There are several key factors that have contributed to the financial fragility of the masses and our economy today. First, is that over the past 30 years, globalization and technology have helped to reduce the number of middle-class jobs available domestically. Fewer jobs and superfluous workers have led to stagnating incomes for most. At the same time, living expenses for critical services that are domestically-produced like education, medical services, child-care, housing and fresh food have all strongly outpaced income gains.
Today a middle-class lifestyle in America (ie., comfortable housing, transportation, food, health care and one family vacation a year), is estimated to require about 130k of annual household income for a family of 4. The median US household income, however–at 50k a year–is less than half the funds needed. In Canada, estimates of ‘middle class’ expenses vary in the range of 50-100k a year (see: Just who are middle-class). According to the latest 2014 StatsCan census, the median Canadian household income was $78,870.
This leads to the last key contributor in this problem. Being over-indebted, under-saved and cash flow-deficient renders the masses vulnerable to a financial industry that has queered rules and policies in its favor while extracting hundreds of billions for itself –selling debt, transactions and products (under the guise of ‘advice’)–to an increasingly desperate and largely financially illiterate public.
In the end, individuals play a leading role in their own poor financial outcomes. Often going with impossible ‘have your cake and eat it too’ promises and products, rather than math-based, rational plans and personal discipline.
As Neal Gabler points out in this recent PBS segment: “Financial illiterates pay a heavy price for their illiteracy.”
Full article: Financial Fragility Reaching a Critical Mass (Financial Sense Online)