Thread: The Coming Collapse of the Middle Class?

I found this yesterday and it was pretty disturbing! The YouTube is a lecture by Elizabeth Warren who is right now being interviewed on CNN about the banking mess. What you see below the link are the notes on the lecture--which she gave at Berkley a couple of years ago. She is very knowledgeable and explains the topic clearly and well. Here's the link:
http://www.mymoneyblog.com/archives/200 ... class.html


The Coming Collapse of the Middle Class?

Sound a bit bleak, but this lecture by Professor Elizabeth Warren explores how a middle class family in 1970 differs financially from one in 2005. The full title is The Coming Collapse of the Middle Class: Higher Risks, Lower Rewards, and a Shrinking Safety Net. The actual talk starts at 4:45 in, and lasts about 45 minutes. Via Economist’s View and gbs at Diehards. My notes below.


Earning More
Starting around 1970, more and more mothers started working full-time. How did this affect finances? Household income indeed went up from 1970-2000 from ~$40,000 to ~$65,000. However, the inflation-adjusted income for employed males actually went down slightly. So the increase was entirely due to the additional women working.

But hey, households are still earning more. Good, right? Next, she crunched some data on what a dual-income, 2-kid family spent their money on in 1970 vs. 2000.

Spending Less
We actually spend less on an inflation-adjusted basis on many things nowadays:

32% less on clothing
18% less on food - including groceries, eating out, and yes, even Starbucks
52% less on appliances
24% less on car expenses, per car
Spending More
Not so fast, we also spend more in many areas:

76% increase in home mortgage payments . Surprising, the actual house size didn’t grow that much based on number of rooms (5.8 vs. 6.1). I wonder if this would hold true if it was based on square footage, however, as my research on that indicates a big increase in size.
74% more for health insurance, even adjusted for healthy family with employer-sponsored health plans.
52% more for cars, since now we have more cars per household. We gotta get to work, right?
Infinite% more for childcare
25% more in effective tax rates, due to higher income
In 1970, credit card debt was 1.4% of annual income for the median household. In 2005, it is 15%.

Education
Finally, we spend a lot more on education. In 1970, you needed a high school diploma to get a good job, which took 12 years of government-provided schooling. Nowadays, the average family pays for 2 more years of pre-school, plus 4 more years of college, all out of pocket.

Net Result: Not Good
Note that the cheaper things are the smaller, more flexible expenses… while the more expensive things are the larger, more fixed expenses. So a family now earns a bit more, but also spends a much, much larger percentage of their income. So much, in fact, that now we need both of those incomes to afford everything we buy. If either spouse loses a job, the family falls behind. Studies show that a family with children has between double and triple the bankruptcy rate of childless households.

I was kind of hoping for some solutions at the end… but none came!

I am beginning to think it is too late America ... you slept while America was robbed blind

To have a "global economy" America must be lowered to world standards, perhaps this is the goal of our leaders while I find it hard to believe that we have people in power who care so little about America at the end of the day that is what I believe.

Years of outsourcing,loss of manufacturing,nation building,uncontrolled immigration is a recipe to bring the usa down while creating huge wealth for those at the top of the pyramid. It simply is greed and out of control leaders lust for power this is on both sides of the aisle but in the end the question becomes what will average Joe do to change things, how far must he sink before becoming so angry that he/she acts.
I'm not sure where that line is crossed but each day we grow closer to it.

Elizabeth Warren seems very genuine. She heads up the national banking committee and wants us to come out of all this. One thing that struck me about her message her (that really agrees with Suze Orman--one of my favorite people) is that in 1970, families were SAVING about 11% of their income. Now, families save NOTHING! In fact, it's something like MINUS 1%.

We as a nation have been foolish in many ways. We have bought into the message that we can have it ALL TODAY and pay for it LATER. Our house of cards has finally crashed.

I'm seeing a giant focus now on the value of people saving for the future rather than spending every dime they have. There is a shift of attitude, and it is going to be painful--but needed.

What I want to see is an attitude of buying what you NEED and not just want you WANT as the new popular attitude. I also want to see BUY AMERICAN as IN and buying anything from China as OUT.

Originally Posted by oldguy

To have a "global economy" America must be lowered to world standards, perhaps this is the goal of our leaders while I find it hard to believe that we have people in power who care so little about America at the end of the day that is what I believe.

