The Coming Collapse of the Middle Class

What would happen if you compared a middle-class family in 1970 with a middle class family in 2009?

Distinguished Harvard law scholar, chair of the Congressional Oversight Panel, and one of Time magazine’s 100 Most Influential People in the World in 2009, Elizabeth Warren, has crunched the numbers and here’s what she finds:

In 1970, the average husband-wife-and-two-kids family had one wage earner, and in 2009 the average family has two wage earners. And although today’s families spend much less ( in adjusted dollars) on clothing, food, appliances, and electronics, they have much less disposable income, and zero savings.

So, what’s up? Where does today’s second wage earner’s extra income get swallowed up?

For starters, in 1970, the average family’s kids followed their parents into the middle class by going through 12 years of free K-12 education. Today, those kids won’t likely enter the middle class without also going through 2 years of preschool and 4 years of college. Who pays for the preschool and college? The family does.

For the average family (2 kids) that’s a total of 4 years of preschool (total: about $40,000 at a minimum) plus 8 years of college (total: about $160,000 for 4-year in-state plus room and board) for a grand total of at least $200,000 that the average family in 1970 didn’t have to spend to launch their kids into the same middle class lifestyle their parents enjoyed.

Add to that new financial burden the cost of a second car (for the second wage earner) and skyrocketing health care, and one thing is clear: the American Middle Class is an endangered species.

One other surpising fact in the data: Since 2000, more families go through bankruptcy than go through divorce. That’s right…chances are very probable that you know more people who’ve gone bankrupt than you know who’ve gone through divorce; bankruptcy is just easier to hide from friends and relatives…

Watch the video: http://www.youtube.com/watch?v=akVL7QY0S8A

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27 Responses to The Coming Collapse of the Middle Class

  1. libhomo says:

    The comparison between bankruptcy and divorce frequency is chilling.

    • Xman says:

      And wouldn’t you know it…this was after congress made it harder to declare bankruptcy.

      I’m also struck by how our leaders “say” they revere marriage and protect it from Gays….but keep laws in place that make it a better deal for two senior aged people to live together instead of marrying.

  2. JoeC says:

    Libhomo: That was the fact that surprised me most too…even years before the economic downturn, bankruptcy was a lot more prevalent than I would have ever guessed.
    Xman: Back when the new bankruptcy law was passed (was it around 2005, I think?) I remember a spate of op-eds saying it was a big step toward the return of debtor prisons. It’s a bit scary…

  3. pelmo says:

    Joe I am sorry to say you are way off base on this one. I will admit I did not watch the video knowing that if I did I would get furious. Who are all these idots with their fancy titles, making idiotic statements.

    The magic word here is SAVINGS. In America our savings rate was a minus 1% while in Japan it is 32%. I learned a simple rule from my father who told me early on “if I can’t afford it I don’t need it”. I lived by that rule and passed it on to my kids who follow it.

    Today people not only spend what they earn, they borrow money to buy things they don’t need.Billions of dollars are spent by Americans paying late charges and fees, not to mention the billions in finance charges. This is real money that people can’t spend.

    Instead of buying my kids tons of toys for Christmas and birthdays they received cash which was put away in a savings account so that they had money for down payments on homes when they got married. My grand kids don’t complain or ask for fancy gifts. They get a small toy and cash as my kids put the money away for starting their futures of right.

    If you can afford a Lexus more power to you. If you can’t, then buy a car you can afford and you will have that much more to spend on other things. Why go to a ball game and spend eight dollars on a beer, when you can stay at home and have eight beers for the same price. More disposable income.

    Why spend $100 dollars on 200 channels when you can’t watch them all. More disposable income better spent. If people were only happy living the middle class life style, instead of living like millionairs we wouldn’t need bankruptcy court.

    Xman is right, the government penalizes us for being married, but that is a price we have to pay. The smart ones get around it by cutting back. You would think people would have learned from this monetary crisis we are in. Yet Starbucks is rakinng in billions as people continue to over pay for a cup of coffee.

    Look at all the billions of dollars people throw away when only 17% of us are smart enough to come home and spend a few minutes filling out those $50 and $100 or more rebate forms. Or clip those cupons in Sunday newspapers.

    My daughter lives a good life on her husbands teachers salary. She is a stay at home mom, with two kids, a house, and two used cars. They save to buy big ticket items, saving all those finance charges. She clips cupons and buys things on sale. she goes to garage sales and buys expensive used toys for pennies on the dollar, which she resells after her kids get through with them.

    We don’t need all these so called experts telling us how bad it is. Just a little common sense and life is grand. I now live on my pension. I cut back on things and save so I can travel and have a good time.

    I beat the credit card companies by charging even dollar items and pay it off every month. They give me a cash back bonus every year instead of me paying them. And I do ask if I will get a discount if I pay in cash instead of credit.

    I could go on, but I think you get the point I am trying to make.

  4. JoeC says:

    Pelmo: I’ve got nothing against being frugal, and admire it, but one of the main points of the lecture is that average families today don’t spend more on the basics (clothes, electronics, toys, phone bills, etc.) than people did in 1970…in fact, we spend less. And the numbers/facts don’t lie.

    That may be surprising, considering we have more “stuff,” until you consider that most of our toys and gadgets and clothes are relatively a LOT less expensive now than in 1970, due to improvements in manufacturing costs (and maybe a lot to do with more and cheaper clothes and toys and gadgets being imported from sweatshops in China, Pakistan, Taiwan, etc.)

    Just to back that up a little, here’s a comparison of the real cost of some of our “extras” in 1950 compared with today:
    Real cost of household goods.

    So, although we could certainly be more frugal to get by, the increased cost of the education needed to remain in the middle class is a major reason average families make so much more money today yet have less to put away…the cost of that extra education and health care dwarfs the cost of cable TV and the frivolous extras people buy.

    We might not need so-called experts to tell us how bad things are, but sometimes I’m glad they are around to help me see the elephant in the room that I never noticed before :-)

  5. pelmo says:

    Xman you are spending to much time in the wildreness, without adult supervision.

    Joe some things may be PRICED lower then in the 50′s, but people still pay a lot more for them. In the 50′s if something cost $10 you paid $10 for it. In 09 we don’t know how much money way to many people pay for the same $10 item. Simply put cash was king in the 50′s. People saved up to buy big ticket items, and now people charge them and grow poorer as they pay out hundreds of billions in finance charges.

    I beg to differ with the lecture that we don’t spend more on basics. In fact we pay through the nose for these items. Take the phone for instance. In 70 you paid for a home phone, and now how much do we spend on a home phone along with everyone in the family having a cell phone and all the extra charges for bells and whistles. Now an average family has TV’s in every room compared with one or two back when. And don’t get me started on electronics. How many perfectly good Walkman’s suffered an early death because of the Ipod, not to mention all of those CD’s that are no longer usefull. Look around your own house at how many perfectly good gadgets are in drawers and boxes. Better yet look around and total up the amount of money you spent for things you really don’t need but bought them just because you could.

    We have way to much stuff as we waste money on storage units to store the excess. We waste more money on finance charges and late fees so that we could keep these storage units full.

    • Xman says:

      Yeah, I may be getting a bit carried away.
      In the last week, I have had elk steak, elk burger and elk spaghetti. The week before I had elk stew and some antelope. Tomorrow, I hope to have fish…if they are biting.

      Speaking to your’s and Joe’s debate:
      I’m glad I have my rifle instead of having to drive my elk over a cliff…but after this year…and having an epiphany on elk behavior, I think I may be able to take one with a bow.

      I do like the idea of simplifying things and it may have been particularly useful to use a rock on my woman to convince her to help hang my elk up, wash the bloody drop cloth and carry the carcass to the landfill…instead of what seemed like an endless persuasion…and then “make-up” gifts, etc. to get her back in tune…which somehow was all my fault. You know, I’ve invested a lot in her, but at some point, some “models” just require too much maintainence and you have to get a new one.
      In line with the frugality you espouse, I wouldn’t mind keeping the old one as a spare…if she’d live in the garage on a shelf until the new one had to go into the shop.

