January 1, 2012
By Chaz Valenza
It's offical, the middle class is dead. Recently released US Bureau of Labor Statistic and Federal Reserve data show the "average American family" can't afford the average single family house... depended on their employer for health care insurance or went without... were in debt with no way out... didn't pursuing further education... saved nothing... and slashed their food budget to the bone.
There was once a middle class in America, and if you were an average worker you were part of it, but not anymore.
Peruse last year's government figures for the average American family's spending and debt. The conclusion is dumbfounding: it's official, 2011 was the year the middle class died.
Born 1950 - Died 2011: RIP by Jimmy Zuma
Long live the "Lower Class"
To Americans, being middle class means two things: more or less average wages that paid for life's necessities with cash leftover for discretionary spending.
In a country where those from the marginally poor to the marginally rich claim to be in the middle, the US Bureau of Labor Statistics (BLS) set a factual standard: the Average American Consumer Unit.
The BLS's statistically computed family, with 2.5 humans and 1.3 workers, is a fictional construct. But, it is also the one true benchmark that pinpoints the dead center of the American worker's economic situation.
Beginning last year the average American family: could not afford the average single family house... depended on their employer for health care insurance or went without... were in debt with no way out... didn't pursuing further education... saved nothing... slashed their food budget to the bone... and paid at least 30% of their gross wages in taxes.
Gender, age, religion, sexual preference and marital status are of no consequence to this financial analysis. If you're human you can relate to these budget numbers.
Any family earning today's average wage of $62,857 is very carefully spending every cent of their $49,067 take home pay and the details are disturbing.
Much of the spending verified here is so deficient it will leave you baffled as to how today's average American family is getting by. Remember, the option of taking on more debt, not calculated here, or declaring bankruptcy, may be the last resort.
Where does the money go? by US Bureau of Labor Statistics
Housing: Goodbye house. Hello walk-up flat or double wide trailer.
The new middle class housing is a two bedroom walk-up without the washer, dryer or dishwasher, or a double-wide trailer. The average single family home is now beyond the $1,400 monthly budget of today's average American family.
The fourteen hundred dollar number must include everything that goes with a place to live: rent or mortgage payment, taxes, insurance, utilities, telephone, public services, cable/dish, equipment, supplies and furnishings.
Fourteen hundred dollars will get you a two bedroom, average (not luxury) apartment, and leave enough for all your other average shelter costs, but only in smaller cities and towns where the Cost of Living Index (CLI) is at the national average: 100.
Go to a larger city, say Philadelphia where the CLI is 126 (New York City's CLI is 218) and you'll need at least $2,136 for the same mediocre two bedroom unit, utilities, furnishing, etc. that can be had in Indianapolis for $1,375.
The double-wide will run you a small down payment of $10,000 to purchase $73,000 worth of "manufactured housing" plus an average land rent of $300 per month for a total $1,400 per month budget package.
Fourteen hundred dollars is not going to cut it in any average real estate market (CLI 100) for the average house, which now goes for $212,300, even in the currently devastated housing market.
Average single family house living is going for about $1,650 a month, including average property taxes and insurance. Tack on even more for repairs and maintenance. And, that's after you plunk down $50,000 to cover both closing costs and a 20% down payment.
Hint: look around any "middle class" neighborhood and spot the empty houses, for sale and for rent signs, and how many of these splendid digs need paint, a new roof and/or other major and minor repairs.
Food: Hand to mouth.
If being middle class means you can afford more than a cut-rate meal once in a while the average American family certainly isn't in the middle anymore. What they can afford is the USDA Low-cost Food Plan, not the government's Moderate-cost food plan and certainly not the Liberal plan.
With $531 a month to spend on food for our 2.5 humans, and assigning one as a child between 6 and 11 years old, $508 could go for home meals and brown-bagged lunches for the 1.3 workers under the Low-cost Food Plan. That leaves next to nothing for food on the road.
Or, the more likely scenario, they could go with the super cheap USDA Thrifty food plan, which according to prices registered in October 2011, would leave them an extravagant $141 a month for food purchases on the road, $14 dollars a week per person.
As we've been told by recent research, cheap calories are also the least nutritious. Though I'm sure the USDA has created a sumptuous and healthy Thrifty family diet, the average American family, stressed and over-worked, is probably going to eat cheap, corn produced junk and fast food as evidenced by the fact that their food spending outside the home, according to the BLS, was $212 per month.
A healthy diet of fresh food is expensive. Are you really middle class if you can't afford to feed yourself and your family properly?
Savings : Not happening.
Though the national saving rate now stands at 4% of income, there is no budget item in the BLS data for savings, just what people are spending. But by doing an accounting analysis it is obvious the average American family currently has a saving rate of zero. See: below Debt.
Debt: Exit though the company store.
