Feeling Slightly Better About Not Saving Enough

I often feel guilty about not saving more money, not even doing my share to help raise our paltry national savings rate above 0%.  I wonder how, when I was a kid, a family seemed to be able to live a middle-class lifestyle on one teacher’s salary, and today my two-income, two-child household often feels like it’s a house of cards.

The answer finally came to me in reading a new book called “Ending Poverty in America,” edited by John Edwards and colleagues at the Center on Work, Poverty and Opportunity.  Elizabeth Warren’s essay, “The Vanishing Middle Class,” explains that we, as a society, have a misperception that Americans today are much more likely to be spendthrifts than our parents a generation ago.  Although dramatically higher incomes at the upper end of the income-scale have produced a lot of conspicuous consumption by some very conspicuous people, we shouldn’t assume that’s true of the average American.

Warren points out that our national savings rate has indeed gone from 11% to negative territory in a generation, but the reasons are not what you might expect.  Adjusting for inflation, today’s median-income families spend less on food, clothing, and appliances than median-income families did a generation ago. 

People today do have expenses such as cable and computers that families didn’t have a generation ago, but those increased expenses are more than offset by the savings I mentioned previously for the median-income family today. 

So why is today’s median-income family not saving any money?  “Consumer expenses are down, but the big fixed expenses are up — way up,” says Warren.  Today’s median-income family lives in a 6.1 room house, only slightly larger than the 5.8 room median-income house of a generation ago.  Yet the inflation-adjusted mortgage cost today is 76% higher than it was a generation ago.  Health insurance costs are 74% higher, on an inflation-adjusted basis, than they were a generation ago.

In addition, today’s median-income family generally has to send two people into the workforce, which is the only reason median household income is higher than it was when I was a kid.  And two workers typically means two cars, plus childcare; obviously those expenses (even with per-car costs having gone down on an inflation-adjusted basis) are much higher for the median-income family today than they were a generation ago, and it’s not due to conspicuous consumption. We’re being buried by fixed costs that are very hard to control, unless we’re willing to live with less space and less insurance than our parents did.

A depressing state of affairs? Yes. A challenge that must be met by the next white house and congress? Absolutely.

Does this let us all off the hook for getting into debt and underpreparing for retirement, no matter the challenges faced by our vanishing middle class? Of course not.

But at least we can stop worrying about comparing ourselves unfavorably to the supposedly more noble and responsible generations that came before, and just focus instead on the things we can control, taking whatever steps we each can take to improve our asset base and reach a more secure financial footing.

And let’s have our generation be the one that figures out how to solve the affordable housing and health insurance crises that are eroding the economic prospects of our country.