Christina Moss and her husband have a combined yearly income of $125,000. They make 104 percent more money than the 2017 median household income in the United States.
The reality of their finances, however, places them in a much different light.
This month, they had to cancel a service call on the house’s furnace because they couldn’t afford the $200 fee. She says her family is lucky that her husband is handy and can fix it himself; but she still feels shame when faced with how strapped their finances truly are.
“It’s embarrassing to make this much money and still be financially broke,” Christina, a 42-year-old accounting manager in St. Louis, Missouri says. “After a while you get used to it and just chalk it up.”
Making ‘good money’ doesn’t ensure financial security
On paper, the economy appears just as the Moss family’s income does: strong, stable and promising. Unemployment has recently been the lowest in decades. The country has bounced back from the Great Recession and continues to ride one of the longest bull markets in American history. Not a single bank failed in 2018, which hasn’t occurred since before the financial crisis.
The broad picture says things are good. But the granular data is much more telling.
A new study from the Urban Institute finds 33.5 percent of Americans with moderate incomes between $40,840-$81,680 (surveyed between December 2017 and January 2018) faced at least one form of financial insecurity over the previous 12 months. The institute describes these events as being contacted by a debt collector, missing a payment on a credit card (or non-mortgage loan) or not having confidence in being able to pay for an unexpected $400 expense.
“This is entirely consistent with the recent, unfortunate findings by Bankrate that just 40 percent of Americans could pay a $1,000 unplanned expense from savings,” says Greg McBride, CFA, chief financial analyst at Bankrate. “Being undersaved or lacking savings altogether is not limited to certain income brackets and is a reality for Americans from varied walks of life.”
Facing financial challenges despite a strong economy
So how did such a large number of Americans get here? How can earning even as much as $100,000 keep families from staying financially afloat?
There are many other factors at play — it’s almost impossible to pinpoint just one as to why so many Americans are teetering on the edge of being one surprise expense away from a major financial emergency.
One hitch in the system is that our perspective of “good money,” or what draws the lines between the middle class — rich and poor — hasn’t changed in over 50 years.
The official Federal poverty measure is a calculation used to determine who is poor in America. However, the measure was created in 1963 and is based on 1955 data. Many economic analysts have previously stated it’s wildly outdated and needs improving to better serve the public.
The calculation is based solely on income and takes into consideration the cost of a minimum food diet in 1963. It also doesn’t take into account non-cash benefits, like food stamps, which can be received by consumers whose incomes sit above the poverty line but still not enough to be food secure.
And while the government hasn’t reevaluated what it means to make good money in America, most workers are seeing their wages flatline as living costs increase. In 2018, Pew Research found that the real average wage had the same purchasing power as it did 40 years prior. Wages that have increased during this time period have “gone largely to the highest earners,” according to Pew.
A December 2018 Bankrate survey has similar findings with 3 out of 5 American workers saying they haven’t seen a pay increase in the previous year.
“Even as we’ve finally begun to see wages rise very late in the nearly decade-old economic expansion, there is still a relative lack of middle-wage, middle-skill jobs,” says Mark Hamrick, senior economic analyst at Bankrate. “Those who have benefited more often have been at the low and high ends of the income spectrum.”
Hamrick also cites income inequality to be a major player in why so many moderate-income Americans are facing financial challenges.
“Labor force participation is another factor which helps to give us a better idea of what the job market looks like on-the-ground, so to speak,” Hamrick says. “We know that it is lower in rural areas, higher in urban areas — an indication of another aspect of income inequality.”
While wages struggle to keep up, living expenses continue to rise and become more difficult to overcome. Health care costs are the No. 1 factor pushing Americans into poverty. Student loan debt has reached $1.5 trillion, and monthly payments are holding consumers back from meeting major financial milestones. A dual-income household pays as much as 11 percent of its income on child care, according to Child Care Aware of America, a nonprofit organization focusing on affordable child care.
All of these factors combine to paint a blurry picture of a struggling working class.
