GraceAbounds
Well-Known Member
Good article if you can deal with reading the whole thing.
*Point to be remembered - our lives in America are not harder compared to other countries by far. But compared to what we are use to here in America - yes it is getting harder.
Life is harder now, experts say Generation gap: After paying the bills, middle-class pockets are emptier
By Bob Sullivan
Technology correspondent
MSNBC
Updated: 5:12 a.m. CT Oct 16, 2007
Shopping malls are packed every weekend. Restaurants can't open fast enough. Everyone seems to be wearing designer shoes, jackets and jeans and sipping $4 lattes. Credit card commercials constantly advocate splurging and, it seems, U.S. consumers are all too ready to comply.
So what's the problem? Why do so many middle class Americans with so much stuff say they feel so squeezed? If they are dogged by debt, isn’t it their own fault?
Perhaps, some experts say, things are not as they appear.
Bankruptcy law expert and Harvard University Professor Elizabeth Warren spent a lot of time crunching consumer spending numbers for her popular books, "The Fragile Middle Class” and “The Two-Income Trap.” In both, she makes this point: Despite all those $200 sneakers you hear about and the long lines at Starbucks, consumers are actually spending less of their income — much less — on discretionary items like clothing, entertainment and food than their parents did. In fact, after taking care of essentials like housing and health care, today’s middle class has about half as much spending money as their parents did in the early 1970s, Warren says.
The basics, according to Warren, now take up close to three-fourths of every family's spending power (it was about 50 percent in 1973), leaving precious little left over at the end of the month — and leaving many families with no cushion in case of a job loss or health crisis.
Warren's theories fly in the face of conventional wisdom and those crowded malls. But the premise is simple: Even though household incomes have risen about 75 percent from 1970, most of that is the result of a second earner — generally a woman — joining the work force. And that added income has been swallowed by rising fixed expenses, such as child care and housing costs, Warren argues. The average family pays at least twice as much for housing compared to its counterpart in the 1970s, Warren says, and in some competitive areas with good schools, housing costs have risen by as much as 600 percent.
Without savings, at risk of job loss
Now consider these factors: Four in 10 Americans don't have even one month's worth of savings for use in case of an emergency, according to a survey by HSBC Bank published in 2006. And with two incomes built into the family budget, the odds of a household getting hit by a layoff have doubled in the last generation. This combination — high housing debt, rising health care costs, lack of savings and greater exposure to unemployment — leaves many families in a precarious financial position.
Yet before Warren can get policymakers to talk about the middle-class squeeze, or at least middle-class worry, she often finds she has to beat back the notion that overconsumption is to blame for the rise in consumer debt — and in middle-class anxiety.
"A growing number of families are in terrible financial trouble, but no matter how many times the accusation is hurled, Prada and HBO are not the reason," Warren says in her book “The Two-Income Trap.”
There is no arguing that most Americans have more gadgets in their living rooms and more clothes in their closets than ever before. Consider the explosion of the closet-organizer business.
But government spending data paint a different picture. Take the often-cited evidence of culinary extravagance. While it's true that Americans are eating out much more than ever — nearly half of all dollars spent on food now go to dining out — overall food costs have plunged in recent decades. Americans now spent only about 10 percent of their money on food each year, compared to nearly 20 percent in the 1970s, according to data collected by the Bureau of Labor Statistics.
And despite the designer brands they buy, the average family of four spends about 20 percent less on clothes today, according to Warren's analysis. Think about your last trip to Target: Thanks in part to the entry of inexpensive imported textiles from China and other trading partners, it's possible to buy a Friday night outfit for under $40. This shows up in BLS data too: On average, Americans spent nearly 7 percent of their money on clothes in 1973, compared to about 4 percent in 2005.
Two weeks work for a fridge?
In fact, many consumer goods are much cheaper than they were in the 1970s. A look at 1971 Sears catalog offers a glimpse of some plummeting prices. In 1971, a basic Sears refrigerator cost $399. Adjusted for inflation, that would be about $2,000 in 2005 dollars, or nearly 10 times the $297 price of a basic fridge in today’s Sears catalog. Put another way, a fridge costs more than two week’s work for an average earner in 1971, but less than two day’s labor today.
Other household items were similarly expensive in 1971 — an 18-inch TV cost $429 (the equivalent of $2,150 today) and a 24-inch dishwasher cost $249 ($1,200 today).
