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Money Culture

Many Demands on Middle Class Paychecks

Ask middle-class Americans how they’re doing, and you’ll often get the same answer: there are still too many demands on my paycheck.

Several recent surveys reach this conclusion, even though wages have been rising consistently at a time of low inflation.

Student loans trump 401(k)s. Two top financial priorities are in conflict: student loan payments, which people described as a “burden,” and saving for retirement, which they viewed as “important” in a TIAA-MIT AgeLab survey.

The debt seems to be winning: three out of four adults paying off student loans say they would like to increase how much they save for retirement but can’t do it until their loans are paid off – and that can take years. One woman described her loans as “draining” her finances.

A promising sign on the horizon is that some employers are finding creative ways to help employees pay down college debt, giving them more leeway to save money in their 401(k)s. But these efforts impact a small number of workers, and the amount of debt continues to rise year after year for every age group, from new graduates to baby boomers who helped send their children and grandchildren to college, a Prudential study found.  

Buying a house isn’t an option. The good news is that about half of Millennials already own a home. Most of the others want to buy a house but can’t afford it, 20- and 30-somethings told LendEdu in a survey. Their top reasons were student loan and credit card payments and a lack of savings, which is the flip side of having too much debt.

Millennials are also putting off other goals until they get a house – marriage, children, even pets. “It’s quite obvious that this uphill battle” and debt “is having secondary effects,” said LendEdu’s Michael Brown.

Medical debt looms large. Americans borrowed $88 billion last year to pay their hospital, doctor, and lab bills. That debt fell hardest on the 3 million people who owe more than $10,000, according to an estimate by the Gallup polling company and a group of healthcare non-profits.

While the luckiest workers get affordable insurance through their jobs, people with inadequate coverage sometimes resort to bankruptcy. Personal bankruptcies are declining. Yet unpaid medical bills remain an issue in two-thirds of Bankruptcy Court filings, according to a report in the American Journal of Public Health.

People are going into debt, because medical and prescription drug costs continue to rise at a time a growing number of workers – one out of three today – have high-deductible insurance plans. And deductibles are soaring, forcing workers to pay more out of their own pockets.

Economists are starting to talk about a slowdown or even a recession next year. If these fears materialize, the workers who already have these weak spots in their personal finances will have more problems.

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4 Responses to Many Demands on Middle Class Paychecks

  1. Geoffrey Hewitt says:

    The problems with student debt and the highest medical costs in the world by far are as follows:

    Student debt is basically taking economic activity out of the general economy by using these funds to pay interest and debt down on student loans. This occurrence also dramatically slows house purchases, marriages and other purchase in the economy, such as durable goods.

    Regarding health care costs at $3.65 TRILLION now per year and twice what any other country spends as a % pf GDP. Just take $1.0 trillion out of it and spread it over all industries in U.S., imagine how many gains would happen across the board in other industries.

  2. James Phillips says:

    You say that the LendEdu study reports the top reasons millennials don’t own homes were, “student loan and credit card payments and a lack of savings,” but your own graphic and the study itself shows that low income is a larger factor than debt, with student loan and credit card payments totaling only 15%, also less than “poor credit” at 17%.

  3. Kev says:

    We had three in college at once and another child going into college a year or two after the other finished. None of them received much financial assistance, but attended school with multiple “minority” students and foreigners who received almost full tuition assistance, left school with no debt and are living the high class life. Meanwhile, our kids worked hard after graduation to payoff debt but were subsequently hit by alternative minimum taxes and general taxes because they were working overtime to payoff debt. It is a double edged sword.

    Parents are being hit as well. Working hard, but getting hit with Medicare increased premiums due to higher income and not eligible for any health care premium discounts. This whole system has to stop punishing the hard working middle class. We can’t afford to pay for all these free government handouts. If you did a follow up in the kids who got free financial aid and have no loans they are definitely not suffering like our hard working kids. Plus, the accumulated interest rates on these loans are outrageous!! This is a vicious cycle working against very hard working middle class families.

  4. Anne says:

    Just a couple observations about student loan debt. Frankly, I’ve seen too many cases of people who had other options but freely chose to incur debt anyway.

    Here are two examples.

    The son of an acquaintance of mine had a full 4-year ride to a well-known university just a few miles from his parents’ home, but still managed to rack up over $50,000 in debt.

    How?

    Well, he didn’t want to live at home, so rented an apartment instead. And he certainly wasn’t going to eat meals at the school dining hall. So he cooked in his apartment, right? Nah, who does that when restaurants are right outside the door? And, of course, he “had to have” a nicer car.

    Another acquaintance worked for years at a prestigious Ivy league university 10 miles from home, just so his daughter could gain tuition-free “legacy” admission. Did she jump at the chance to start post-college life debt-free? Of course not! Instead, she demanded to attend a different Ivy league university, at a cost of around $60,000 a year. Her parents caved and co-signed her loans.

    And we’re all supposed to feel sorry for people like this? Seriously?

    Now we hear talk of forgiving student loan debt, which simply means that other people will pay the tab for these apartments, cars and frat parties. I’m sure the bricklayers I see working outside all day in 95-degree heat will be utterly sympathetic.

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