Bad Credit Habits? The Face of the Modern Middle Class

The American middle class is shrinking. According to a study conducted by the Pew Research Center, the middle class has shrunk by 10 percent since 1971. To make matters worse, a reported 85 percent of people surveyed say that it is more difficult to maintain their standard of living compared to 10 years ago. The question is, why? Has our culture evolved into a less responsible population, or is our depressed economy to blame? Read on to discover how both forces have affected the middle class.

Economic Forces

• The housing market.

Analysts claim that the housing market will rebound any day now, but for many families, that prediction isn’t good enough. Those planning to retire with the help of home equity have been forced to add several more workforce years to their life. The consequences were worse for homeowners with variable interest rate mortgages, many of whom lost their houses altogether. The result? A population with destroyed credit and a national surge in the rental market.

• Unemployment.

The unemployment rate is improving in the U.S., but not by much. The Bureau of Labor Statistics shows a steady hold at around 8 percent in 2012. While this is an improvement from years past, it’s little consolation to the people standing in line at the unemployment office. Jobless rates are directly related to a rise in debt and credit card reliance. When you are struggling to make ends meet, the strain has an inevitable effect on your savings account, forcing you to borrow money to cover basic expenses. When you are attempting to stay afloat, bad credit repair is the last thing on your mind.

• Inflation.

Inflation occurs when the supply of currency increases faster than economic growth. In layman’s terms: The Treasury Department is printing money, and the economy can’t keep up. Here’s another shocker: The inflation rate has increased by a whopping 468 percent since 1971. If you’re doing the math, it’s no surprise that middle class America is having trouble making ends meet. The value of the U.S. dollar has decreased, but the cost of living has not. Without annual raises or other forms of compensation, holding steady at your current standard of living is impossible.

Cultural Forces

• The “stuff.”

We are a culture of consumerism. Thanks to a media flood of internet ads, television, and magazines, we “need” more to feel satisfied. The Department of Labor estimates that we spend at least 14 percent of our incomes on entertainment, clothes, dining out, and miscellaneous “stuff.” To make matters worse, the average household only saves 10.8 percent of the same pie. When we value fun and comfort over financial security, it’s no surprise that our society’s bad credit repair habits have spun out of control.

• Student debt.

One in five households carry student debt in the U.S., a revelation compared to education costs in 1971. Attending a four-year college is becoming more expensive (if not prohibitive) with each passing year. The average cost of an in-state, public education is just over $16,000 annually, including room and board. When parents can’t afford the inflated sticker price, kids are forced to take out expensive and dangerous loans, affecting their future stability and their credit health in the process.

What can we learn?

It’s evident that the economy and personal choice both play a role in the declining numbers of the middle class. What can we learn from these defining factors? Can we ever pull ourselves out of financial hardship? – We say that the answer is “yes.” While you cannot change the nature of a volatile economy, you can change how you choose to operate within it. Begin by practicing:

• Moderation.

When our economic resources don’t cover our cultural costs, what should we do? The short answer: practice moderation. Choice is the key word in this scenario. For example, you can choose to pay an affordable mortgage by buying a smaller home. You can also choose to prioritize credit repair by spending less on entertainment and more on debt reduction.

• Cost vs. benefit analysis.

As part of their dose of moderation, our 1970’s counterparts better understood the concept of cost vs. benefit. For example, is the cost of dining out worth the $50 investment, or would cooking at home serve as a better savings alternative? Regarding education, will the cost of a four-year college pay off, or will you spend the rest of your life repaying student loans? When creating a stable lifestyle, answering these questions is imperative.

• Diligence.

If we’ve learned anything from the economy debacle, it’s the importance of diligence. Placing your finances on autopilot is a great way to lose control. Take your financial life seriously by researching the best ways to invest, save, and repair bad credit safely. Don’t wait for the floor to collapse under your feet before choosing the best path. As history has taught us, no one benefits from that strategy.