The collapse of the middle class?

[RetirementColdHardTruth]

YouTube - ‪The Coming Collapse of the Middle Class‬‏

This is a very interesting and informative lecture from Elizabeth Warren. Why the middle class is struggling.

 

[Alan]

For reference, it has been discussed here before. It is a good lecture worthy of being discussed again of course.

http://www.early-retirement.org/for...consumption-over-the-last-30-years-34575.html

 

[MasterBlaster]

The short version...

The cost of Healthcare, Housing, and College are going up way way faster than inflation. yet real wages and pensions and savings are all dropping fast.

 

[brewer12345]

The short version...

The cost of Healthcare, [-]Housing[/-], and College are going up way way faster than inflation. yet real wages and pensions and savings are all dropping fast.

Fixed that for you.

 

[MasterBlaster]

Brewer:

Thank you for correcting that small oversight.

By the way, I remember it as a laundry list of issues facing middle America. I don't remember a list of (workable) solutions.

 

[clifp]

Brewer:

Thank you for correcting that small oversight.

By the way, I remember it as a laundry list of issues facing middle America. I don't remember a list of (workable) solutions.

What we need is consumer protection agency with Elizabeth Warren at it is head. Despite my political difference with Dr. Warren I like the lady, but it is fascinating to see an academic, use to doing studies and giving lectures, being told to help fix a problem.

 

[SteveL]

Gosh, is there anyone on this board who doesn't think of themselves as middle class? The trouble with "collapse of the middle class" is that you can't really define who is included. Households with two incomes and $250k in HH income still think they are part of the MC. Gosh, how are they going to send Johnny to college, and still go skiing at Vail, maintain the yacht etc. etc. etc.

 

[haha]

Gosh, is there anyone on this board who doesn't think of themselves as middle class? The trouble with "collapse of the middle class" is that you can't really define who is included. Households with two incomes and $250k in HH income still think they are part of the MC. Gosh, how are they going to send Johnny to college, and still go skiing at Vail, maintain the yacht etc. etc. etc.

Youare way off if you rally think that a 2 paycheck $250k couple in almost anyplace that such a couple would exist are living a life of luxury.

Ha

 

[Webzter]

Youare way off if you rally think that a 2 paycheck $250k couple in almost anyplace that such a couple would exist are living a life of luxury.

Unless yacht refers to a 20' boat with something luxurious like an inboard motor (and doesn't include dock fees)

 

[brewer12345]

Brewer:

Thank you for correcting that small oversight.

By the way, I remember it as a laundry list of issues facing middle America. I don't remember a list of (workable) solutions.

I wasn't offering a laundry list of suggestion for the loss of the middle class, why a stiff drink never lasts long enough, who comes first, or the trouble with the squirrels. Wish in one hand and sh!t in the other: see which one fills up first.

 

[dtbach]

The short version...

The cost of Healthcare, Housing, and College are going up way way faster than inflation. yet real wages and pensions and savings are all dropping fast.

Thanks for the short version. Saved me 57 minutes of my life from having to watch the clip . . .

 

[traineeinvestor]

Not to mention that the "middle class" will likely bear the brunt of the efforts to balance the budget through higher tax rates, loss of deductables and changing terms of entitlement programmes.

To some extent this is true of a number of developed markets, not just the US but also parts of Western Europe, Australia, New Zealand and other places. In contrast, several emerging markets are seeing rapid growth in both the absolute number of people comprising the middle class and the wealth of its members.

 

[Htown Harry]

What we need is consumer protection agency with Elizabeth Warren at it is head. Despite my political difference with Dr. Warren I like the lady, but it is fascinating to see an academic, use to doing studies and giving lectures, being told to help fix a problem.

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.

My view: I am strongly in favor of a federal consumer transparency agency. Ensuring there is a decent term sheet (and less fine print) on credit card applications and annuity contracts would benefit the citizenry. It's the "protection" part that gets slippery.


Here's an analysis of the chances of Warren becoming agency head (plenty of inside baseball-type political stuff included for those who are interested): Why Obama Should Fight Hard for Elizabeth Warren: Jonathan Alter - Bloomberg

An earlier profile of her background is here:
Warren Winning Means No Sale If You Can

 

[Andre1969]

Youare way off if you rally think that a 2 paycheck $250k couple in almost anyplace that such a couple would exist are living a life of luxury.

Ha

Yeah, for the most part, I think a $250K salary is just enough to let you in so you get trapped by the "good life". You might be able to get a nice McMansion, fancy car, nice boat, country club membership, take nice vacations, get the kids into private school, etc. But you'd have to keep working, and hoping you hold onto that $250K salary, to keep up that lifestyle. You'd most likely be living paycheck to paycheck, to do it, but many people who don't know the details of your finances might look at you and think you had it made and were "rich".

Or you could also live a much more modest lifestyle, with an average-sized house, a more mainstream car, smaller boat (or no boat at all), take cheaper vacations, etc, and be very comfortable, and quite well-off. But most people would just look at you and think "middle class".

"Middle Class" as an income, and "Middle Class" as a lifestyle are two totally different things.

 

[Walt34]

Or you could also live a much more modest lifestyle, with an average-sized house, a more mainstream car, smaller boat (or no boat at all), take cheaper vacations, etc, and be very comfortable, and quite well-off. But most people would just look at you and think "middle class".

I see that a lot, and it's why we don't live on credit. As DW said when we were dating (and it really got my attention) "The trouble with loans is they always want you to pay it back. Plus interest."

That told me she was able to understand that her future options would be limited by taking out loans and it was better to defer immediate gratification for long-term gain.

So this is our (paid-for) boat:

 

[Patrick]

Definition of BOAT

1 a: a small vessel for travel on water b: ship

2: a hole in the water you throw money into.

