I don’t think anyone can argue that the middle class in America is not in trouble. Declining job opportunities, rising healthcare and education costs, to mention a few, are real burdens faced by all Americans, but the middle class American seems to be the hardest hit. These hardships often manifest themselves in the form of financial struggles, which often lead to debt.
Forbes Senior Contributor Christian Weller points out the enormity of this problem in his recent article It Is Not Healthy When Middle-Class Families Drown In Debt In A Growing Economy. I think the following excerpt does a very good job of making his point:
Consumer credit has grown faster than after-tax incomes since the Great Recession. It grew from an average of 14.9% of after-tax income in June 2009, when the Great Recession ended, to 18.5% in September 2019 (see figure below). Families would have had $653 billion less in debt in September 2019 if consumer credit had just grown at the same rate as income since the end of the Great Recession. That consumer debt has outpaced incomes in an expanding economy is not a sign of middle-class wellbeing.
As I read the article, I couldn’t help but think that we are on the precipice of another type of financial crisis that will be very difficult to dig out of. What happens when people cannot bear the weight of this debt any longer?
In fact, Business Insider cites statistics from the American Journal of Public Health that show 66.5% of personal bankruptcies are tied to medical expenses and 25.4% are in some way related to education expenses. These are not people living beyond their means, or trapped in a regrettable mortgage. These are people just trying to get by.
The financial and social disruption this kind of a crisis could bring has the potential of significantly disrupting this country on financial, social, and personal levels in a way that could destabilize the U.S.
Sadly, I don’t have the necessary public policy chops to provide meaningful solutions. What I do know, however, is that there is no way this issue will solve itself.
Overview by Peter Reville, Director, Primary Research Services at Mercator Advisory Group