Life is harder now, some experts say

Bob Sullivan Technology correspondent • Profile • E-mail

Shopping malls are packed every weekend. Restaurants can't open fast enough. Everyone seems to be wearing designer shoes, jackets and jeans and sipping $4 lattes. Credit card commercials constantly advocate splurging and, it seems, U.S. consumers are all too ready to comply.

So what's the problem? Why do so many middle class Americans with so much stuff say they feel so squeezed? If they are dogged by debt, isn’t it their own fault?

Perhaps, some experts say, things are not as they appear.

Bankruptcy law expert and Harvard University Professor Elizabeth Warren spent a lot of time crunching consumer spending numbers for her popular books, "The Fragile Middle Class” and “The Two-Income Trap.” In both, she makes this point: Despite all those $200 sneakers you hear about and the long lines at Starbucks, consumers are actually spending less of their income — much less — on discretionary items like clothing, entertainment and food than their parents did. In fact, after taking care of essentials like housing and health care, today’s middle class has about half as much spending money as their parents did in the early 1970s, Warren says.

The basics, according to Warren, now take up close to three-fourths of every family's spending power (it was about 50 percent in 1973), leaving precious little left over at the end of the month — and leaving many families with no cushion in case of a job loss or health crisis.

Warren's theories fly in the face of conventional wisdom and those crowded malls. But the premise is simple: Even though household incomes have risen about 75 percent from 1970, most of that is the result of a second earner — generally a woman — joining the work force. And that added income has been swallowed by rising fixed expenses, such as child care and housing costs, Warren argues. The average family pays at least twice as much for housing compared to its counterpart in the 1970s, Warren says, and in some competitive areas with good schools, housing costs have risen by as much as 600 percent.

Without savings, at risk of job loss
Now consider these factors: Four in 10 Americans don't have even one month's worth of savings for use in case of an emergency, according to a survey by HSBC Bank published in 2006. And with two incomes built into the family budget, the odds of a household getting hit by a layoff have doubled in the last generation. This combination — high housing debt, rising health care costs, lack of savings and greater exposure to unemployment — leaves many families in a precarious financial position.

Yet before Warren can get policymakers to talk about the middle-class squeeze, or at least middle-class worry, she often finds she has to beat back the notion that overconsumption is to blame for the rise in consumer debt — and in middle-class anxiety.

"A growing number of families are in terrible financial trouble, but no matter how many times the accusation is hurled, Prada and HBO are not the reason," Warren says in her book “The Two-Income Trap.”

There is no arguing that most Americans have more gadgets in their living rooms and more clothes in their closets than ever before. Consider the explosion of the closet-organizer business. 

But government spending data paint a different picture. Take the often-cited evidence of culinary extravagance. While it's true that Americans are eating out much more than ever — nearly half of all dollars spent on food now go to dining out — overall food costs have plunged in recent decades.  Americans now spent only about 10 percent of their money on food each year, compared to nearly 20 percent in the 1970s, according to data collected by the Bureau of Labor Statistics.

And despite the designer brands they buy, the average family of four spends about 20 percent less on clothes today, according to Warren's analysis. Think about your last trip to Target: Thanks in part to the entry of inexpensive imported textiles from China and other trading partners, it's possible to buy a Friday night outfit for under $40. This shows up in BLS data too: On average, Americans spent nearly 7 percent of their money on clothes in 1973, compared to about 4 percent in 2005.

MORE FROM GUT CHECK AMERICA

Gut Check America Section Front

How are you faring in Colorado, Minnesota? Communities suffer as foreclosure rate rises Heat map: See where the problem is worst The problem in Poughkeepsie, N.Y. N.Y. town seeks foreclosure solutions Gut Check America Section Front   Add Gut Check America headlines to your news reader: