It’s the necessities, not the fun stuff, that are plunging middle-class America deeper and deeper into debt.
Housing, health care and education costs have collided with stagnant incomes. As a result, “America’s middle class is drowning in debt,” according to a Center for American Progress analysis of the Federal Reserve Board’s Survey of Consumer Finances. The report sums it up this way:
The reasons for greater economic distress among middle-class households are not hard to pinpoint. Slow income growth between 2001 and 2004…has not kept pace with the rising cost of big ticket items such as housing and education loans, medical expenses and transportation. Family budgets have been squeezed.
The debt burden on an average middle-class family earning about $45,000 jumped 33.1 percent between 2001 and 2004, even after adjusting for inflation.
Overall, debt grew 30.3 percentage points during the period, to 108.4 percent of income. Never before in the Fed’s surveys has debt exceeded income.
An interesting note about debt among union families: It grew, but so did wealth. In fact, wealth among union families grew by 12.1 percent, compared with 3.7 percent for nonunion families. Citing higher average wages for union workers, the Center for American Progress surmises:
[U]nion families borrow to build wealth while nonunion families borrow to make ends meet.
According to The Washington Post, while real wages overall have been stagnant since 2001:
In the past five years, the costs of medical care, housing, food, cars and household operations rose 11.2 percent, the study said. Many families are trying to make up the difference by borrowing, according to Christian E. Weller, author of the report and a senior economist at the center.
“Very little can be explained by frivolous consumer spending,” Weller said. His views were echoed in a news conference by Elizabeth Warren, a law professor at Harvard University who analyzed the sources of debt that emerge in bankruptcy filings and reviewed the results of Weller’s study.
“The average American family is walking a high wire and hoping there won’t be a high wind,” Warren said.
President Bush, meanwhile, sticks to his “This economy is strong” mantra.
