June 4, 2011
The rich are getting richer, the poor are getting poorer, but the middle class is getting squeezed.
Mounting debt from credit cards and student loans is chipping away at the incomes and buying power of the middle class, the economic strata that most of us belong to, a new study finds.
Two economists from Monmouth University in New Jersey reached the conclusion that 4 million Americans fell out of the middle class and into poverty in 2007 because they were crushed by paying interest on their debts.
Economists Robert H. Scott III and Steven Pressman published their findings in the June edition of the Journal of Economic Issues.
They examined incomes and debt levels over the past 25 years and concluded that we're worse off than we thought we were.
"The economic condition of the middle class is worse than standard figures indicate," they say.
That's because the numbers that are widely used to calculate income in America usually don't account for the interest payments we make on our debts.
With pay stuck in neutral - or falling - for many, middle-class households (for a family of four, those earning roughly between $50,000 and $85,000 a year) often turn to the easy lure of credit cards to keep up their standard of living.
It's easy to swipe the plastic for those dinners out, new clothes, furniture or electronics, but it adds up quickly and tacking on 20 to 30 percent interest makes it hard to pay off.
Wyndell Ellis isn't poor. In fact, he has a good job. But he's part of the middle-class squeeze, and there are many others like him using credit cards to maintain a lifestyle after they've lost a job or taken a pay cut.
Ellis, 53, is solidly middle class, retired from a 15-year career in the Air Force and working as mail handler at the Sharonville postal hub. For more than five years, he could count on 20 hours of overtime pay each week, which brought his annual wages to about $80,000.
But his take-home pay fell by more than 35 percent when the Post Office cut out overtime. Suddenly, his pay no longer kept up with his expenses.
"I had to use most of my savings to catch up on my bills," he says.
He piled up nearly $10,000 in credit card debt, carrying around 12 cards at a time.
A $700 repair on his 2002 PT Cruiser, followed by a $1,700 repair, sent his finances over the edge.
He started missing payments on his home in Carthage, something he'd never done. "When I started missing house payments, that's when I said, 'Something ain't right," Ellis says.
He's sought financial counseling through Consumer Credit Counseling Service of Greater Cincinnati (www.cccservices.com) , consolidated his bills and is working on a two-year plan to kick the credit card habit and pay for things on a cash-only basis.
The economists propose increasing government aid to colleges to keep tuition down and cutting the interest on student loans. College, the traditional gateway to the middle class, has become so expensive that it's keeping people from reaching the middle class.
Bankruptcy laws should be reformed again, they say, and unemployment benefits should be increased to ease the pain of losing a job.
"Failing to do something like this soon," they write, "the U.S. middle class will continue to be squeezed in several directions at once and will continue to disappear."
The rich are getting richer, the poor are getting poorer, but the middle class is getting squeezed.
Mounting debt from credit cards and student loans is chipping away at the incomes and buying power of the middle class, the economic strata that most of us belong to, a new study finds.
Two economists from Monmouth University in New Jersey reached the conclusion that 4 million Americans fell out of the middle class and into poverty in 2007 because they were crushed by paying interest on their debts.
Economists Robert H. Scott III and Steven Pressman published their findings in the June edition of the Journal of Economic Issues.
They examined incomes and debt levels over the past 25 years and concluded that we're worse off than we thought we were.
"The economic condition of the middle class is worse than standard figures indicate," they say.
That's because the numbers that are widely used to calculate income in America usually don't account for the interest payments we make on our debts.
With pay stuck in neutral - or falling - for many, middle-class households (for a family of four, those earning roughly between $50,000 and $85,000 a year) often turn to the easy lure of credit cards to keep up their standard of living.
It's easy to swipe the plastic for those dinners out, new clothes, furniture or electronics, but it adds up quickly and tacking on 20 to 30 percent interest makes it hard to pay off.
Wyndell Ellis isn't poor. In fact, he has a good job. But he's part of the middle-class squeeze, and there are many others like him using credit cards to maintain a lifestyle after they've lost a job or taken a pay cut.
Ellis, 53, is solidly middle class, retired from a 15-year career in the Air Force and working as mail handler at the Sharonville postal hub. For more than five years, he could count on 20 hours of overtime pay each week, which brought his annual wages to about $80,000.
But his take-home pay fell by more than 35 percent when the Post Office cut out overtime. Suddenly, his pay no longer kept up with his expenses.
"I had to use most of my savings to catch up on my bills," he says.
He piled up nearly $10,000 in credit card debt, carrying around 12 cards at a time.
A $700 repair on his 2002 PT Cruiser, followed by a $1,700 repair, sent his finances over the edge.
He started missing payments on his home in Carthage, something he'd never done. "When I started missing house payments, that's when I said, 'Something ain't right," Ellis says.
He's sought financial counseling through Consumer Credit Counseling Service of Greater Cincinnati (www.cccservices.com) , consolidated his bills and is working on a two-year plan to kick the credit card habit and pay for things on a cash-only basis.
The economists propose increasing government aid to colleges to keep tuition down and cutting the interest on student loans. College, the traditional gateway to the middle class, has become so expensive that it's keeping people from reaching the middle class.
Bankruptcy laws should be reformed again, they say, and unemployment benefits should be increased to ease the pain of losing a job.
"Failing to do something like this soon," they write, "the U.S. middle class will continue to be squeezed in several directions at once and will continue to disappear."
