sears and never led his dept in sales.

On your list:
Virtually no extra activities. One of my sisters took ballet taught by a neighbor in her basement.
We had two radios and a 10" B&W TV. My folks would get color around 1969.
We had one car until my dad bought a 52 chevy when he had multiple kids with summer jobs.
We vacationed at relatives.
My folks splurged on college - even sending their daughters (why would a girl go to college?!). Church related and subsidized four year school.
If they bought furniture or appliances, they would be new. But everything lasted at least 20 years and they would never consider replacing something just for style.
Bought clothes at Sears.
(BTW, we ate organic vegetables because that's the way we grew them.)

The differences in experiences are again in defining "middle class". Unless we know our parents' actual income, and the median for the relevant year, we're really guessing whether our folks were in the middle. Two of us might both think we had "middle class" families, but one could have had twice the income of the other.

We do know that the median earnings of American males went up quite a bit faster than the CPI from 1950 through about 1980, but then flattened out. So the median income should buy noticeably more today than in 1961, but not necessarily more than in 1980.

I think some of the perception of "can't make ends meet" is the expectation that each generation would do better than the prior. So simply having what your folks had, especially when those people on TV always seem to have more, makes many feel deprived.

 

[ziggy29]

Some is probably the result of technology advancements or globalization driving down the cost of certain goods and services (e.g. TVs - or the desktop electronic calculator my dad bought for $120 when I was teen that can be bought as a pocket-sized version at Walmart for $3 or less today). Some may be a bit of personal good fortune and upward mobility compared with my cohort from then. Hard to tell overall.

But at the same time, this "globalization" has, to some extent, also resulted in job exports, higher unemployment and pressure on real wages (when more people are unemployed, supply of labor increases so the "market value" of labor falls in the absence of corresponding higher demand).

It's not clear whether or not on balance we're better off, but it really doesn't feel like it. Adjusted for "real" inflation in the necessities -- health care, food, energy, education, et cetera -- "middle class" wages are probably down pretty sharply from their peak, maybe 10-15% or more I'd guess.

 

[SteveL]

As i tried to say, (perhaps ineffectively) in an earlier post, the definition of middle class is really inexact. I used the $250k, because that is the upper income limit usually reported by the US census bureau. In the last data they published from 2009, only 1.8% of households had an income of $250k or more. Also, more than 50% of HH had a HH income of $50k or less. Yet, it you talked to members from both groups you would find many that see themselves as middle class.
And, I think it is pretty true, that for most families with kids at home from either group, it is harder today to provide all the stuff of life that they provided five years ago.

 

[FUEGO]

I'm starting to think my family was working class poor rather than middle class. Could be.

Don't worry, I'm starting to have the same thoughts. I guess none of us wants to think that we came from below average backgrounds but at least half of us are below the median!

 

[Walt34]

I'm starting to think my family was working class poor rather than middle class. Could be.

We definitely were. Dad was an electrician working for the local power company. His "down payment" for the house, a two bedroom one bath Cape, was that he did not take the refrigerator that was supposed to come with the house and instead found a "scratch 'n dent" one that had a dent on the side that was going to be against a wall anyway. The third "bedroom" was the semi-finished off attic.

Our cars were all bought used, we did get some new clothes from Wards and local discount stores, but they were always on sale and we wore a lot of hand-me-downs. Getting a window air conditioner and a clothes dryer in the mid '60's were major lifestyle improvements. I didn't see the inside of a restaurant until high school. A $50 gasoline-powered lawn mower was a big deal over the hand-powered reel mower.

But we also never went hungry, although it wasn't always what we wanted.

Now DW and I live in a home with amenities that we didn't even dream of growing up. Central A/C? Dishwasher? Garbage disposal? Two-car garage? Nobody we knew had money for that stuff.

So yeah, there sure is some element of lifestyle creep and rising expectations.