Almost two-thirds of Americans considered middle class said they are facing economic hardship and don’t anticipate a change for the rest of their lives, according to a poll commissioned by the National True Cost of Living Coalition.
By many traditional measures, the US economy is strong, with robust labor, housing, and stock markets, as well as solid gross domestic product growth. But the data don’t capture the financial insecurity of millions of households who worry about their future and are unable to save, according to the group, created this year to come up with cost-of-living tools that help gauge economic well-being.
In the large poll of 2,500 adults, conducted by the Urban Institute think tank, 65% of people who earn more than 200% of the federal poverty level — that’s at least $60,000 for a family of four, often considered middle class — said they are struggling financially.
A sizable share of higher-income Americans also feel financially insecure. The survey shows that a quarter of people making over five times the federal poverty level — an annual income of more than $150,000 for a family of four — worry about paying their bills.
Sources of Extreme Financial Stress in the US
Almost a third of poll respondents face extreme stress about their debt
Source: Urban Institute poll commissioned by National True Cost of Living Coalition
Note: 2,423 Interviews, Margin of Error: +/- 2.0%
Overall, regardless of the income level, almost 6 in 10 respondents feel that they are currently financially struggling.
“The economy is booming, and yet many Americans are still gasping for air financially,” said Jennifer Jones Austin, chief executive officer of the Federation of Protestant Welfare Agencies, an anti-poverty advocacy organization that is part of the team that commissioned the poll. “They simply don’t have the breathing room to plan beyond their present needs.”
About 40% of respondents were unable to plan beyond their next paycheck, and 46% didn’t have $500 saved. The February poll found that more than half said it’s at least somewhat difficult to manage current levels of debt.
The quick rise in interest rates, coupled with high levels of outstanding debt, helps explain the disconnect between economic indicators and how many Americans feel financially.
The poll also highlights the divide between debt-free households who are sheltered from the impact of rising rates and families who are overwhelmed with ballooning loan and credit-card payments. One-third of the respondents said they have no debt at all.
US Debt Dichotomy
While millions are saddled by high-interest rate debt, 33% have zero debt
Source: Urban Institute poll commissioned by National True Cost of Living Coalition
Note: 2423 Interviews, Margin of Error: +/- 2.0%
The responses on savings also show wide disparities. About one in five respondents have at least $10,000 saved, but 28% have no savings at all. Overall, one in six said they have to make tough decisions on which bill to pay first regularly.
David Jones, co-chair of the National True Cost of Living Coalition, said the polling results crossed party lines.
“It was Republicans, Independents, Democrats expressing the same kinds of issues,” he said. “It’s not going away no matter who becomes president.”
Some of the findings tracked with the Federal Reserve’s annual survey of household economics and decision-making, published last month. In that poll, close to half of respondents could cover a $2,000 expense, but 18% of adults said the largest emergency cost they could handle right now using only savings was under $100, and 14% said they could afford an expense of $100 to $499.
A mainstay of 401(k) retirement plans, the employer match, mostly benefits top earners and exacerbates income inequality in the U.S., finds a new study from Vanguard.
The 401(k) is a linchpin of the American retirement system, but as a record number of Americans are now turning 65, worries are rising that these plans aren't adequate, particularly for lower earners.
Catch up fast: The Vanguard report builds on a paper out late last year from economists at MIT, Harvard, Yale, and the Census Bureau.
- They found that these matches amplify differences in how much different groups save for retirement — Black and Hispanic workers contribute less to these accounts. And the rich (and their children) save more.
To incentivize workers to save for retirement, employers typically contribute to employee 401(k) accounts by matching some portion of the employee contribution.
- Vanguard found a wide range of match programs. In the most typical, if an employee puts in 6% of her income, the company will match half — meaning she's socking away an amount equal to 9%.
- Employers contribute $212 billion a year to worker 401(k)s, per Vanguard — 58 cents per dollar participants saved.
Looking at data from more than 1,300 companies' 401(k) plans, the researchers found that the top 20% of earners within a company receive 44% of employer contributions.
- The bottom 20% receive just 6% of the money.
- "The system seems to be rewarding those who already can and do save the most," says Fiona Greig, global head of investor research and policy at Vanguard.
Vanguard finds the top 20% pull in 39% of the income — before considering these 401(k) matches.
- The 401(k) contributions are even more disproportionate — the top earners receive an 11% larger share of employer contributions than income.
- The bottom takes in 29% less than their share of the income.
The researchers also conclude that employer matches aren't incentivizing workers to save more money for retirement — those who save more are typically those who earn more money and can better afford to save.
- Only 13% of workers contribute the exact amount required to get the maximum employee match, suggesting that it alone is not much of an incentive to save, the researchers say.
Auto-enrollment, in which workers are put into 401(k)s and must opt out if they don't want to participate, could promote more retirement savings for low-income workers, they conclude.
- So could "nonelective contributions," where an employer puts money into your 401(k) even if you contribute nothing.
We are amid a "silver tsunami," in which 4.1 million Americans will turn 65 annually, this year through 2027, a record number per data from the Alliance for Lifetime Income.
- And these folks will be "going it alone," as Felix Salmon reported in April. They're the first generation to rely on private savings like 401(k)s instead of pensions.
- Those private savings, even combined with Social Security, may not be enough to sustain their lifestyles.
With a retirement crisis looming, workers need the money from those 401(k) matches — but that money is not distributed equitably.