The Middle Class Meltdown: The Alarming Crisis Facing the Middle Class in America

#economy #business #finance Subscribe! Over the past decade, the American middle class has witnessed a significant decline. In the last ten years alone, individuals with middle incomes have experienced a more substantial loss in purchasing power than they did between 1970 and 1990. This trend is primarily attributed to the escalating cost of living in the United States, which has propelled median home prices from $117,000 in the ’70s to nearly $450,000 today. Various aspects of daily life, such as cars, healthcare, education, gas, utilities, and other consumables, have seen a marked and exponential increase in prices. However, incomes have only seen a 66% rise over the last five decades. Inflation further compounds the issue, eroding a larger portion of people’s income each month. The traditional American dream of attaining financial security and building wealth through home equity is increasingly unattainable for a significant portion of the population, even those classified as middle class. The current labor market lacks an adequate number of middle-income jobs to sustain the contemporary middle class, leading many households to rely on multiple jobs to maintain their living standards. A substantial number of individuals may have already fallen out of the middle class without realizing it. The current job market is highly polarized, where individuals must either pursue an expensive college degree for top-tier positions or settle for lower-paying jobs. Having a degree does not guarantee a six-figure salary, given the prevalence of more available roles at the lower end of the job market. An August 2023 survey by American Compus revealed that a majority of American workers lack job security, with only 40% having secure jobs that pay at least $40,000 annually, inclusive of health insurance and paid time off, while also offering predictable earnings and a regular schedule. Despite the historical role of the middle class as an engine of economic growth in the U.S., it currently contributes a smaller share of income than it did from 1960 to 1980, according to Pew Research Center data. The middle class has contracted by 11% since the presidency of Richard Nixon in 2023, accounting for less than half of the country’s population. There is a prevailing belief among economists that the official figures may underestimate the true size of the middle class due to ambiguity in its definition. The Department of Labor places the federal poverty level for a family of four at $30,000, while those earning between $30,000 and $43,372 are considered middle class. However, critics argue that categorizing a part-time bartender and a suburban power couple with significantly disparate incomes in the same bracket is peculiar. The Federal Reserve defines the middle income level as individuals falling within the middle 50% of all income, but concerns arise about how this average is calculated, considering extreme income disparities. A more accurate median income could be up to 10 times higher than the current figures suggest. In essence, the middle class is not precisely positioned in the middle today, and the current definition reflects more on demographics than actual purchasing power. While middle-class families may not be miserable, their financial security is not guaranteed, and the foundational support for this group appears to be deteriorating. A growing number of middle-class Americans are being excluded from homeownership, with approximately 11 million families that were once part of this income bracket no longer included since 2020. This situation has been exacerbated by inflation, reaching a peak of 9.1% in June. In 2022, property values have experienced a substantial surge, leading to a boon in home equity for some. However, this has resulted in most young adults being entirely priced out of the housing market. With the highest mortgage rates in over two decades, middle-income households can now only afford homes that are worth half as much as they could just three years ago. Fannie Mae reports a significant decline in median purchasing power for families, plummeting to $189,900, compared to $356,550 when interest rates were near zero. While purchasing power has diminished, list prices have seen a sharp increase, with 45% of markets in 100 major U.S. cities, as tracked by Redfin economists, reporting list prices exceeding half a million dollars in 2023.