But that is exactly the goal. Why? Money. It's all about money, and power. What our anscestors worked and fought hard to build and preserve is now being eroded by powerful people who care nothing about the American people, or the people of any other country for that matter. Shoot, we may as well have all the mobsters of the 30s elected to public office. This is how Hitler, Il Duce, and the Warlords of Japan came to power. The people were so destitute that they were willing to answer any call that brought them out of the dreary futures and lives they were living. Like my cousin Hans in Germany, the autoworks he was working at paid him his daily wage at his lunchbreak so his wife could buy food for dinner, for if they waited until the end of the day, his wages would be worth the price of a loaf of bread. That is pure insanity! But when Hitler came along, this stopped. He won the confidence of the people by ending this type of practice. What they didn't realise was what they were losing in the longrun though. They [the people] didn't know that in 6 years they would be embroiled in a war that would devistate most of the continent of Europe, and leave countless millions dead and maimed. And my cousin, he spent from 1944 to 1961 in a Russian gulag. He walked home from Siberia. And he came to America in 1967, and lived here until 1988 when he passed away. But he was one of the lucky few. Many didn't.

But that is what corrupt power can lead to. And the criminal element that keeps perpetuating it. That is the scary part.

Our BIGGEST problem right now...we need to become savers in this nation.

There are so many things most Americans could be doing right now to change this, but so many just go about their days and continue on the path they have been on.

We need to look back to the depression of the 30's. People fixed up what they had, grew much of their own food, saved, and basically did not spend unless it was necessary. This was what brought this nation back.

If we can try to go back to that mindset and apply it to our modern ways and times, we can turn this around, but it takes some sacrifice on the part of people who have become disposable thinkers (if it's broke, just throw it out and buy another), instead of ones who try to make due with what they have.

The plus side to that, we also need to have these mega corporations that sell us trash products from overseas, that waste our dollars, to be whittled down a bit, and no longer have the hold on our conscious and subconscious that they currently do. It would not hurt this country to lose some of the mega businesses and go back to the local all in one store. This would help us save, make-do and re-emerge as a strong nation again, it did on the 30's.

U-Tube Bob says, the government couldn't care less if the middle class eventually has to rely on rig-shaws and bicycles for their transportation, and rice is eaten out of a broken bowl.... I think he might be right!

Our BIGGEST problem right now...we need to become savers in this nation.

I totally agree. Even though we have no power over much of what is happening, Americans DO have personal power over these decisions to save. We need to accept our own responsibility for part of the problem. That does not take away from the evil actions of greedy people (mostly in the banking industry and Wall Street), but we have got to pull ourselves together as a nation and take action where we can. Saving when possible and buying nothing from China is a start. I listened to Lou Dobbs today, and he was talking about the fact that things really are not worse than they were in the 80's when Reagan took office. We cannot just lie down as victims who are being steamrolled! The more fear we buy into, the more likely we are to buy whatever "solution" our so called leaders may offer.

Fighting for American citizens and legal citizens to have any jobs that are created is a proactive stance. Fighting for eVerify is as well. We need to focus on what we CAN do rather than on our sense of POWERLESSNESS in order to pull out of this.

Saving and conserving is a value that needs to be taught to children, something that has not seen often. As a pre-teen in the 60s, I was always humiliated in school as my mom sewed my clothes and my parents would not buy me the latest fashions like the popular kids had. I decided that I would earn my own money and made a deal with my parents that I would rid the lawn from dandelions for pay: one cent for every two dandelions. Daily we would count the plants I had pulled, about a grocery bagful each day, and after all that work, I began to realize that the designer stuff was not really that important. Earning the money to buy those things was work and looking splashy in school was not as important as the Yorkshire terrier puppy I really, really wanted.
A friend has a daughter in college, which she is struggling to afford, but as soon as she made a deposit to her daughter's credit card, the girl went out and bought music and clothes, not paying for books and food.
And I won't even get into the irreperable damage done by school systems demanding parents spend money on special projects. It just reinforces that money flows continually from mom and dad, so why should anyone save when mom and dad don't?

Our young adults have not been exposed to the value of saving for what you want. All they have seen is instant gratification. Some of us remember having to lay away our school clothes for months--coming in weekly with our little babysitting money. That kind of thing was the NORM. It may be that we will return to that kind of thinking from necessity. That is not necessarily a bad thing. This whole scary mess will imprint our younger citizens with some wisdom they need to acquire! It will now be "in" to have a budget, to be debt-free, and to have a savings account.