Lower prices are, of course, a boon for the middle class, which now enjoys many conveniences and luxuries that were formerly reserved for the well-to-do. This is the cornerstone point for those who argue that the middle-class squeeze is a myth.
“I can’t hazard a guess as to why there is such a malaise in this country about current living conditions, but ... we have never had it better,” economist Arthur B. Laffer wrote in response to a question from a Gut Check America reader. Laffer is one of a large group of economists and policy-makers who point to crowded malls and high stock market returns as evidence that middle class America has little to complain about.
But Amelia Warren Tyagi, co-author of “The Two-Income Trap,” and also Warren’s daughter, said weekend shopping trip receipts aren’t the best way to examine the state of the middle class.
"Yes, people are spending more on home electronics, but the dollars just aren't that big," Tyagi said. "Maybe they spend a couple of hundred dollars more on stereo equipment. But they are spending less on tobacco. This is not to say that there's no frivolous spending going on, but as you add it all up, there's no more frivolous spending than there was a generation ago."
The source of the anxiety
With government data showing that Americans are spending much less than they did 35 years ago on clothes, food, and even entertainment, Tyagi says the anxiety they are feeling comes from somewhere else: the exploding costs of housing, health care and education.
In housing, recent data is most striking. Household incomes have largely stagnated in recent years, even shrinking 2.8 percent from 2000 to 2006. Housing costs skyrocketed 32 percent in that time.
Even more striking is the amount of income most families are paying to stay in their homes. Banks have long had a standard that said mortgages should not be approved unless the monthly payment was 25 percent or less of the buyer’s income. That limitation clearly is long gone. The U.S. Census Bureau defines “house poor” as spending more than 30 percent of income on housing expenses. In 1999, 26.7 percent of U.S. households were considered house poor. By 2006, the number had jumped to 34.5 percent.
Because of difference in government data collection methods, it's hard to reach back to the 1970s for a precise comparison point. But the rise in house-poor mortgage holders is striking by any measure. A 1975 Census report showed that only 8.9 percent of mortgage holders spent 35 percent or more of their income — including insurance, property taxes, and utilities — on housing.
*Point to be remembered - our lives in America are not harder compared to other countries by far. But compared to what we are use to here in America - yes it is getting harder.
Life is harder now, experts say Generation gap: After paying the bills, middle-class pockets are emptier
By Bob Sullivan
Technology correspondent
MSNBC
Updated: 5:12 a.m. CT Oct 16, 2007
Shopping malls are packed every weekend. Restaurants can't open fast enough. Everyone seems to be wearing designer shoes, jackets and jeans and sipping $4 lattes. Credit card commercials constantly advocate splurging and, it seems, U.S. consumers are all too ready to comply.
So what's the problem? Why do so many middle class Americans with so much stuff say they feel so squeezed? If they are dogged by debt, isn’t it their own fault?
Perhaps, some experts say, things are not as they appear.
Bankruptcy law expert and Harvard University Professor Elizabeth Warren spent a lot of time crunching consumer spending numbers for her popular books, "The Fragile Middle Class” and “The Two-Income Trap.” In both, she makes this point: Despite all those $200 sneakers you hear about and the long lines at Starbucks, consumers are actually spending less of their income — much less — on discretionary items like clothing, entertainment and food than their parents did. In fact, after taking care of essentials like housing and health care, today’s middle class has about half as much spending money as their parents did in the early 1970s, Warren says.
The basics, according to Warren, now take up close to three-fourths of every family's spending power (it was about 50 percent in 1973), leaving precious little left over at the end of the month — and leaving many families with no cushion in case of a job loss or health crisis.
Warren's theories fly in the face of conventional wisdom and those crowded malls. But the premise is simple: Even though household incomes have risen about 75 percent from 1970, most of that is the result of a second earner — generally a woman — joining the work force. And that added income has been swallowed by rising fixed expenses, such as child care and housing costs, Warren argues. The average family pays at least twice as much for housing compared to its counterpart in the 1970s, Warren says, and in some competitive areas with good schools, housing costs have risen by as much as 600 percent.
