The Secret Shame of Middle-Class Americans Living Paycheck to Paycheck

“Financial impotence goes by other names: financial fragility, financial insecurity, financial distress. But whatever you call it, the evidence strongly indicates that either a sizable minority or a slim majority of Americans are on thin ice financially.”

“How thin? A 2014 Bankrate survey, echoing the Fed’s data, found that only 38 percent of Americans would cover a $1,000 emergency-room visit or $500 car repair with money they’d saved.”

“Two reports published last year by the Pew Charitable Trusts found, respectively, that 55 percent of households didn’t have enough liquid savings to replace a month’s worth of lost income, and that of the 56 percent of people who said they’d worried about their finances in the previous year, 71 percent were concerned about having enough money to cover everyday expenses.”

“A similar study conducted by Annamaria Lusardi of George Washington University, Peter Tufano of Oxford, and Daniel Schneider, then of Princeton, asked individuals whether they could “come up with” $2,000 within 30 days for an unanticipated expense. They found that slightly more than one-quarter could not, and another 19 percent could do so only if they pawned possessions or took out payday loans. The conclusion: Nearly half of American adults are “financially fragile” and “living very close to the financial edge.””

“You could think of this as a liquidity problem: Maybe people just don’t have enough ready cash in their checking or savings accounts to meet an unexpected expense.”

““Families have been using their savings to finance their consumption,” Wolff notes. In his assessment, the typical American family is in “desperate straits.””

“put simply, when debt goes up, savings go down”

“So who is at fault? Some economists say that although banks may have been pushing credit, people nonetheless chose to run up debt; to save too little; to leave no cushion for emergencies, much less retirement. “If you want to have financial security,” says Brad Klontz, “it is 100 percent on you.””

“One thing economists adduce to lessen this responsibility is that credit represents a sea change from the old economic system, when financial decisions were much more constrained, limiting the sort of trouble that people could get themselves into—a sea change for which most people were ill-prepared.”

“Annamaria Lusardi and her colleagues found that, in general, the more sophisticated a country’s credit and financial markets, the worse the problem of financial insecurity for its citizens.”

“Why? Lusardi argues that as the financial world has grown more complex, our knowledge of finances has not kept pace.”

“Basically, a good many Americans are “financially illiterate,” and this illiteracy correlates highly with financial distress. A 2011 study she and a colleague conducted measuring knowledge of fundamental financial principles (compound interest, risk diversification, and the effects of inflation) found that 65 percent of Americans ages 25 to 65 were financial illiterates.”

“Real hourly wages—that is, wage rates adjusted for inflation—peaked in 1972; since then, the average hourly wage has essentially been flat. (These figures do not include the value of benefits, which has increased.)”

“In a 2010 report titled “Middle Class in America,” the U.S. Commerce Department defined that class less by its position on the economic scale than by its aspirations: homeownership, a car for each adult, health security, a college education for each child, retirement security, and a family vacation each year. By that standard, my wife and I do not live anywhere near a middle-class life, even though I earn what would generally be considered a middle-class income or better.”

“A 2014 analysis by USA Today concluded that the American dream, defined by factors that generally corresponded to the Commerce Department’s middle-class benchmarks, would require an income of just more than $130,000 a year for an average family of four. Median family income in 2014 was roughly half that.”

“In my house, we have learned to live a no-frills existence. We halved our mortgage payments through a loan-modification program. We drive a 1997 Toyota Avalon with 160,000 miles that I got from my father when he died. We haven’t taken a vacation in 10 years. We have no credit cards, only a debit card. We have no retirement savings, because we emptied a small 401(k) to pay for our younger daughter’s wedding. We eat out maybe once every two or three months. Though I was a film critic for many years, I seldom go to the movies now. We shop sales. We forgo house and car repairs until they are absolutely necessary. We count pennies.”

“I don’t ask for or expect any sympathy. I am responsible for my quagmire—no one else. I didn’t get gulled into overextending myself by unscrupulous credit merchants. Basically, I screwed up, royally. I lived beyond my means, primarily because my means kept dwindling.”

“Life happens, yes, but shit happens, too—those unexpected expenses that are an unavoidable feature of life. Four-hundred-dollar emergencies are not mere hypotheticals, nor are $2,000 emergencies, nor are … well, pick a number. The fact is that emergencies always arise; they are an intrinsic part of our existence. Financial advisers suggest that we save at least 10 to 15 percent of our income for retirement and against such eventualities.”

“But the primary reason many of us can’t save for a rainy day is that we live in an ongoing storm. Every day, it seems, there is some new, unanticipated expense—a stove that won’t light, a car that won’t start, a dog that limps, a faucet that leaks. And those are only the small things.”

“In a survey of American finances published last year by Pew, 60 percent of respondents said they had suffered some sort of “economic shock” in the past 12 months—a drop in income, a hospital visit, the loss of a spouse, a major repair.”

“More than half struggled to make ends meet after their most expensive economic emergency. Even 34 percent of the respondents who made more than $100,000 a year said they felt strain as a result of an economic shock.”

“In effect, economics comes down to a great Bruce Eric Kaplan New Yorker cartoon that was captioned: “We thought it was a rough patch, but it turned out to be our life.””

“A 2014 New York Times poll found that only 64 percent of Americans said they believed in the American dream—the lowest figure in nearly two decades. I suspect our sense of impotence in the face of financial difficulty is not only a source of disillusionment, but also a source of the anger that now infects our national politics, an anger that gets displaced onto undocumented immigrants or Chinese trade or President Obama precisely because we are unable or unwilling to articulate its true source.”

“As the Harvard economist Benjamin M. Friedman wrote in his 2005 book, The Moral Consequences of Economic Growth, “Merely being rich is no bar to a society’s retreat into rigidity and intolerance once enough of its citizens lose the sense that they are getting ahead.” We seem to be at the beginning of just such a retreat today—at the point where simmering financial impotence explodes into political rage.”