These Are the Only People Who Can Afford the American Dream

price-of-the-american-dream

If you’ve paid any iota of attention to the ebbs and flows of the American economy, you know that the “American Dream” — the idea that given enough hard work and dedication, you can become a self-sustaining individual with a house and family — is out of reach for most. That description of the American Dream varies from person to person, but the general idea is that you can get the basics of a happy life if you try hard enough. But as we’ve seen over the past couple of decades, it’s an ideal that simply isn’t in the cards for much of middle-class America.

As for why it’s out of reach? There are many reasons. Incomes have stagnated, as wage growth has been choked. Jobs have been sent to foreign countries to capitalize on cheaper labor, and automation and technological gains have also led to job losses. Globalization is the biggest part of it, but there have also been regulatory and commercial changes that have significantly impacted the American economy.

Essentially, the prices of almost everything (front rent and mortgages to food) have gone up with time, and wages haven’t kept up. Purchasing power has eroded. And now, the price tag of the American Dream is higher than many people can afford. Thanks to a new study from The Red Pin, a Canadian real estate listing site, we now have an idea of the exact dollar amount required to achieve it, and who, exactly, earns enough to make it.

The American Dream, in Dollars & Cents

asset01

Infographic via The Red Pin

As you can see from the above graphic, the total cost of the American Dream — per The Red Pin’s calculations — comes in at more than $3,500 per month. That’s a considerable amount, which means that a household would need to earn more than $42,500 annually (pre-tax) to get into the conversation. And, naturally, there is an incredible amount of variability in the associated costs from household to household, and location to location.

If you dig further into the study, The Red Pin does list out several cities in which the American Dream is much easier to attain. For example, if you’re striving to have it all in New York City or San Francisco, you’re going to have an incredibly tough time. But if you set your sights on other cities in the Midwest, for example, you’re suddenly in the ballpark.

But back to that $3,500 number — with two earners in a household, it’s achievable. Again, however, you have to account for who, where, and what they’re trying to earn. The average household earns around $54,000 per year, per government data, to put things into perspective.

Who Can Afford It?

American-dream-demographics

Infographic via The Red Pin

The chart above paints somewhat of an ugly picture, with only a handful of people (again, on average) able to afford the components to piece together the American Dream. If you’re a middle-aged man — specifically, white or Asian — you’re in the clear. Everybody else? The cards are stacked against you.

Clearly, there’s a lot of information packed into this relatively simple bar graph. It doesn’t take into account, however, the many factors that play into income inequality, access to education, environmental hurdles, etc. That would require a graph and report hundreds of pages long, so keep in mind that this chart is just taking the averages. There are plenty of people who are doing quite well and beating the averages. There are lots who are falling behind, however, as well.

There’s one thing that’s obvious from The Red Pin’s work, though: Things really only look bright for men between the ages of 35 and 64. Younger, or older than that? Not so much. Not white, or Asian? Tough luck. And that goes for women of all ages and races as well.

This article originally appeared on The Cheat Sheet.  

Image: Andrew Rich

The post These Are the Only People Who Can Afford the American Dream appeared first on Credit.com.

The Upper Middle Class Has More Than Doubled Since 1979

income_inequality

The upper middle class in the United States has more than doubled since 1979, according to a new Urban Institute report, “The Growing Size and Incomes of the Upper Middle Class” by Stephen J. Rose

The report shows that the upper middle class made up 12.9% of the United States population in 1979 and had grown to 29.4% of the population in 2014.

“Indeed, a massive shift has occurred in the center of gravity of the economy,” Rose wrote.

Meanwhile, the rich and upper middle class were found to account for 63% of all incomes in 2014 (52% upper middle class and 11% upper class), compared to just 30% in 1979. During that same period, middle class incomes shrunk to 26% (which was the class that reigned supreme in 1979, accounting for more than 46% of all incomes).

The study found that growth in the rich and upper middle class and the declining proportion of the population in the middle and lower classes, indicate widespread economic growth that was not distributed equally.

“On average, incomes grew 53% over the period,” Rose wrote. “If the growth had been equally distributed, then the shift upward would have been much greater. At the extremes, the proportion of the poor and near-poor population would have dropped to 12.8%, and the proportion that is rich would have barely increased (to only 0.5% of the population) because the growth among the near-rich with even growth would have been much less than what happened with uneven growth.”

