Middle class caught between rising bills, falling savings

Published: Sunday, October 1, 2006 at 6:01 a.m.
Last Modified: Sunday, October 1, 2006 at 12:00 a.m.
McClatchy Newspapers America's middle-income families are caught in an unprecedented financial crunch, according to an economic analysis released this week by two worker advocacy organizations.
Since 2001, rising health-care and housing costs have erased nominal income gains, causing the "typical" two-income family to take on more debt and neglect savings, the report said.
Economists for the Center for American Progress and the Service Employees International Union collaborated on "Middle Class in Turmoil: Economic Risks Up Sharply for Most Families Since 2001." The report may be read online at www.americanprogress.org.
The report analyzed economic conditions for families in the middle three income quintiles, defined as annual income between $18,500 and $88,030 in 2004.
These "middle-class families are struggling to pay for a home, health insurance, transportation and their children's college education," the report said. Consequently, they are "borrowing record amounts of money, leaving them unable to put away hardly any cash for a rainy day."
This trend has made more families vulnerable to financial crises in the event of unemployment or a major medical expense. Among all American households, "less than a third of families boast accumulated financial wealth equal to three months' income," wrote authors Christian E. Weller and Eli Staub.
That was a decline of 6.3 percentage points, from 38.9 percent in 2001 to 32.6 percent in 2004, the most recent year for which data was available.
Financial advisers typically recommend a minimum savings equal to three months' income in order to weather an unexpected loss of income.
Among families in the middle 60 percent of income distribution - those focused on in the report - the percentage with the equivalent of three months' income stowed away declined 10.5 percentage points from 2001 to 2004, down from 28.8 percent to 18.3 percent. Savings include money in individual retirement accounts and defined-contribution 401(k) pensions.
The report defined a typical medical emergency as costing $3,313 in 2004. Only 22.3 percent of middle-income families could cope financially with that cost, the authors wrote. If the medical expense were paired with job loss, the percentage able to cope would fall further.
The report noted that some two-income families are better able to weather emergency expenses because of the "cushion" of spousal income or health-care coverage.
The authors also noted that older middle-income families may have accumulated more savings and also are better able to withstand temporary loss of income.

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