The American middle class is grappling with a financial crisis despite earning six-figure incomes, with inflation eroding their purchasing power and threatening their traditional way of life.
What Happened: Despite earning $130,000 annually as a 29-year-old medical sales representative, Vincent from Santa Barbara, California, struggles to save for a home or other middle-class milestones. This dilemma was highlighted in a recent report by Business Insider.
“I was like, if I could make six figures, I’d have a nice life. I can save up the down payment on a home and start to begin my life,” said Vincent.
Vincent belongs to an expanding demographic of middle-class Americans, as defined by the Pew Research Center in 2022 as households earning between $48,500 and $145,500 annually. Many in this group, including Vincent, feel they cannot afford the traditional middle-class lifestyle, which includes owning a home and securing a comfortable retirement.
According to Eoin Sheehan, a senior research analyst at Redfield & Wilton, inflation has caused many Americans to overlook the overall strength of the U.S. economy.
While higher costs pose challenges to retiring or buying a home, those goals aren’t out of reach with careful planning, according to Chris Collins, a wealth advisor at Northwestern Mutual’s Collins Financial.
“I’m not telling people, ‘You are going to die broken and alone.’ It’s, ‘Hey, with a little bit of work here, you’re going to be all right,’” Collins said. “They don’t feel like they can relax until somebody runs the financial plan, runs the modeling and says, ‘you’re going to be fine.’”
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However, many middle-class Americans are feeling increasingly anxious about their financial situation. Financial anxiety has reached an all-time high, with inflation being the biggest obstacle to financial security for 51% of respondents in a survey by Northwestern Mutual.
According to a recent report by Zillow, with mortgage rates nearing a 23-year high and home prices at nearly record levels, Americans now require an income that is 80% higher than pre-pandemic levels to comfortably afford a home. Additionally, data from the National Association of Realtors shows that first-time homebuyers accounted for less than a third of all home purchases in 2023, marking one of the lowest shares on record.
Why It Matters: The struggles of the American middle class come at a time when the global economy is showing signs of resilience. The Organization for Economic Cooperation and Development revised its 2024 growth forecast upwards, indicating a potential escape from a stagflationary rut. The U.S., China, and India are among the countries contributing to this improved outlook.
However, concerns about stagflation persist. Renowned economist Peter Schiff has criticized Federal Reserve Chair Jerome Powell for dismissing stagflation concerns. Schiff compared this to previous Federal Reserve misstatements, such as underestimating the subprime crisis and inflation rates.
These concerns are further exacerbated by recent economic data, which suggests a potential slowdown in growth, consistent inflation, and labor costs. Bank of America strategist Michael Hartnett has warned that a disappointing jobs report could indicate stagflation, thereby increasing the risk of a stock market selloff.
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