Methodology

For the study’s purposes, lower, middle, upper-middle and upper class incomes were based upon three-person families making below $30,000, below $100,000, up to $349,999 and above $350,000 respectively.

The study used 1979 as a starting point because “it was the last business cycle peak before income inequality grew dramatically in the first half of the 1980s,” and “the year 2014 was chosen as the study’s end point because it was the most recent year for which income data were available.” The study also examined whether the size of the upper middle class changed dramatically after the slow growth from
2000 to 2007, followed by the deep recession of 2007.
Rose examined data from the Annual Socioeconomic Supplement to the March Current Population Survey (CPS), which collects information monthly from 50,000 to 75,000 households and is used to determine the monthly unemployment rate.

How Your Income Affects Your Credit

Income is not typically part of your credit reports or credit scores, but people often have to include that information when applying for a new line of credit. And, while getting a bigger paycheck can help you afford the things you need (and want), it is still a good idea to live within your means. By not doing so, you may be faced with credit card debt, which is something that can affect your credit. (To see where your credit currently stands, you can view your free credit report summary, updated each month, on Credit.com.)

If you discover your credit scores aren’t where you’d like them to be, there are steps you can take to improve your credit scores, like paying down high credit card balances and avoiding applying for new lines of credit until your scores rebound.

[Offer: Your credit score may be low due to credit errors. If that’s the case, you can tackle your credit reports to improve your credit score with help from Lexington Law. Learn more about them here or call them at (844) 346-3296 for a free consultation.]

More Money-Saving Reads:

Image: Shanina

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Makers vs. Takers: Is Wall Street Driving Income Inequality?

Rana-Foroohar

Rana Foroohar’s new book, “Makers and Takers,” is a first-class takedown of the ways many American firms make money today. The book’s subtitle, “The Rise of Finance and the Fall of American Business,” argues a sad paradox: Some people make money by making things. Others make money by playing financial tricks with stuff the first group makes.

In the late 20th century, some clever folks on Wall Street realized it was far easier to make gobs of money doing the latter. It wasn’t long ago that Goldman Sachs was accused of boosting Coca-Cola’s profits by hoarding aluminum and forcing its price higher. (Goldman told the New York Times, which reported the news in 2013, it was in compliance with all industry standards.)

A massive system of this kind of speculation was put in place, creating wild profits for “financial innovators” and bubble swings for everyone else. But more fundamentally, the rewards for hard work are arguably steered toward the wrong people — the takers, not the makers — and that has contributed to the growing income inequality problem threatening the American social fabric.

In her book, Foroohar calls this development “financialization.” I asked her to explain what that could mean for consumers and the future of American business.

Bob Sullivan: What is financialization, and what does it mean in the (real or perceived) conflict of Wall Street versus Main Street?

Rana Foroohar: Financialization is the growth in size and power of the financial sector — it creates only 4% of the jobs in this country but takes 25% of all corporate profits, is regularly one of the top three industry lobbying forces in Washington, D.C., and has come to dictate the terms of American business, which results in a corporate focus on short-term profits rather than long-term economic growth.

B.S.: Is there a connection between financialization and what I’ve seen you call the “falling down” problem, where older workers lose their jobs and have to settle for lower salaries in their new jobs or worse?

R.F.: Yes, the neo-liberal philosophy of letting capital go wherever it will — which is usually where labor is cheapest — is a crucial part of how financialization works. Unfortunately, it leads to greater inequality and slower growth as wealth is funneled to the top of the economic pyramid. Over the last 40 years, the rise of finance has correlated with fewer startups, less [Research & Development] spending, flat wages and lower economic growth.

B.S.: A generation or two ago, if you asked parents what they hoped their kids would become, they’d give answers like doctors, pilots or perhaps engineers. Today, that’s a harder question to answer. App developer doesn’t sound as secure or prestigious. How would you respond?

R.F.: Well, today, parents might say they want their kids to be a financier — in fact, it’s the number one job choice for MBA grads, in part because wages in the financial sector have so outpaced those in other fields as a result of the monopoly power of the financial industry.

B.S.: Just what are they teaching in those MBA programs?

