Three Ways The Middle Class Is Not Thriving

Speaking at Northwestern University earlier this month, President Obama remarked that “our economic greatness rests on a simple principle: when the middle class thrives, America thrives. When it doesn’t, we don’t.”

Well, it’s not and we aren’t. New research from the Federal Reserve shows that, aside from the richest of the rich, millions of Americans were economically worse off in 2013 than they were in 2010.

1. Income declined or stayed stagnant for the poor and middle class.

The Fed reports that average real income for families in the bottom quintile dropped by 8% from 2010 to 2013, with similar losses (-6%) experienced by those in the second from the bottom quintile. Average income for middle and upper income families essentially flat-lined during this period, whereas the wealthiest 10% of the population saw a 10% boost in average income, consistent with a broader trend of increasing income inequality.

Source: Federal Reserve

2. Net worth dropped for the bottom three quintiles.

Net worth—inclusive of housing, equities, retirement plans and other investments—has followed a similar pattern. Families in the bottom three income quintiles saw their average net worth drop anywhere from -13% to -21% from 2010 to 2013, according to the Fed, while the net worth of upper income families increased anywhere from 2% to 14%.

Current savings is a crucial component of future net worth. This too, is trending downward. The fraction of families in the bottom fifty percent who save dropped to 40.2%, lower than the savings rate in 2010 and approximately half of the savings rate for the top 10% (82.4%).

Source: Federal Reserve

3. Higher education—a conduit to greater income and net worth—became more financially burdensome, especially for the low-income families.

Higher education is consistently correlated with higher income and net worth. But this lever of upward mobility is becoming more costly. The percentage of young families carrying education debt rose from 22.4% in 2001 to 38.8% in 2013, and the average level of debt increased from $16,900 to $29,800 during this same time period.

While families with incomes greater than $60,000 carry nearly 50% of student debt, a quarter (24%) of student debt is held by young families with incomes under $30,000.

Glossing Over the Decline

In his remarks, President Obama glossed over the decline of middle class wellbeing, instead focusing on the positive. “There is not an economic measure by which we’re not better off than when we took office,” he said, (conveniently leaving out the aforementioned numbers). He mentioned policies such as the Affordable Care Act, financial regulatory reform and investments in green energy that have helped to “rebuild our economy on a new foundation for growth and prosperity.”

I don’t know if the students bought it or not, but most Americans facing stagnant wages and declining wealth remain unconvinced. Overall, only 23% of voters think the economy is in good or excellent shape, sixty-six percent think the country is on the wrong track, and 64% think the economy is “unfair to the middle class.”

The President was right to point out the importance of the middle class to the economy. Given this, he should be especially concerned about how the middle class has fared under his watch.