The squeezed middle: it’s something we’ve heard a lot about over the course of the last election cycle. Practically everybody agrees that the middle class is dying, and people are worried. The problem with the death of the middle class is that it is, and always has been, the glue that holds society together. It’s the middle class who run the schools, provide employment and pay the lion’s share of taxes. It’s the middle class that keep the economy stable, invests in the future and make sure that people can pay for life during retirement. And it’s the middle class who funds the health system and keeps politics near the center ground.
A world of just rich and poor wouldn’t just be a travesty for all of the individual wrapped up in low-wage jobs, wasting their lives away doing menial work better suited to a robot. It would also be a travesty for the whole of western society, and we would likely see some rather nasty political change designed to address the grievances of the middle.
But what exactly is the middle class? The Economist has a rather unhelpful definition. It says that the middle-class is a category that is “neither rich nor poor” but somewhere in between. They need to have some discretionary income left over at the end of the month to spend on what they like. Their earnings shouldn’t be spent entirely on rent, fuel, and super noodles.
Diana Farrell has a slightly more helpful definition. She says that the middle class begins when a family has more than a third of its income left over at the end of the month to spend on whatever it wants. For instance, if the household income is $3000 a month, the middle class starts when that family has $1000 that isn’t being spent on either food, fuel, rent or other essentials.
But the middle class is under attack. Thanks to globalization at the glut of cheap labor filling the global economy, unskilled laborers have seen their wages decline in real terms, even as productivity soars. Fifty years ago, General Motors was the largest employer in the US. It employed nearly half a million blue collar workers, and they earned the equivalent of $50 an hour in today’s money. The biggest employer today is Walmart, and it’s employees have to survive on a mere $8 an hour. The result has been millions of people dropping out of the middle class and not being able to afford the stuff that they used to be able to pay for out of pocket.
The US Department of Health and Human Services recently reported that Americans spend around $64 billion every year getting their teeth fixed. According to the same study, only around 4 percent of that work is paid for by the government. The rest comes from private insurance plans and out of pocket expenditures by individual patients. Currently, however, there are more than 108 million people in the US who have no dental coverage whatsoever. Many of these people give up on paying for dental care because it is so expensive, choosing medical cover instead because that is all that they can afford. There is also evidence that the middle class is actually forgoing necessary procedures, like having fillings, to save on costs.
Dentistry costs represent the fundamental problem for the middle class. Not only are regular working people not seeing their wages rise, but special interests, lobbyists, and regulations are also all conspiring to push up dentist costs to unaffordable levels for the average person. A few individuals at the top are making off with a lot of money, but everybody else is stuck with high prices. This is why we’ve seen the rise of personal loans from companies like the Personal Money Store. People need cash to pay for dental treatment, and often their incomes alone aren’t enough to cover it.
In the past, people used to save for their retirement out of their incomes. Putting away 10 percent of your income every month and investing it in the stock market or in a savings account was once enough to net middle-class earners a substantial return. You could invest $1000 when you were twenty-five and see it grow to more than $10000 once you were sixty-five. But today, thanks to the fact that 47 percent of people have to live paycheck to paycheck and the fact that interest rates are pathetically low, old-fashioned saving has died a death. Now most people in the middle class are relying on unfunded Social Security payouts to fund their retirement, although the real value of these payments is likely to fall significantly in the future. According to the data, we have so far, around 20 percent of people near the age of 65 have not saved anything for their retirement and 59 percent of people, according to a recent Gallup Poll, say that they are worried that they don’t have enough.
One of the first things that most people do when they get their first job is start by building up an emergency savings account. They forgo holidays, new cars and even their weekends to save the money they need to be financially secure. Emergency savings, according to most experts, should cover six months of expenses, to keep people off the streets. But today’s middle class can seldom afford to build up emergency savings, just as they are failing to save up for retirement. Incomes are now so low relative to the cost of rent, housing, and education that it’s becoming impossible to make ends meet and have a little bit left over at the end of the month for a rainy day.
Bankrate, the financial survey outlet, recently found that only a quarter of middle-class homes had enough in emergency savings to see them through for six months. Most of these were in the highest income groups, with the rest struggling by on less than a month worth of savings. About 25 percent had no savings whatsoever. It should be pointed out that not only is this bad from a financial perspective, it’s also catastrophic for families who want to lead, happy, stress-free lives, free from financial concern. Knowing that the moment you lose your job, you’re in the gutter is hardly a happy place to be.
Recently the website Interest did a survey to find out whether middle-income people could afford to buy new cars. In the past, of course, the staple of the middle-class lifestyle was the ability to pay for and run a car. But the Interest survey found that today, across two dozen American cities, median income simply wasn’t high enough to pay for a brand new car or truck. According to the data, new cars are priced, on average at $32,086. Now practically everybody has to pay for their vehicles on a monthly basis. We’ve seen the rise of the car loan, leased cars and now cars that you just rent, as and when you need them from companies like Uber.