R.F.: Balance sheet manipulation. As I explain in chapter 3, (one) of the biggest complaints that business leaders have about MBA education today is that it has become too focused on the short-term engineering of capital rather than innovation, industrial expertise or a real understanding of how to nurture human talent.

B.S.: Uber-rich social commenter Nick Hanauer has famously said, and repeated, that income inequality could eventually lead to an ugly pitchfork scene. Is that where the makers-and-takers world is headed?

R.F.: If we don’t fix things, for sure. I’m a big fan of Thomas Piketty, and as he sketched so clearly and powerfully in his book, greater income inequality eventually leads to political and social instability. It doesn’t have to be that way, though. As I talk about in my book, there are countries and communities that have found better, more sustainable ways to grow. Private companies in the U.S., for example, that aren’t under pressure from the financial markets, invest about twice as much into productive things like factory upgrades, worker training and R&D as similar public companies do.

B.S.: Many Main Street Americans will be hearing these concepts for the first time, and it will make them feel helpless, like a game where the rules are a secret. How can they respond?

R.F.: The most direct way to respond to the problem of financialization is via our retirement savings. Asset management is the fastest growing and one of the most exploitative areas of the financial sector. Actively managed funds that have higher than average fees and lower than average returns can eat up 30 to 60% of our retirement nest egg over our lifetimes. Put your money in an index fund, and forget about it.

[Editor’s Note: If you’re eager to save for retirement, but debt is holding you back, you can see how long it will take to pay it all off with this calculator. And you can monitor your financial goals, like building a good credit score, for free each month on Credit.com.] 

More Money-Saving Reads:

Image: franckreporter

The post Makers vs. Takers: Is Wall Street Driving Income Inequality? appeared first on Credit.com.

Makers vs. Takers: Is Wall Street Driving Income Inequality?

Rana-Foroohar

Rana Foroohar’s new book, “Makers and Takers,” is a first-class takedown of the ways many American firms make money today. The book’s subtitle, “The Rise of Finance and the Fall of American Business,” argues a sad paradox: Some people make money by making things. Others make money by playing financial tricks with stuff the first group makes.

In the late 20th century, some clever folks on Wall Street realized it was far easier to make gobs of money doing the latter. It wasn’t long ago that Goldman Sachs was accused of boosting Coca-Cola’s profits by hoarding aluminum and forcing its price higher. (Goldman told the New York Times, which reported the news in 2013, it was in compliance with all industry standards.)

A massive system of this kind of speculation was put in place, creating wild profits for “financial innovators” and bubble swings for everyone else. But more fundamentally, the rewards for hard work are arguably steered toward the wrong people — the takers, not the makers — and that has contributed to the growing income inequality problem threatening the American social fabric.

In her book, Foroohar calls this development “financialization.” I asked her to explain what that could mean for consumers and the future of American business.

Bob Sullivan: What is financialization, and what does it mean in the (real or perceived) conflict of Wall Street versus Main Street?

Rana Foroohar: Financialization is the growth in size and power of the financial sector — it creates only 4% of the jobs in this country but takes 25% of all corporate profits, is regularly one of the top three industry lobbying forces in Washington, D.C., and has come to dictate the terms of American business, which results in a corporate focus on short-term profits rather than long-term economic growth.

B.S.: Is there a connection between financialization and what I’ve seen you call the “falling down” problem, where older workers lose their jobs and have to settle for lower salaries in their new jobs or worse?

R.F.: Yes, the neo-liberal philosophy of letting capital go wherever it will — which is usually where labor is cheapest — is a crucial part of how financialization works. Unfortunately, it leads to greater inequality and slower growth as wealth is funneled to the top of the economic pyramid. Over the last 40 years, the rise of finance has correlated with fewer startups, less [Research & Development] spending, flat wages and lower economic growth.

B.S.: A generation or two ago, if you asked parents what they hoped their kids would become, they’d give answers like doctors, pilots or perhaps engineers. Today, that’s a harder question to answer. App developer doesn’t sound as secure or prestigious. How would you respond?

R.F.: Well, today, parents might say they want their kids to be a financier — in fact, it’s the number one job choice for MBA grads, in part because wages in the financial sector have so outpaced those in other fields as a result of the monopoly power of the financial industry.

B.S.: Just what are they teaching in those MBA programs?

