(Formerly published June 21, 2024 to LinkedIn.)

Today’s middle class (the backbone of America) faces a lot of challenges. Our earlier (see Reframing Our Middle-Class Understanding: Part 1) household of three, with an annual income of $70,000, has a lot to face financially, all middle-class households do. Just the part of the American Ideal that includes homeownership is much more difficult today than in was in 1980. It is much more difficult for all of the middle class which, according to the Pew Research Center’s 2022 calculations, have annual incomes from $50,085 to $149,510 or a rough median of $74,755. Buying a home at today’s prices (median of $358,724) is five times our worker’s annual income compared to 2.5 times of a comparable income in 1980.

Today’s middle-class challenges are many, both current and future. The middle class knows this all too well. We all know that but remain silent.  Business Insider provides a brief look into those additional worries, prime among them that “many Americans have come to feel that a middle-class lifestyle is out of reach.” Financial stability and home purchases eat up larger and larger percentages of a household’s resources, but they are not the only worries. Today’s generations – current challenges Not often discussed, the Silent Generation was born between 1928 and 1945 and falls between the ages of 96 and 79. Most are on a fixed income, one that is the lowest of all generations. According to GOBankingRates (2024), when Pew’s calculations are used, “66.66% of this group’s median income is $34,651 while 200% of median income [is]…$103,952. About 78.8% of this group owned a home in 2020, according to US Census Bureau data. They are concerned with Social Security; inflation rates; growing Medicare premiums costs; supplemental insurance premium increases; real and personal property taxes; and long-term care options. They are also concerned with how to leave their assets to their beneficiaries.

Born between 1946 and 1964 and falling between the ages of 78 and 60, many Baby Boomers are on a fixed income and most (reported in 2020 by the US Census Bureau as nearly 80%) own a home. According to GOBankingRates (2024), this group’s “66.66% of median income [is]…$45,313” and “200% of median income [is]…$135,939.” This group is most concerned with Social Security; protecting retirement funds; costs of home ownership; options for downsizing, real and personal property taxes; financial stability as their adult children move back in with them; raising grandchildren; and juggling the costs of taking care of aged parents. Long-term care is a concern, but the focus is generally on aged parents and how to support them, leaving little opportunity to prepare for their own long-term care needs.

Gen Xers were born between 1965 and 1980 and fall between the ages of 59 and 44. According to GOBankingRates (2024), this group’s “66.66% of median income [is]…$64,163” and “200% of median income [is]…$192,489.” Fewer Gen Xers own a home at their ages, about 69% in 2020 according to Census Bureau data, than Baby Boomers and the Silent Generation did at similar ages. Most Gen Xers want to own a home. This group is worried about home affordability, as well as real and personal property taxes. They are worried about whether they will receive Social Security and, if so, how much. Many have adult children living with them, some are raising their grandchildren, and a growing percentage are caretakers or future caretakers of their own parents. Retirement needs and preparation often take a back seat to current day demands.

Millennials were born between 1981 and 1996 and fall between the ages of 43 and 28. According to GOBankingRates (2024), this group’s “66.66% of median income [is]…$60,933” and “200% of median income [is]…$182,799.” About 51.5% of Millennials can claim home ownership, which is a lower percentage than their predecessor generations at similar ages. At large, middle-class millennials are worried that the American Dream is beyond their reach. They are focused on just getting by.

Gen Z was born after 1996, it’s cutoff year of birth sometime in the early 2000s. The oldest in this group is aged twenty-seven. According to GOBankingRates (2024), this group’s “66.66% of median income [is]…$45,716” and “200% of median income [is]…$137,419.” About 16.7% own a home, which is a lesser percentage than their predecessor generations at similar ages. This group is just getting started.

