The hidden struggle of the middle class no one is talking about!

The hidden struggle of the middle class

Julie Heath holds the Alpaugh Family Chair in Economics.

You have a comfortable life. You have a couple of late model cars, your house is valued at $260,000, and you have a steady paycheck. And then your water heater breaks. A new one will cost $400. And your world turns upside down.

A recent Federal Reserve Board report says that 47 percent of Americans would have trouble coming up with $400 for an emergency. Not trouble as in, “I really don’t want to take this money out of my vacation savings account.” But trouble as in, “My choices are to borrow it, sell something, or take cold showers.”

How can this be? Unemployment is down. Private sector job growth is enjoying the longest run ever. Wages are finally beginning to rise.

Maybe it’s an issue of liquidity – people have the money, they just don’t have it readily available because it’s tied up in assets that are not easily converted into cash? Apparently not. Edward Wolff, an economist at New York University, examined net worth and found that for many, there simply isn’t any worth to liquidate. For the bottom 20 percent of the income distribution, net worth has declined 85.3 percent from 1983 to 2013. It’s down 25.8 percent for the middle 20 percent.

What is causing such widespread financial fragility? Economists point to credit card debt as the culprit. It was widely reported coming out of the Great Recession that credit card debt had declined, indicating that individuals were being more responsible, having “learned the lessons” of a recession that began in the financial sector. These reports are misleading.

The average household credit card debt in 2015 was about $5,700. But average includes those households that have zero credit card debt. The average level of credit card debt among those households that carry debt is $15,000. And while the number of people carrying credit card debt has fallen over the years, the level of debt carried by those that do carry a balance has increased.

While the recession brought debt into the spotlight, the increase in credit card debt began in the 1980s. The increase in credit card debt meant a coincident decrease in savings. The use of credit became so entrenched that many began using credit as emergency savings. Our current rate of savings, 5.1 percent, is higher than its low of 2.6 percent in 2005, but again, this savings rate masks a disturbing underlying truth: Thirty percent of Americans do not save; At all.

The increasing health of our national economy is not paralleled in the lives of many Americans, leading to a sense of isolation and disaffection.

If many seem to live the American dream, but in reality are $400 away from a financial disaster, that has broader implications for how the populist messages of some presidential candidates resonate with these voters’ feelings of frustration and vulnerability.

These financially fragile Americans might be characterized by the caption on a New Yorker cartoon by Bruce Eric Kaplan: “We thought it was a rough patch, but it turned out to be our life.”