      • I’ve been doing some rude calculations, Xman, and according to the lord-of-the-flies principle, you will soon have reverted all the way to caveman. Which may not be a bad thing, all things considered.

        • Xman says:

          Thanks Indigo.
          I have been trying to strip away the heavy scales of civilization that I think we all acquire. I think some of them inhibit my movement, thought processes…or maybe better said, there is a lot of gunk that bogs down my motor. It is getting in the way of personal growth.

          I want to see the world with more clarity, so in some ways I think going back in time will broaden my perspective. I think rejecting convention in some areas will be useful.

          All I know is, everywhere I look people are @#$%&* up and struggling. Good people, too. Not just the Fox people I don’t feel like cutting any slack to.

          I’m not content.

  6. JoeC says:

    You’re not going to back down, are you Pelmo :-) I agree that we pay more for a lot of nonessential items…most folks in the U.S. could do with a LOT less, but some of the extras are just basic changes in modern society. Even in the 1950s the previous generation probably looked down on washing machines, dishwashers, toasters, etc., and wondered why everybody was clamoring to get all those “unneccessary” gadgets. I guess when you get down to it, all we need is a hut and a fire, but that’s a choice between being a third-world country and an industrialized country…and maybe we’d all be happier being a third-world country, and maybe that’s where we’re headed if enough people drop out of the middle class because they can’t afford to give their kids the advanced education that comes at much less personal expense in other industrialized countries. As one person put it…there are now more honors students in China than there are total students in the U.S.A., and that is going to have an impact on our future. We may be able to get by with less…but the other industrialized countries won’t have to…before long, we’ll be THEIR off-shored sweatshop labor…

  7. pelmo says:

    Joe I don’t think we are playing on the same playground. I am not advocating we should go back to the stone age. All we have to learn is that we should not run ourselves into debt. Why buy a Lexus when all you can afford is a Chevy. Why have six TV’s when two is plenty enough

    Joe we are no longer an industrialized nation. Drive up and down our roads and watch old factories that paid well being torn down and being replaced by warehouses; paying minimum wage, filled with goods produced else where, to be sold in stores by minimum wage employees, who are trying to live as if they are still making those high wages in factories.

    And we will be a third world country as the government and all the people spend us into oblivion as our finacial system comes crumbling down under the weight of debt.

    William Tell stick to the rifle, I wouldn’t want you to starve. Stay away from cliffs, in your state of mind you would be the one going over it. It’s not a rock you use, rather a club. Storage unit for the spare one not the garage, you know how jelous women get.

    Xman I am going to have to start chargeing you for all the advice I keep giving you.

    • Xman says:

      William Tell?
      You consider me a folk hero?
      I’ve been trying to cultivate the impression of and ex-athlete struggling with mid-life crises.

      Yes, cliffs.
      I had to go to youtube again and take a few more trips in Joe’s winged flying suits. Everything was going great until I did a rough calculation and realized my glide ratio was about 1:1

  8. JoeC says:

    “…we are no longer an industrialized nation.” Point taken, Pelmo. You’re right, we don’t produce anything anymore.

  9. pelmo says:

    Xman you are kind of a folk hero. Treking in the woods, fishing and hunting, or diving in the ocean to get your baloney, makes for tales to be told around a camp fire.

    Free spirits are falling by the way side. Now everyone has to do what is the IN thing to do. Very few people do what they really want to do, and play it safe by following the crowd and doing what is the latest fad.

    I try with my grandkids by exposing them to diffrent foods, instead of the old McDonalds. Letting them swim in my ponds instead of pools and going around the lake in a canoe. I am so happy that they are enjoying doing things that are out of the norm now.

    • Xman says:

      We are muy simpatico, mi amigo,
      I’m no Thoreau, but am trying to find Walden, in everything in my life.
      To paraphrase him: “I want to live life as lustily as chanticleer bragging in the morning, standing on his roost…”

      Seeking out the original instead of the cookie-cutter, seeking out the almost forgotten, seeking out the richest colors, richest tastes; I think helps retain or recapture the wonderful joy of discovery we have in youth.

