Middle class
Rising income isn't saving the middle class. Debt, lifestyle pressures and economic fears fuel financial insecurity despite being "house-rich." Pexels

The term "middle class" has long been synonymous with stability and opportunity, embodying the American dream of a comfortable and secure life. However, for many Americans today, the sense of security that traditionally accompanies middle-class status is increasingly elusive.

This erosion of stability is largely attributed to income inequality and stagnant wages, which have undermined the purchasing power of a middle-class income. Kevin Huffman, a personal financial specialist and owner of Kriminil Trading, highlights this issue, noting that "a 'middle-class' income doesn't necessarily buy what it once did for previous generations."

Huffman further explains that the rapid escalation in the costs of housing, healthcare, and higher education has outpaced the growth of middle-class wages. This financial squeeze has left many Americans struggling to maintain a lifestyle that would have previously been considered comfortably middle class.

Huffman suggests that this phenomenon is not just a shift in economic status but also a fundamental redefinition of what it means to be middle class in today's society. As a result, the dream of a stable, middle-class life is slipping away for many, reshaping the socio-economic landscape of America.

"What was perceived as a comfortable 'middle class' lifestyle three decades ago may not be considered as such in the present economic environment," Huffman said. The increasingly blurred line between the middle class and lower economic rungs might further fuel the sense of disconnect from the "middle class" label.

The financial landscape is shifting. While some experts pinpointing habits that can hold middle-class earners back, while others are tackling a broader issue: The feeling of falling out of the middle class altogether, as per a report by Global Banking Rates.

Here are the reasons the middle class are feeling lacking lately based on recent studies:

Soaring Living Costs

Dennis Shirshikov, a financial expert, highlights the rising cost of living as a key reason many middle-class earners feel squeezed. Even if their income technically qualifies them as middle class, rising costs for essentials can leave them feeling financially insecure and unable to afford the lifestyle they associate with that category.

Shirshikov elaborates that housing, healthcare, education, and childcare costs have all outpaced wage growth in many regions, creating a financial squeeze for the middle class. "For example," he continued, "the median home price in the US has skyrocketed over the past decade, making homeownership a distant dream for many middle-class families."

This financial strain is evident in the popularity of services like Klarna's "Shop Now Pay Later" app. Klarna allows users to split purchases across various retailers, including groceries, top brands (Nike, Prada), and online marketplaces (Instacart, Temu).

"While the parameters for the middle class are set based on a national average, where you live can make a significant difference in how you feel," Melanie Musson, a financial expert with Clearsurance, said.

In high-cost-of-living areas, Musson believes, a national middle-class income won't provide the standard of living enjoyed by the average local resident. Beyond rising costs, she emphasises the anxiety of looming expenses. Many middle-class earners lack a clear path to afford major upcoming costs, like healthcare needs or college tuition for their children.

"For example, they may know they need a new roof or a new car, but their budget can't absorb another payment," she explained.

"The middle class has been spending so much more on groceries and utilities in the past few years that they don't have wiggle room in their budget to feel like they have stability. Instead, these rising costs without an accompanying rising income have put a lot of stress on them."

Slow Wage Growth

Shirshikov identifies another culprit: stagnant wage growth. He points out that while productivity and inflation have risen over the past few decades, middle-class wages haven't kept pace. This means that even though people might be working just as hard or even harder, their pay isn't stretching as far.

"This disconnect means that middle-class earners often find themselves struggling to maintain the same standard of living their parents or grandparents enjoyed," he added.

High Debt

Shirshikov highlights the burden of high debt, especially student loans and credit cards. These debts, he explains, act like a constant drain on monthly income, limiting the ability of many middle-class earners to save or build financial security.

Huffman concurred, acknowledging that student loan burdens, car payments, and mortgages specifically strain disposable income so that middle-class families often find themselves in the precarious situation economists call "house-rich, cash-poor."

"Outstanding student loan debt in the US has reached nearly $1.7 trillion and current graduates are just beginning to feel both the consumption and the macroeconomic impact of this massive debt burden," he explained. "Young working professionals feel pinched, and discretionary spending decisions are limited."

Peer Pressure and Lifestyle Inflation

Shirshikov cautioned that social comparison and the allure of lifestyle inflation could exacerbate these financial strains, leading middle-class families to feel even more squeezed. "With the proliferation of social media, people are constantly exposed to the lifestyles of others, often leading to unrealistic comparisons and pressure to keep up," he said.

Middle-class individuals can be misled into feeling inadequate if they perceive their peers are living more luxurious lives, even if these impressions are based on selective portrayals. "Moreover, as people's incomes increase, there is often a corresponding rise in their spending habits — known as lifestyle inflation," Shirshikov said.

Despite rising incomes, many middle-class individuals struggle with financial strain due to pressures to maintain a certain image or lifestyle, as explained by Shirshikov. "Following friends on social media and being under pressure to keep up appearances can inspire envy and promote spending," explained Huffman.

"Pictures on Instagram of lives seemingly being perfectly lived can create excessive spending and finan­cial pressures to buy things that are not necessary, even for people who compare positively in economic class terms."

Unpredictable Future Economic Environment

The ever-present threat of economic downturns further tightens the middle class's grip on their wallets. "The volatile job market, fears of automation and economic recessions create an underlying sense of insecurity," explained Shirshikov. "Even those with stable jobs and decent incomes might feel that their financial situation is precarious."

According to Shirshikov, this fear of potential financial instability can leave individuals feeling perpetually insecure, even within the supposed comfort of the middle class. That's why experts recommend taking a proactive approach to managing one's financial future.

"Remember, financial security is about more than income," said Huffman. A sound financial foundation is about living within your means while also saving for your future goals. Saving strategically and investing smartly is the way to build a secure future for those at all income levels," Huffman concluded.