Anyone who hasn’t completely cut themselves off from media source or politics in general during the fiery election season has heard the same message from every candidate on every side, “Everyday Americans are worse off than they were 20 years ago”, their bases is simply to blame everyone from: foreign trading partners, corrupt governments–at home and abroad–to banks, unions, lack of unions and even immigrants.
What they agree on is that Americans are less financially stable than they were, and that the middle class is shrinking. This is an enormous problem for the U.S. economy at large, because the middle class forms the core of the American consumer base, and drives demand for most of the consumer goods that create American jobs in the first place
What Makes Someone “Middle Class”?
Historically, the middle class were defined as a group of people who weren’t a part of any ruling aristocracy, but also weren’t impoverished serfs. They were skilled professionals who owned property; people who worked for a living, but who were doing more than subsisting. The middle class has assets.
Today that definition has changed a lot less than we’d like to think. We want to imagine that most people are a part of the middle class because we aren’t literally peasant farmers or factory drones.
Unfortunately that’s just not how it works. The financial security that makes people a part of the middle class is defined by the assets a household can secure, and the most important asset for today’s middle class is home ownership.
Why is Home Ownership So Important?
Rent is the single largest recurring expense of most working class households. Owning a home is like plugging the hole in the water bucket of your finances. Someone who owns a home doesn’t need to reserve 30-50% of their income for a rent payment. Instead, they can save or reinvest that money to generate wealth and build more capital.
Home ownership is the cornerstone of the American middle class, and it’s still collapsing even after the “recovery” from the 2008 housing crisis.
Why is the Middle Class Shrinking?
There are a lot of factors driving this issue, but there are a few major symptoms hailing from the Great Recession that we can look at to give us a clearer picture…
Baby Boomers Were Hit Hard
Much of the baby boomer generation was living a middle class lifestyle, but wasn’t necessarily maintaining a lot of capital. Their incomes were high, and they typically owned their own homes. Unfortunately, much of this was built on carefully managed debt, which became a problem when a huge number of them lost their jobs in the late 00’s.
Because of the amount of wealth they possessed, many managed to pull through regardless, but not without losing a huge amount of their life savings in the form of their assets and often being forced to downsize.
They’re bruised, but not broken. What’s killing the middle class today is what happened to their children, the millennials.
Millennials Were Hit Hardest
Young people mostly didn’t have any assets to lose when the financial crisis hit, so it can be hard to understand why they seem to be floundering so much. The reality is that a combination of factors are driving young people from middle class families downward in the social hierarchy. They’re as follows…
- More competitive labor markets drive up the need for a college education to find work
- Tuition Prices have doubled since 2002, and sextupled since 1980
- Baby Boomer parents were suddenly unable to provide financial assistance
- Labor Markets have not recovered, leaving educated young people underemployed
- Wages have stagnated and shrunk because of the saturated labor market
Young people increasingly pursued a college education as the only chance of finding employment, driving themselves into heavy student debt in the process. After college, many of these individuals did find work, but they did it in a very competitive labor market that drove down their adjusted real wages by 30% compared to their parents at their age. Now many are stuck in a subsistence lifestyle, despite technically being in “middle class” jobs.
Besides lower wages, they’ve got a new layer of debt preventing them from building capital. Between rent payments and various debts, many rely on government assistance to eat. As a result, a huge portion of the population that was expected to form the core of America’s middle class has become a highly educated underclass.
Fortunately, help actually does exist to deal with this exact problem to reinforce and rebuild the middle class.
There are Programs That Can Help
A variety of underused government and non-profit programs do exist, and have existed for a long time, to bolster the growth of the middle class. Housing is, again, the largest expense these people are facing. Helping them to address it gives them the opportunity to service their debts, get on their feet, and build the capital needed to provide them the financial security they need to rejoin the middle class.
First time home buyer grants, SHIP, HUD down payment assistance, FHA loans, and other mortgage grants are designed to make homeownership possible for people who aren’t in a situation where they can build the capital to afford a mortgage payment.
If you want to see what grants are available to apply for in your area, click here.
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