 Credit card debt challenges

The Silent Generation through Gen Z are using credit cards to get by. According to a recent Forbes “Credit Card Statistics and Trends 2024” survey, the Silent Generation has an average 3.4 credit cards per consumer, Baby Boomers have 4.6, Generation X has 4.4, Millennials have 3.4, and Generation Z has 2.1. The average balance across all generations is $6,360, which is 10% higher than a year ago. Those most likely to carry credit card debt are Generation X, with Boomers carrying the most debt. Those least likely to have credit card debt are households earning above the 90th percentile, far removed from the middle class. Notably, Forbes reported the average interest rate as 27.89%, yet 31% of card holders across all generations don’t even know what their rates are. If we return to our $70,000 annual, middle-class earner, that household likely carries $6,360 in credit card debt at 27.89 APR. In 1981, the interest rate would have been “18%” instead (New York Times, 1983), which was more manageable.

Paying down 2024 credit card debt is difficult. Caveat Emptor rules the day as banks charge more for privilege of credit and even “protection groups” like the Consumer Financial Protection Bureau seem exhausted at fighting what appears to be predatory interest rates.  Credit Card debt keeps people from building wealth. Perhaps we need to do something different. One idea is to stop adjusting credit ratings downward for those whose payment records are consistent yet who choose to pay debt off at an accelerated rate to free up discretionary cash flow. Right now, we adjust those rates upward for these people, which makes it harder to accumulate wealth.

Adult children challenges

Baby Boomers and Gen X parents are increasingly supporting their adult children. The Pew Research Center (2024) found that “more young adults today live with their parents than in the past. Among those ages 18 to 24, 57% are living in a parent’s home, compared with 53% in 1993.” Additionally, adult children depend on parents for financial support. Pew also found that “fewer than half of young adults ages 18 to 34 (45%) say they’re completely financially independent from their parents.” This can keep parents from building wealth and saving adequately for retirement or other needs. As a reality, it is a tough challenge.

Parent caregiving challenges

Pew Research Center also found (2023) that “roughly two-thirds of adults (66%) say grown children should have a great deal or a fair amount of responsibility to provide caregiving for an elderly parent who needs it. This includes 32% who say they have a great deal of responsibility. A majority (55%) say adult children have a great deal or a fair amount of responsibility to provide financial assistance to an elderly parent in need, with 24% saying they have a great deal of responsibility.” Given the lack of retirement savings among all middle-class households, and across all generations, it is clear that providing care for aging parents will be a long-term financial struggle.

Long-term care challenges

People turning sixty-five have a 70% chance of needing long-term care in the future. “Women need care longer (3.7 years) than men (2.2 years). One-third of today’s 65-year-olds may never need long-term care support, but 20 percent will need it for longer than 5 years” (Longtermcare.gov). Staggeringly, the average cost per month of long-term care, which faced 70% of people 65 in 2022, was $104,025 annually (Statista). That is an impossible sum, especially considering average savings. According to the Economic Policy Institute, nearly half of all Americans have no retirement savings.  This number is alarming and should cause all of us to panic.  None.  Zero.  Of those who do, the median savings are $95,766 for all working households. Unfortunately, as of the 1980s, long-term care insurance was introduced and, with it, a shift of long-term care expenses took place, making all or a majority of the expense private responsibilities. Only about 3.3% of the US population has or can afford long-term care insurance; it is definitely not plausible for our $70,000 a year, middle-class family. The average family cannot afford even one year of long-term healthcare costs. Your guess is as good as mine if you are asking, “what’s going to happen when this group needs care?”

There is a long-term care safety net in place, kinda, sorta, but it is not easily accessible. It is Medicaid. To qualify, the applicant must not have more than about $2,000. To apply, the person needing long-term care must spend down all assets, which is a life-altering, and often dehumanizing, process. There are many cases of losing the family home, the family farm, or the family business to qualify. The ability to transfer wealth to family is lost. What makes this situation even more challenging is when the individual needing long-term care is married to someone still able to live at home. This individual is known as the community spouse. Most states have laws in place designed to protect the community spouse, but the Medicaid application process for the dependent spouse is complex. It often takes months of document procurement and “spend down” decisions. Most families are not capable of getting through the application process on their own, so they must turn to Medicaid-specialized attorneys. Legal help costs the community spouse between $15,000 and $25,000. In the words of one financial advisor, “we have that in our state, but most clients do not find it until they have no money left. Those who do, do not have enough money to get through the qualification process with the help of an attorney” (2023). We must do better for middle-class families caught in long-term care financial crises.

