By a Thread
The New Experience of America's Middle Class
November 28, 2007
By Jennifer Wheary, Thomas M. Shapiro and Tamara Draut

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EXECUTIVE SUMMARY

The middle class is a social and economic cornerstone of the United States and a symbol of the "American way of life." It is also seen as a key part of the engine that drives American prosperity. The middle class provides the skilled workers and consumer purchasing power essential to a strong economy. The quality of life associated with being middle class also fuels aspirations of social mobility.

When we think of the middle class, we think of having financial security, raising a family with a reasonable standard of living, building a solid future for the next generation, receiving quality healthcare, and retiring in comfort. This type of security does not just happen. Rather, it is supported by a range of factors. Middle-class families need to have:

  • Financial assets sufficient to develop a safety net in case of job loss or serious illness, build a solid nest egg for a secure future and comfortable retirement, and help children get off to a good start toward economic security;
  • The education necessary to find a good job in today's competitive global economy;
  • Incomes that make it possible to afford quality housing and other essential living expenses; and
  • Comprehensive, high quality, affordable healthcare for all family members to ensure that care is available when needed and that financial stability is not eroded in case of serious illness.

We have created a Middle Class Security Index that provides a comprehensive portrait of how well middle-class families are faring in each of these areas. This report, By a Thread: The New Experience of America's Middle Class, is the first report in a series to present findings using this new Index.

Our Middle Class Security Index can be likened to a common cholesterol test. Such tests measure a variety of factors and determine whether an individual's overall profile supports cardiovascular health, puts that individual at high risk for a heart attack or stroke, or leaves him or her somewhere in between.

For each area measured by our Index-education, assets, housing, budget and healthcare-we set a threshold that would be optimal to support overall financial health (or financial security) and a threshold that would threaten it. We then determined what percentage of families considered middle class by income met each of these thresholds.

If three or more of the factors in a family's profile supported financial health, we considered that family to be securely middle class. If three or more of the factors in a family's profile threatened that family's financial security, we considered them to be at high risk for slipping out of the middle class.

Our Index results spotlight the strengths and vulnerabilities of the middle class. In this report, we use these results to identify barriers to financial security and to begin formulating policy solutions that would enable the broad majority of American families to enjoy a stable middleclass life.

Highlighting the strengths and weaknesses of America's middle class not only clarifies what is needed to bolster it, but also elucidates how we can further assist families in achieving upward mobility and higher levels of stability and security. Our Middle Class Security Index shows troublesome trends.

Overall Economic Security

  • Only 31 percent of middle-income families match our profile for being securely middle class. That is, despite falling into the broad range that defines middle-class "income," fewer than one in three families has the necessary combination of other factors to ensure middle-class security.
  • Our Index results vary by race. Thirty-four percent of white middle-income families are securely in the middle class, as compared to 26 percent of African-American middle-income families and only 18 percent of Latino middle-income families.
  • One in four middle-class families matches our profile for being at high risk of slipping out of the middle class altogether.
  • One in five (21 percent) white families is at high risk for slipping out of the middle class, as compared to one in three (33 percent) African-American headed households and an alarming two in five (41 percent) Latino families.

Lack of Assets

  • More than half of middle-class families have no net financial assets whatsoever-that is, no financial assets or debt levels that exceed their assets.
  • Only 13 percent of middle-class families have sufficient assets to meet three-quarters of their essential living expenses for nine months, should their source of income disappear.
  • About four out of five middle-class families do not have sufficient assets to cover three quarters of essential living expenses for even three months should their source of income disappear. We defined essential living expenses as food, housing, clothing, transportation, health care, personal care, education, personal insurance and pensions.
  • Middle-class families have a median debt of $3,500 and median net assets of $0.

Insufficient Income to Meet Living Expenses, Cover Housing Costs, and Buy Healthcare

  • Twenty-one percent of middle-class families have less than $100 per week ($5,000 per year) remaining after meeting essential living expenses. These families are living from paycheck to paycheck with very little margin of security.
  • In nearly one out of four middle-class families (23 percent), at least one family member lacks health insurance of any kind.
  • Twenty-eight percent of middle-class families spend 30 percent or more of their income on housing expenses, putting them above federal guidelines for housing affordability.

Education

  • Twenty-seven percent of middle-class families do not have any education beyond high school, placing them increasingly at risk in a rapidly developing global economy where higher education skills have become fundamental to achieving middle-class status.

By a Thread also recommends a set of policies that will help open access to, and strengthen, America's middle class. Legislative proposals in this report cover a range of important issues affecting American households, including asset building and debt reduction, making higher education more accessible and affordable, and addressing the healthcare crisis. Additional briefing papers in this series will examine middle class security by race, age and income demographics. The Middle Class Security Index will be updated biennially, with accompanying reports, as new statistical data is made available.