R.F.: Balance sheet manipulation. As I explain in chapter 3, (one) of the biggest complaints that business leaders have about MBA education today is that it has become too focused on the short-term engineering of capital rather than innovation, industrial expertise or a real understanding of how to nurture human talent.

B.S.: Uber-rich social commenter Nick Hanauer has famously said, and repeated, that income inequality could eventually lead to an ugly pitchfork scene. Is that where the makers-and-takers world is headed?

R.F.: If we don’t fix things, for sure. I’m a big fan of Thomas Piketty, and as he sketched so clearly and powerfully in his book, greater income inequality eventually leads to political and social instability. It doesn’t have to be that way, though. As I talk about in my book, there are countries and communities that have found better, more sustainable ways to grow. Private companies in the U.S., for example, that aren’t under pressure from the financial markets, invest about twice as much into productive things like factory upgrades, worker training and R&D as similar public companies do.

B.S.: Many Main Street Americans will be hearing these concepts for the first time, and it will make them feel helpless, like a game where the rules are a secret. How can they respond?

R.F.: The most direct way to respond to the problem of financialization is via our retirement savings. Asset management is the fastest growing and one of the most exploitative areas of the financial sector. Actively managed funds that have higher than average fees and lower than average returns can eat up 30 to 60% of our retirement nest egg over our lifetimes. Put your money in an index fund, and forget about it.

[Editor’s Note: If you’re eager to save for retirement, but debt is holding you back, you can see how long it will take to pay it all off with this calculator. And you can monitor your financial goals, like building a good credit score, for free each month on Credit.com.] 

More Money-Saving Reads:

Image: franckreporter

The post Makers vs. Takers: Is Wall Street Driving Income Inequality? appeared first on Credit.com.

15 States Where Only the Rich Got Richer Post-Recession

maryland

For years, many Americans have struggled to get by due to stagnant wages.

The rich don’t have that problem.

A new report from the Economic Policy Institute, a think tank based in Washington, D.C., points out that income inequality has risen in every state since the 1970s, and the income gap widened significantly in some states after the Great Recession. The report, “Income inequality in the U.S. by state, metropolitan area, and county,” analyzes tax data reported by the Internal Revenue Service, with a particular focus on income trends between 2009 and 2013.

In that time, 15 states saw the top 1% account for all income growth, while average earnings fell among the bottom 99%. Here’s a list of those states, in reverse order of income gap:

Mississippi

The top 1% makes 16.9 times more than the bottom 99%

Maryland

The top 1% makes 17.0 times more than the bottom 99%

North Carolina

The top 1% makes 17.7 times more than the bottom 99%

Virginia

The top 1% makes 17.7 times more than the bottom 99%

South Carolina

The top 1% makes 18.1 times more than the bottom 99%

Missouri

The top 1% makes 20.0 times more than the bottom 99%

Louisiana

The top 1% makes 20.7 times more than the bottom 99%

Georgia

The top 1% makes 21.4 times more than the bottom 99%

Washington

The top 1% makes 21.8 times more than the bottom 99%

New Jersey

The top 1% makes 25.3 times more than the bottom 99%

Florida

The top 1% makes 34.7 times more than the bottom 99%

Nevada

The top 1% makes 38.3 times more than the bottom 99%

Wyoming

The top 1% makes 40.6 times more than the bottom 99%

Connecticut

The top 1% makes 42.6 times more than the bottom 99%

New York

The top 1% makes 45.4 times more than the bottom 99%

What Income Inequality Looks Like

Bummed out yet? Here are more striking statistics about post-recession income inequality:

In 10 states, the top 1% had double-digit income growth while incomes fell among the bottom 99%. These states were Connecticut, Florida, Georgia, Missouri, New Jersey, New York, Nevada, South Carolina, Washington and Wyoming.

In 24 states, the top 1% of earners “captured between half and all income growth,” according to the paper, and in 19 states, 1 percenters “captured between 16.7% and just under half of all income growth.”

While this income growth escaped most people’s reach, the increasing cost of living did not. That’s not great for things like household budgeting, paying bills and debt obligations. (Two strong examples are the rising costs of education and student loan debt.)

Though your income has no direct bearing on your credit standing, it can strongly influence how you’re able to manage credit accounts or other bills. You can keep an eye on how these things are affecting your credit by getting two free credit scores once a month on Credit.com.

More Money-Saving Reads:

Image: iStock

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