Thanks Ladelfina for posting this lecture by Elizabeth Warren, commercial law scholar. Very very interesting. It busts a lot of stereotypes about why people are having trouble paying bills.
Summary:
She says mothers entering the work force has been the single most important economic shift in America over the past 30 years. The median family went from being a one income family to a two income family. The assumption was that families should have become very wealthy. Instead, from 1970-2006, family income went up but incomes for males actually went down, taking into account inflation. Family incomes rose only because women went into the workforce.
In 1970, the average family was saving 11% of income, but by 2006 families were saving nothing. NADA. What went up is revolving debt, which is credit card . In 1970, the median family was carrying 1.4% of family income in revolving debt, but by 2005 was carrying about 15%.
She asks, "What did they spend the money on?" She researched this and discovered that the US Government commerce (and labor) department as kept data on what American's spent their money on for the last century in quite detail. The results were very interesting!
For a family of four in 2005 they spent --32% LESS on clothing than in 1972.
For food, they spent -18% LESS than in 1972!!
Appliances, -52% LESS than in 1972.
Per car cost has gone down -24% since 1972. People keep their cars longer!
Ordinary consumption costs have gone down.
But mortgage costs have gone UP 76% since 1972 in inflation adjusted dollars. Big difference! The median size house grew from 5.8 rooms to 6.1 rooms, picking up either a second bathroom or third bedroom but not both.
The average family owns a house 25 years old.
Next, health insurance. The average family with employer sponsored health insurance pays 74% more in inflation adjusted dollars than 30 years ago.
Also, families with two wage earners have to have two cars.
And, child care is a necessity. A new expense for the two wage earners.
Finally, taxes. the tax rate has gone up 25%.
Conclusion, the costs that have risen most are necessities in contrast to the expenses that have gone down, which are discretionary. In 1970, the family is spending 50% on basic expenses whereas in 2005 the family is spending 75% on these basic expenses.
If one wage earner loses his/her job today, the family is in big trouble! The risk of losing 20% of their income has greatly increased since 1972.
Health care risks have increased as well. Hospitals send home people after surgery much quicker. After cesareans, you go home after two days. The assumption is that a person goes home and a family member takes care of them. So the spouse stays home from work to take care of the sick family member.
We have "faux" health insurance now, such as the "Utah policy" which doesn't cover hospitalization, prescriptions or other necessary expenses! Many people have insurance but it doesn't cover pre-existing conditions.
One income families have increased in number but face the same expenses as two income families. They can't make it.
No wonder the middle class is in trouble!