After considering all the spending figures from the BLS we added the Federal Reserve's data on non-mortgage debt. In 2011, the average American family's personal debt, credit cards and installment loans, was $21,402. We deducted for a car loan that was included in the BLS transportation budget line. That left our family with a $4,272 yearly principle and interest payment, $356 per month.
That payment, in turn, saddled them with an addition $3,801 annual deficit which would, in turn, increase their total personal debt load from $18,152 this year to $18,603 for next year.
Healthcare: The $6,600, we don't have, question.
Our Average American Family spent only $3,126 on dental and medical care. How they heck did they do that when we know healthcare insurance alone for our family of 2.5 should be at least $800 per month, $9,600 per year? What explains this? Either the family's workers were getting employer paid health insurance or they went without health insurance or some combination of the two.
In 2014, under Obamacare, everyone must be insured and they must purchase coverage if they can get it no other way.
This will leave many American families in a bind to the tune of at least $6,600 in insurance cost. Employer paid medical insurance coverage has been on the decline both in availability and cash benefit for years.
There are currently 55 million uninsured and counting. In 2014, this number should drop to near zero. After that, keep an eye on that bankruptcy number.
Taxes: 30% of gross earnings.
Everyone is taxed differently depending on how they spend, what they own, and how they made their money. But if you're about in the middle, earning $48,500 a year on a job, you can make a safe bet that 30% of your earnings, $14,550, will go back to various government authorities.
This includes Social Security payroll tax, state and federal income tax, state and local sales tax and the hidden taxes like those on gasoline, which average 47.5 cents per gallon, and tobacco, approximately 48.5 cents per pack. It does not count any other hidden taxes, like that on alcohol, municipal fees, or property taxes on rentals. The 30% overall tax rate was based on an the average hefty tax credit of approximately $24,000 for federal income tax.
Education: Skipping school.
The spending line says it all: $950 for the year. This is easy. You know what this is. It's the little bit of extra money it takes to send a kid to public school.
Our average American family is not spending their money on night courses toward job training, or a degree at the University of Chicago, or DeVry for that matter, not unless they are taking on significant student loan debt.
Charity: The average American family cares.
All things considered our average American family is quite generous giving some $1,800 in cold hard cash to charities last year, about 3.5% of their take home earnings.
Retirement: An entitlement? Really?
Social Security is how average America saves for retirement. This fictional family socked away nearly $5,000 into the program last year. Do that for 40 years of work and it's $200,000; add amortization at just 5% annum and that's $475,127. No, it's not an entitlement; you've paid-in with real money.
We also included Social Security as part of taxes the average family pays. Which is it? I guess that depends on if the system continues or is dismantled. How much have you contributed so far?
Transportation: Off to work we go.
America 's average family has two cars and car loans totaling $3,250 per year in payments. They spent a total of $7,658 driving 13,800 miles last year. Each mile cost about 55 cents. It's a darn good thing they live close to work, because 10,000 miles is the average commute for one person, leaving our 1.3 workers no miles left to go anywhere else.
Personal: A little something just for you.
Each average family member gets 3.5% of the household gross earnings to live it up! Their spending for each person went like this: $609 on clothes, $1,077 on entertainment, $235 on personal care, and $313 on either smokes or alcohol for all of 2011.
That's $2,200 to cover all your clothing, grooming, hygiene, entertainment and other personal indulgences for the year. Here's your allowance for the week: $42.30. Don't spend it all in one place.
Frivolous Spending: Butts and beer.
The 1% is by now wondering how much the poor could save by not smoking, drinking, toking, snorting or shooting.
As far as legal indulgences go, not much. (See the numbers above, this spending is included in the $42.50 weekly per person allowance). In 2010, each member of the average American family spent $2.48 cents for smokes and $3.54 for brews weekly.
Spending on illicit drugs is not reported by the BLS. See: "Other" below for how much fun money an average American might have to toss away on self medication with dry goods.
Other: Why am I reaching for my wallet?
What about gifts, parking tickets, resumes, vacation/travel, office parties, license and registration fees, membership dues, etc.? Either fit it into one of the other budget lines or take it from a whopping $880 per year of miscellaneous spending, about $6.77 a week per family member.
Average American Living Unit, 12 months (Story based on most recent 2010/2011 data)
Gross income per worker: $48,351
Social Security $4,900
Retirement, Life Ins $227
Personal Care $588
Charity Cash $1,800
Debt Payments: $4,652
Annual Expenditures: $49,067
Gross Pay: $62,857
Fed/State/Sales Tax: ($13,790)
Take Home: $49,067
Source: Bureau of Labor Statistics. Adjustments made to simplify or call out budget lines for comparison purposes.
Chaz Valenza is writer and small business owner in New Jersey. He earned his MBA from New York University's Stern School of Business. His current feature film project is "Single Point Failure" an insider's account of how the Reagan Administration caused the greatest tragedy of the space age based on Richard C. Cook's book "Challenger Revealed." He is a former Director of Public Information for Planned Parenthood of NYC. His website is: www.WordsWillNever.com