      Experts say that sometime in our future, all people will be tan.
      Perhaps, and I agree we should have a tan attitude toward each other, but we should live our lives in vibrant techicolor.

      I bought on old ’67 ford from a cowboy last night. He works at a cowcamp on the upper Green (river).
      Only spoken to him on the phone, never seen the truck. Going up today to get it. It’s a mile or so past an Inn. I have to look for it. No address. It’s in the willows. I’m supposed to be able to see a spot of white camper shell. The cowboy won’t be there, but the key is in the ignition. He’ll be back in town in a few days and we’ll meet at the county clerk to settle up, do the paperwork.

      Yep, I extended my lease and I’m going to park my other truck…the one with all the bells and whistles and I’m going winter up here. Ice fish, snowshoe, feed cows, and drive around in a, old truck that rattles from bumper to bumper. I might even adopt a dog. I’m going to get stuck in snowbanks because I’m not staying home in every blizzard. It’s going to be 25+ below, but something tells me, what heat I get out of that trucks heater is going to be the best I ever felt.

      • “Experts” almost always get it wrong, we’re just as likely to all be fried as tan. After all, we’re far more like ‘Bladerunner’ than ‘The Jetsons’.

        Be careful in the cold, Xman, it looks to be a bitch of a winter.

        • Xman says:

          “As likely to be fried as tan”.
          Thanks Indigo.
          I’ve been feeling that the southern hemisphere might be a safer place to live now that there is the Orient arms race heating up.

          I agree with you on discussions in eurpoe. Much more civil and seemingly more informed.
          I’m trying not to be so polarized…but it kind of is how I was programed.

  10. pelmo says:

    Xman remember the old saying, there is no fool, like and old fool, so enjoy yourself, but be carefull. Sometimes even I still think I can do things that I did at twenty, but then reality sets in.

    The wife and I talked about travelling around the world as she would work as a traveling nurse. But when you have ten grand kids, it’s kid of hard to leave for any length of time.

    So have a great time and don’t freeze.

    • Xman says:

      Thanks Pelmo.
      I’m at 7175 foot elevation and it takes awhile to get in shape…but never again the shape I was in at 30, 40 or even 50.
      I take comfort in the old saying: Age and treachery will triumph over youth and inexperience everytime.
      It is not always true. There are a couple bars in town (Cowboy and Corral) where I (a liberal minded person) have learned I might be able to whip most people verbally, but not all their friends…when they run out of words…and my smile stops working on them.

  11. pelmo says:

    Xman when confronted by one or a group, I always tell them that my hair is not gray, I just dye it that way to make fools feel brave. They never know if I am kidding or not, but it does make them think. But being 6’3″ and 235 helps a little to.

    One thing I love when I travel over seas is that you can discuss politics in a civil manner over a few cocktails. Not like here where lines are drawn in the sand and it’s I am always right and you are always wrong.

    • Xman says:

      Yes Pelmo, you have an intimidating size. That is worth a lot. I’m just 6 and 200 or so. You’d think that would discourage most, but I have yet to meet a real cowboy…even down to about 5′ 4″ that has any “back down” in him.

      A line I have used with some success is: I’ve been working real hard on my violence problem. (As I say this I clench my fists a lot…and kind of struggle to get the words out). I take a peek to see what effect that is having and sometimes have to add: I’m trying real hard to stay out of jail..I don’t want to break parole. Oddly, the last bit sometimes get me an invite to sit down and have a beer.
      Since I’ve never been to jail, I think I must be a pretty good actor.

      Sometimes I get up and sing a song or play my harp with the band. I always dedicate it to someone. The first time I dedicated it to Obama, I had a fun walk back to my table. Everyone wanted to be my huckelberry.

  12. pelmo says:

    From our last few comments that we have made, I believe the song by Willy Nelson best descibes us. “I have always been crazy,that’s what keeps me from going insane”.

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