If you just read the headlines, you’d think we were finally doing ok.
The media went wild celebrating this week’s US Census report. “Unemployment is down!” “Middle-class incomes are up!” “Stock prices are rising!”
Sure, incomes went up. By 3.2%. That puts us… almost back to where our incomes were in 1999. Are we really going to accept that as cause for celebration? Is that where our standards are now?
It was true last year, it’s true today: America’s middle class is under assault from the plutocrats. Nothing in the report says any different.
If you want to understand what’s actually happening to us, don’t look at shiny, easy distractions like stock prices. Look closer at what’s happening to three specific forms of wealth: savings, home equity, and financial reserves.
Since 1983, national median wealth — i.e. the amount of money you have when you add up what’s in your bank account with things like cars and houses, then subtract your debt — has declined by 20 percent, falling from $73,000 to $64,000 in 2013. And U.S. homeownership is still down from where it was in 2005, meaning we still haven’t recovered from the housing crisis in 2008.
So while it’s good news that median income is getting back to where it was before an economic meltdown, the reality is that almost 20 percent of the country lives in “Underwater Nation,” with zero or negative net worth (thanks, mortgages and student loans!). And even more of us still have almost no cash reverses to get us through hard times.
In other words, that rising income that we’re supposed to be so excited about is going right back out the door to cover rising expenses, leaving nothing behind to pay for anything but the essentials — if that. This is a source of enormous stress for those of us in the low- and middle-income brackets. When you’re living on ramen for four days while you wait for your next paycheck, the rising price of Apple stock doesn’t really help.
Savings and wealth are vital life preservers for people faced with job loss, illness, divorce, or even little things like car trouble. But it’s estimated 15 to 20 percent of us have no savings at all, or owe more than we own.
Any financial planner will advise you to put aside three months of living expenses in financial reserves, just in case. So if your living expenses are $2,000 a month, you should try to have $6,000 in “liquidity” — money you can easily get to in an emergency.
But 44 percent of households don’t have enough funds to do that, even if they kept costs at an absolute minimum by living at the poverty level the whole three months, according to the Assets and Opportunity Scorecard.
And a Bankrate survey found that 63 percent of U.S. households lack the cash or savings to meet a $1,000 emergency expense.
According to a new report by the Institute for Policy Studies and Prosperity Now, this situation is, predictably, even worse for Blacks and Latinos, who have experienced a disturbing decline in household wealth that’s only getting worse.
Between 1983 and 2013, the wealth of median black and Latino households decreased by 75 percent and 50 percent. That is nothing short of shocking. Translated into actual dollars, median black wealth fell from $6,800 to $1,700, in 2013 dollars, while Latino wealth declined from $4,000 to $2,000. Let that sink in for a minute.
The report found that if these trends continue, median black household wealth will hit zero by 2053. Latino net worth will hit zero two decades later.
This is getting out of hand fast, and it’s in everyone’s interest to reverse these trends. Growing racial wealth inequality is bringing down median American middle class wealth, and with it shrinking the middle class — especially as Americans of color make up an increasing share of the U.S. population. Without a middle class, this whole house of cards starts to crumble.
One way to start turning this around is to take subsidies to people who are already wealthy and redirect them to something that benefits all of us, like investing in opportunities for low-wealth families to save and build wealth. For example, right now people can write off part of their mortgage interest payments on their taxes. That’s great, but it only benefits you if you already own a home — and most of those benefits are going to the mansion owners. It’s so imbalanced that the subsidy is often literally referred to as the “mansion subsidy.”
It should not be controversial for Congress to cap (not even eliminate!) the mansion subsidy and other tax breaks for the rich, and focus on those who are shut out of the economy entirely — not the already-have-a-lots.