“There is not a succinct explanation for why so many Americans experience economic distress, some of which is self-inflicted,” Hamrick says. “Many fail to choose to live beneath their means. Many aren’t able to earn sufficient income or have been hit with unexpected near-catastrophic expenses, including because of unemployment, bad health or injury.”
Digging deeper into debt
When the Moss family adds up their monthly costs, there just isn’t enough cash to cover everything. Their situation is a fairly typical financial scenario: They have student loan debt, credit card debt, a mortgage, kids to care for and monthly bills to pay.
Before Christina and her husband met, they were both single parents. Her husband, who makes less than her, was “struggling” to survive, as Christina puts it. After they married, she started helping him manage his debt.
Combined, Christina and her husband say they have $200,000 in student loan debt, and about $15,000 in credit card debt. Being saddled with debt is a common experience in America — another recent Bankrate survey found that 3 in 10 Americans have more credit card debt than emergency savings.
Their mortgage, which eats up 15 percent of the family’s monthly income, is upside down. They say that they cannot afford the $30,000 it would cost them to sell the home.
The couple report spending 33 percent of their monthly income on education-related expenses for their four children. Their oldest daughter, who is in college, only receives partial tuition scholarships because their “income is considered too high to get the entire tuition covered,” according to Christina. She and her husband cover the remaining $6,000 of their daughter’s tuition and provide her a stipend for living expenses.
Their other three daughters attend private school, something Christina says is unavoidable.
“I wish this wasn’t the case, but with the failing school system in St. Louis, this was our only option,” she said.
The scholarships each of the three daughters receive doesn’t cover all of their tuition, leaving the family to foot the rest of the bill.
On top of that, there are the regular living expenses — groceries, utilities, car payments and vehicle maintenance — that often take the backseat. Christina, who hasn’t paid her vehicle loan since December, recently negotiated a new payment arrangement with her bank.
“The irony is that the car has been down for about three months, but we don’t have the money to fix it,” she said. “So, I’m basically paying for a vehicle I can’t drive.”
Bit by bit, the Moss family is trying to pay off their debt. But Christina knows financial security won’t happen overnight.
“We are slowly working our way up,” Christina says.
4 ways to manage your finances when facing insecurity
Preparing for a financial emergency is one thing. But managing your finances while you’re already facing insecurity is another.
Those seeking to break the paycheck-to-paycheck cycle have options, regardless of their income range.
Assess your current employment: Hamrick says consumers should take a hard look at their current employment and determine if it’s making ends meet. If it isn’t, he suggests taking a new approach.
“Assess whether you need to look for another job (or additional work such as a part-time gig), move to a more robust job market or seek additional training,” Hamrick says. “Most of us aren’t trust fund babies or wealthy because of inheritance. We’re reliant on our work, or a wage earner, for meeting our regular expenses and possibly raise our standard of living.”
Live beneath your means: The Federal Reserve raised interest rates four times in 2018. That means Americans, who carried an average credit card balance of $6,354 in 2017, will find it much more expensive over time to hold credit card balances.
Instead of charging expenses you can’t immediately cover to a credit card, adjust your budget accordingly.
Determine what you’re willing to sacrifice: If you’re already feeling strained for cash, consider small changes that can have a large impact on your budget; this can include packing a lunch or skipping a daily coffee run.
On a larger scale, Hamrick recommends considering a used auto purchase over buying new. Consumers can also think about cutting down on college costs by encouraging their children to attend a community college for the first two years before diving into a four-year university, he says.
Automate your savings: Having as little as $250 in savings can help consumers be better prepared for a financial emergency, like missing a bill or being evicted.
Overall, ending a paycheck-to-paycheck cycle requires constant communication, planning and strategizing. And while initial conversations about struggling may be intimidating, Hamrick says they are of big value in the long run.
“For couples and families, having constructive conversations about money, while sometimes challenging, can be very useful,” Hamrick says. “And it shouldn’t be a one-time-only event. What are the goals and what do we have to work with?”