Middle Class Debt

Baby boomers and generations before them remember fondly those times when a family could afford the basics of a middle class lifestyle – a modest home, dependable car and education for their children – on the income of a single wage earner, generally the male head of household in those simpler times.

While the curious might insist upon hard numbers at this juncture, attempting to pin down a definition of what constitutes ‘middle class’ is an exercise in futility.  The boundaries can vary considerably, depending upon whose numbers are used, ranging from a low end of  $20,600 (U.S. Census Bureau) to a high of $122,000 (U.S. Department of Commerce), with the upper fringe reaching as high as $250,000 when quoted by some optimistic individuals in the government.  The man on the street appears to have no clearer understanding of what constitutes ‘middle class’: when polled, forty percent of respondents said that an annual income in the $50,000 to $74,999 range would qualify as middle class; at the same time, thirty-one percent said that a wage beyond that stated range was necessary, and twenty percent believed that an income of less than $50,000 annually could still be considered as being middle class (Allstate/National Journal, 2013).

The close of the Seventies witnessed the demise of that fiscal model, as wages stagnated and no longer kept pace with inflation.  The Federal Reserve reported that between 2010 and 2013 the average income of an American household rose by four percent; however, median income – the point at which there are an equal number of incomes both above and below that point – during that same time period decreased five percent. Despite the number of income earners in a household increasing and expenditures being more closely scrutinized, family income was no longer sufficient to afford the home/car/education ideal of decades past.  Still feeling that the aforementioned items were more than mere luxuries, the middle class looked to credit as a means to fill that financial gap.  Overall, accrued debt has been steadily increasing, hovering at around 60 percent of yearly income in 1989, climbing to 122 percent by 2013.

While flawed from an economic standpoint, this system endured until the credit collapse of 2007, at which time employers tightened their corporate belts and millions of Americans in debt for homes, auto loans and credit cards lost their jobs.  Since that time, recovering from the accumulated debt has been a slow, painful process resulting in some small degree of progress, but those same families now find themselves once again relying upon credit to take up their budgetary slack.

The solution to this dilemma?  Again, that would depend upon who you ask: Institutions providing credit seem content with the status quo; On the other side of the coin Bloomberg Business said in their publication BloombergView that government intervention at a number of levels will be necessary, including such areas as mortgages, predatory lending practices, student loans, payment adjustment and more careful verification of the potential debtor’s ability to repay the loan.

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