 

[Tadpole]

OK, I'll probably be attacked for this but that's OK.

I realized when this $250,000 income number came up that I feel a lot different when the income is from two professional salaries of $125,000 each and when it is from a one earner family with a stay at home spouse.

 

[FIREd]

Yeah, for the most part, I think a $250K salary is just enough to let you in so you get trapped by the "good life". You might be able to get a nice McMansion, fancy car, nice boat, country club membership, take nice vacations, get the kids into private school, etc. But you'd have to keep working, and hoping you hold onto that $250K salary, to keep up that lifestyle. You'd most likely be living paycheck to paycheck, to do it, but many people who don't know the details of your finances might look at you and think you had it made and were "rich".

Or you could also live a much more modest lifestyle, with an average-sized house, a more mainstream car, smaller boat (or no boat at all), take cheaper vacations, etc, and be very comfortable, and quite well-off. But most people would just look at you and think "middle class".

"Middle Class" as an income, and "Middle Class" as a lifestyle are two totally different things.

I share this opinion. We are income-rich, but we feel middle class. No luxury cars, no Mc mansion, no boat, no country club membership, no designer couture, etc... We understand that making a lot of money is a blessing. But we also understand that it won't last forever and that we should not get used to the luxury trappings that come with it. We know that all we can sustain over the long term is a middle class lifestyle. And I believe that's why we see ourselves as nothing more than middle class. The "rich" stuff is transitory. It could be gone next week, next month or next year.

My in-laws lived paycheck to paycheck on a high income and they really thought it would last forever. But when the paychecks stopped, the lifestyle adjustment was absolutely brutal. It made me a believer in "consumption smoothing". I prefer to have a modest but sustainable lifestyle throughout my life rather than have a lifestyle that rises and falls with my income.

 

[Andre1969]

I see that a lot, and it's why we don't live on credit. As DW said when we were dating (and it really got my attention) "The trouble with loans is they always want you to pay it back. Plus interest."

That told me she was able to understand that her future options would be limited by taking out loans and it was better to defer immediate gratification for long-term gain.

So this is our (paid-for) boat:

I'd post a pic of my boat, but I let all the air out of it a few years ago and packed it away, and forgot where I put it!

I think another problem with "middle class" is that nobody will ever come to an agreement on just what, exactly, that means. I found a chart at Wikipedia that dated to 2005 and it showed that the middle 50% of households earned between roughly $22K and $75K per year. So, once a household went above $75K, they were in the top 25%. So I guess that could be a broad definition of "middle class". But $22K to $75K is a very broad range, and probably two totally different lifestyles.

Ask 20 different people how they define "middle class" and you'll probably get 20 different answers. And, I know it's aworn out cliche by now, but a lot of it has to do with regionality. $250K per year in someplace like Detroit or Central Pennsylvania probably would let you live a pretty luxurious lifestyle. But $250K in a high-priced city sure won't go very far.

 

[RetirementColdHardTruth]

Definition of BOAT

1 a: a small vessel for travel on water b: ship

2: a hole in the water you throw money into.

BOAT IS AN ACRONYM FOR

Break
Out
Another
Thousand

 

[Gone4Good]

We are income-rich, but we feel middle class. No luxury cars, no Mc mansion, no boat, no country club membership, no designer couture, etc...

Imagine how you'd feel with a middle-class (median) income (about $50k for all households, $72K for a two-parent family)

 

[Independent]

Youare way off if you rally think that a 2 paycheck $250k couple in almost anyplace that such a couple would exist are living a life of luxury.

Ha

I guess "luxury" is a pretty subjective term.

Here's a list of median incomes for four-person families by state. It looks like in most states $250k would be at least 3 times the median income. To me "three times the median" is high enough that it no longer qualifies as "middle". I don't know if it qualifies as "luxury".

http://www.cec.sped.org/Content/NavigationMenu/SpecialEdCareers/ESTIMATED_STATE_MEDIAN_INCOME.pdf

 

[Independent]

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. IIRC, her contention is that even with two incomes, people can't manage "middle class" lifestyles today. IMO, that requires a different definition of "middle" than the one I would use.

She was writing and speaking these things at the top of the housing bubble and I can see where that was really putting pressure on people. Now that the bubble has burst, I'd say we have a big problem with enough full time jobs, but those people who have those jobs should be okay financially.

 

[Webzter]

Our highest income year was ~$220k. We lived in a nice, but not overly affluent, suburb of Minneapolis. I counted ourselves fortunate to be at that level of income and I certainly felt that we were "upper middle middle class"... or at least in a much better spot than the middle middle class.

That income level makes it easier to save, affords nicer (but not necessarily luxury) trips, and would make it possible to have a nicer car, or eat out more. Still, after maxing out our 401ks, one cheap car, paying on a $260k mortgage and $4k in prop taxes (midwest is cheaper than the coasts!), eating out a couple times a week at area places (paying between $15-$40 a person), and we didn't have a ton of extra income in the ol' budget.

I'd hate to have been my neighbor with the two new Mercedes leases otherwise living just like I was.

Also, no kids meant we didn't even have to discuss private school and a $40k/year tuition or any other luxuries like that

No boat either or yacht

eta: current income is $75k which is much closer to the median for Michigan, well below the median for my neighborhood, and likely below the median for the town.... buying real estate at the bottom lets in trash like us

 

[FIREd]

Imagine how you'd feel with a middle-class (median) income (about $50k for all households, $72K for a two-parent family)

It's not hard to imagine. It wasn't that long ago that our income was in that range and it won't be long before it goes back to that range (as soon as DW retires in fact). It does not change my perception: we were, are and will remain middle class.

Now if I had a government pension with a benefit of $250K+ a year, I would consider myself rich.