Crisis of the Middle Class

Dear Rich Lifer,

The coronavirus has and will continue to wreak havoc on millions of Americans.

While the numbers of people seeking and receiving unemployment are beginning to fall, the labor market is still incredibly damaged.

According to the Labor Department, in the final week of August, initial claims for jobless benefits declined only slightly to 881,000, and the number of people collecting state unemployment benefits hit 13.3 million.

The low-wage worker has felt the hardest blow from the pandemic.

However, the middle class is also facing unique hardship due to the pandemic crisis.

The American middle class family is falling deeper and deeper into debt to maintain their lifestyle.
The wealth gap is only increasing. Now is the time to take action before it’s too late. Robert Kiyosaki has been beating his chest about this for a long time. Click here to find out how he might be able to help you. Then, read on…

The Debt Surge

Before coronavirus, debt wasn’t as critical a stressor for the middle class because of the booming job market and the rise in median household income.

Pre-pandemic, Americans had amassed $4.2 trillion in consumer debt, excluding mortgages, according to the Federal Reserve Bank of New York, a record even when adjusting for inflation.

Housing debt added an additional $10 trillion to the total.

American families with non-housing debt making over $98,018 a year in pre-tax income owed an average of nearly $92,000 of such debt in 2016. That’s up 32% from 2004, according to an analysis of Federal Reserve data by the Employee Benefit Research Institute.

The debt surge is a byproduct of low borrowing costs the Federal Reserve engineered after the financial crisis to get the economy moving. This move has reshaped both borrowers and lenders.

Debt becomes a cycle: consumers increasingly need it, companies increasingly can’t sell their goods without it, and the economy, which counts on consumer spending for more than two-thirds of GDP, would struggle without a plentiful supply of credit.

But now, the cycle is catching up with Americans as the protection and security of jobs are taken away.

The thing about debt is that it’s not all bad. In one sense, an increase in consumer debt signals confidence in the future of the economy. However, debt is only manageable when unemployment is low and people borrowing money know they have the flow of income to pay it back.

We now see debt becoming unmanageable for this very reason.

These numbers are staggering, and coronavirus has only made it worse, with unemployment benefits designed to replace the average American income falling short of covering the pay of higher-earning workers.

Many lenders that put six-month moratoriums on payments are now expecting to start receiving payments again.

Meanwhile, Congress is still negotiating another round of benefits, and Trump’s executive order for an additional $300 of weekly benefits has not yet been distributed in every state.

Is the Worst Yet To Come?

Anthony Carnevale, director of the Georgetown University Center on Education and the Workforce, stated, “What I see happening here is a core assault on successful college-educated families, which are the new breed of middle-class American families.”

Unemployment has fallen from its pandemic peak of 15% to 8.4% in August, but the pre-pandemic rate was only 3.5%.

Unemployment in arts, design, media, sports, computer, math and entertainment has tripled from last year, while unemployment in education has doubled.

Things could get worse, according to Discover Financial Services Chief Executive Roger Hochschild who believes that many of “the white-collar layoffs are still to come.”

The outlook for higher-earning workers actually appears worse than during the 2008 financial crisis. In August, about 3.3 million people ages 25 and over with bachelor’s degrees or higher were unemployed, up from 1.2 million in February, according to the Bureau of Labor Statistics.

During the last downturn, that number peaked at about 2.2 million.

Many workers in these “white collar” fields are faced with the daunting task of switching careers as sectors such as travel and entertainment continue to see layoffs without much hope of rehiring in sight.

Those who have been lucky enough to remain employed throughout the pandemic are struggling with pay cuts.

As of August, 17 million workers were getting paid less due to the pandemic, said Mark Zandi, chief economist at Moody’s Analytics. Some 9.5 million took pay cuts; the remaining 7.5 million are working fewer hours, according to Zandi.

The Wealth Gap

From 1989 to 2016, data from The U.S. Bureau of Economic Analysis shows that the American economy roughly doubled in size. If you look at the data altogether, wealth increased.

However, gains in assets were skewed toward the highest earners according to a Wall Street Journal analysis of The Fed’s Survey of Consumer Finances.

The median net worth of households in the middle 20% of income rose 4% (inflation-adjusted) to $81,900 between 1989 and 2016, the latest available data.

Meanwhile, for households in the top 20%, median net worth more than doubled to $811,860. And for the top 1%, the increase was 178% to $11,206,000.

Basically, a third of the gains made — $19 trillion — went to the wealthiest 1%.

The coronavirus is exacerbating this already vast inequality in wealth.

The middle class may be coming to an end.

U.S. billionaires’ wealth grew by $845 billion during the first six months of the pandemic.

The Institute for Policy Studies and Americans for Tax Fairness (ATF) said data from Forbes revealed that the total net worth of 643 of the nation’s richest people rose from $2.95 trillion to $3.8 trillion between March 18 and September 15.

Meanwhile, 200,000 people have now died of coronavirus in the U.S., and Americans in both the middle and lower class are struggling to survive.

If you are experiencing debt-related hardship, don’t hesitate to act. Get in contact with your lenders, consider credit counseling or a debt relief service.

At the very least, make a budget — the first step to taking control of your financial situation.

The Federal Trade Commission offers lots of other helpful tips and resources to check out if you find yourself struggling to manage your debt.

You can find them here at their website.

No one is going to help you if you don’t ask. And you can only depend on yourself to take the best care of your finances and your future.

To a richer life,

The Rich Life Roadmap Team

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