 Home ownership and equity challenges

The ideal of homeownership is getting harder for all members of the middle class. That means that the largest asset owned by Americans is becoming a diminishing reality. It also means that this is a disappearing source of savings to carry families into retirement. Most of us know that home equity is the largest component of many people’s household wealth. That is especially true for Black and Hispanic households, who ‘have seen outsized gains in housing wealth over the past decade,” according to the Federal Reserve. At the end of 2019, about 28% of Hispanic families’ wealth and 20% of Black families’ wealth came from home equity, compared to about 16% for white families’” (Forbes, 2024).

We need to help middle-class Americans preserve home equity wealth. That said, we need to re-examine the home equity loan landscape. While home equity loans can be an attractive way to borrow against the equity one has in their home, they are also a quick way to erode immediate and future wealth. Forbes (2024) lists some of the drawbacks to home equity loans, among them “You can lose your home if you default on a home equity loan. You will pay loan fees and interest to tap into your equity. [and] It sets you back on the path to debt-free homeownership.” Home equity loans can be taken out more than once, so the potential for reduction of wealth through homeownership is real. We need better safeguards protecting home equity borrowers.

Social Security challenges

Social Security was never meant to be a sole source of retirement income, yet half of all Americans have no retirement savings. The average monthly Social Security payment in 2024 is a combined $3,033 for an eligible person and a spouse of an eligible person, yet the average cost of living for a family of three in 2022 was “$7,189, or $86,265 annually,” as reported by Nerd Wallet (2023). For a family of two it was “$6,372, or $76,468 annually” and for one person it was “$3,693, or $44,312 annually.” Those costs have only increased in the last two years.  It’s clear that 2024 Social Security average payments cannot cover cost of living. The Social Security challenge becomes even more concerning for those who have yet to qualify. The age to qualify for full benefits is now sixty-seven instead of sixty-five, with talks of increasing that even higher. People will have to work longer regardless of age-related problems or dreams. Even more concerning is the threat of diminishing Social Security payouts. This is not a myth; it is a fact. If you go to the Social Security Administration website and pull a personal Social Security Statement, it clearly states: “The Social Security Board of Trustees estimates that, based on current law, the Trust Funds will be able to pay benefits in full and on time until 2034. In 2034, Social Security would still be able to pay about $800 for every $1,000 in benefits scheduled.” We have a crisis brewing for our middle-class families planning for a future of “full benefits” Social Security. The Social Security promise must be protected for all middle-class earners.

Federal tax challenges

Finally, the middle class faces a huge disincentive as they work to increase revenue streams and build wealth. Our $70,000 a year head-of-house earner faced a 2023 22% federal tax rate for every dollar earned after $59,850. That leaves roughly $8,600 of income that will be adjusted downward more with the automatic assessment of social security, Medicaid and state income taxes. The federal tax burden on this worker is 12% up to $59,750, which is a 10% difference. The rate jump from 12% and 22% is a staggering penalty to the middle-class earner trying to realize the American ideal.  In 2023, the rates affecting lower and middle-class earners were 10, 12, 22, and 24 respectively. Given the many challenges facing today’s middle class, which don’t appear to be dwindling, the 10% jump seems ill-conceived and misplaced. An additional rate or set of rates between 12 and 22% should be assessed or the entire tax rate schedule rethought. Policies should be in place that strengthen, not weaken, the diminishing middle class. When America loses its backbone, it will fall.

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The views expressed in this article are those of the author.