Without savings, at risk of job loss
Now consider these factors: Four in 10 Americans don't have even one month's worth of savings for use in case of an emergency, according to a survey by HSBC Bank published in 2006. And with two incomes built into the family budget, the odds of a household getting hit by a layoff have doubled in the last generation. This combination — high housing debt, rising health care costs, lack of savings and greater exposure to unemployment — leaves many families in a precarious financial position.
Yet before Warren can get policymakers to talk about the middle-class squeeze, or at least middle-class worry, she often finds she has to beat back the notion that overconsumption is to blame for the rise in consumer debt — and in middle-class anxiety.
"A growing number of families are in terrible financial trouble, but no matter how many times the accusation is hurled, Prada and HBO are not the reason," Warren says in her book “The Two-Income Trap.”
There is no arguing that most Americans have more gadgets in their living rooms and more clothes in their closets than ever before. Consider the explosion of the closet-organizer business.
But government spending data paint a different picture. Take the often-cited evidence of culinary extravagance. While it's true that Americans are eating out much more than ever — nearly half of all dollars spent on food now go to dining out — overall food costs have plunged in recent decades. Americans now spent only about 10 percent of their money on food each year, compared to nearly 20 percent in the 1970s, according to data collected by the Bureau of Labor Statistics.
And despite the designer brands they buy, the average family of four spends about 20 percent less on clothes today, according to Warren's analysis. Think about your last trip to Target: Thanks in part to the entry of inexpensive imported textiles from China and other trading partners, it's possible to buy a Friday night outfit for under $40. This shows up in BLS data too: On average, Americans spent nearly 7 percent of their money on clothes in 1973, compared to about 4 percent in 2005.
Two weeks work for a fridge?
In fact, many consumer goods are much cheaper than they were in the 1970s. A look at 1971 Sears catalog offers a glimpse of some plummeting prices. In 1971, a basic Sears refrigerator cost $399. Adjusted for inflation, that would be about $2,000 in 2005 dollars, or nearly 10 times the $297 price of a basic fridge in today’s Sears catalog. Put another way, a fridge costs more than two week’s work for an average earner in 1971, but less than two day’s labor today.
Other household items were similarly expensive in 1971 — an 18-inch TV cost $429 (the equivalent of $2,150 today) and a 24-inch dishwasher cost $249 ($1,200 today).
Lower prices are, of course, a boon for the middle class, which now enjoys many conveniences and luxuries that were formerly reserved for the well-to-do. This is the cornerstone point for those who argue that the middle-class squeeze is a myth.
“I can’t hazard a guess as to why there is such a malaise in this country about current living conditions, but ... we have never had it better,” economist Arthur B. Laffer wrote in response to a question from a Gut Check America reader. Laffer is one of a large group of economists and policy-makers who point to crowded malls and high stock market returns as evidence that middle class America has little to complain about.
But Amelia Warren Tyagi, co-author of “The Two-Income Trap,” and also Warren’s daughter, said weekend shopping trip receipts aren’t the best way to examine the state of the middle class.
"Yes, people are spending more on home electronics, but the dollars just aren't that big," Tyagi said. "Maybe they spend a couple of hundred dollars more on stereo equipment. But they are spending less on tobacco. This is not to say that there's no frivolous spending going on, but as you add it all up, there's no more frivolous spending than there was a generation ago."
The source of the anxiety
With government data showing that Americans are spending much less than they did 35 years ago on clothes, food, and even entertainment, Tyagi says the anxiety they are feeling comes from somewhere else: the exploding costs of housing, health care and education.
In housing, recent data is most striking. Household incomes have largely stagnated in recent years, even shrinking 2.8 percent from 2000 to 2006. Housing costs skyrocketed 32 percent in that time.
Even more striking is the amount of income most families are paying to stay in their homes. Banks have long had a standard that said mortgages should not be approved unless the monthly payment was 25 percent or less of the buyer’s income. That limitation clearly is long gone. The U.S. Census Bureau defines “house poor” as spending more than 30 percent of income on housing expenses. In 1999, 26.7 percent of U.S. households were considered house poor. By 2006, the number had jumped to 34.5 percent.
Because of difference in government data collection methods, it's hard to reach back to the 1970s for a precise comparison point. But the rise in house-poor mortgage holders is striking by any measure. A 1975 Census report showed that only 8.9 percent of mortgage holders spent 35 percent or more of their income — including insurance, property taxes, and utilities — on housing.
