Wednesday, March 26, 2014

Hand-to-mouth nation

MyBudget360
March 25, 2014

 Roughly 40 percent of US households living paycheck to paycheck but two thirds of these families are not considered poor by economic definitions.


People have a hard time believing that in the wealthiest country in the world, we have close to half of our population living hand-to-mouth bouncing from one paycheck to another.  A recent paper released by the Brookings Institution’s BPEA conference shows that people living hand-to-mouth are largely those with“middle class” incomes.  Of course middle class doesn’t say much in a world where banks are inflating our debt away and the US dollar has lost considerable purchasing power over the last generation.  What was telling from the report was that 40 percent of US households live paycheck to paycheck.  This might not be a surprise given the vast number of people working in low wage jobs.  What was telling from the report was that two out of three of these households represent a part of the “wealthier” income segment of our society.  The paper discusses how many of these people are house rich but cash poor.  These people basically live in their retirement fund.
Hand-to-mouth nation
The paper was telling but also had a very low threshold as to what it considers “substantial” holdings.  The paper placed the bar at $50,000 where a family would be considered “wealthy” which is rather low.  What the paper found was that many of these families that hold some chunk of wealth are actually living very similar lives to the poor in America.  This all makes sense.  If you own a home and most of your net worth is tied up in your property, this does very little in addressing short-term cash flow issues which unfortunately are extremely common.
Those that are considered to be “wealthy hand-to-mouth” tend to be older and more educated:
hand-to-mouth1
What is significant about the paper is how low the bar is getting for someone to be considered wealthy.  After all, we do have over 47 million people on food stamps with virtually no liquid savings.  The median net worth for young Americans is actually negative thanks to the mountains of debt they are carrying via student loans.  What you realize is that slowly the avenues towards wealth are being closed off or are certainly becoming much harder to pass through.  This ties in with policy actions from the Fed which amount to a large wealth transfer to the rich.  It was interesting to hear the President of the Dallas Fed mention this in regards to QE.
When we look at where jobs are being created, we can only forecast that those living hand-to-mouth will be increasing in the next decade:
low-wage-jobs
While the US lost 4 million good paying jobs since the recession hit we have added 3.6 million low-wage jobs.  We now have the largest number of Americans working in low-wage jobs as a percentage of our entire work force.
This hand-to-mouth living may not seem like a big deal but it does say more about how we view economic policy and the impact of larger scale bailouts.  The financial sector is doing well thanks to targeted bailouts but it is certainly not trickling down.  This much is clear and the above figures merely reflect a slow erosion of the middle class.
It should matter that our nation is seeing a dramatically higher number of people living paycheck to paycheck.  The income and wealth inequality in the nation is staggering.  Just take a look at where wealth stands:
wealth distribution
The top 1 percent control 43 percent of all available wealth.  The top 5 percent control 72 percent of all available wealth.  The bottom 80 percent only has control of 7 percent of total wealth. 
It isn’t a surprise that many middle class families are living hand-to-mouth.  I wouldn’t consider $50,000 in savings to be substantial especially if you are nearing retirement age and the only asset you have is a home.  Yet this is how low the bar is now being placed for someone to be considered financially well off.
It almost seems like things that were once accepted as part of the middle class like good healthcare, quality education, and access to affordable housing are now becoming items of luxury.  Do people still think that inflation is a good policy action especially when the inflation is being spurred on by bailouts to the financial sector?  I’m sure those living hand-to-mouth have something to say about this.

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