It’s not just the lower economic class that is finding difficulty in the current economy, a recently released Federal Reserve document shows (H/T Ben Carlson of A Wealth Of Common Sense), it’s the upper middle class that is also struggling in the current stimulus driven economic environment.
Lower middle and middle class having trouble with savings
The report’s primary finding, according to a Bloomberg report, was that Lower middle and middle class Americans are having difficulty saving. But the report also showed that more than half of upper-middle class households did not save any money at all in 2012 and increasingly face difficulty saving.
The report pointed to the primary risk: if an economic downturn were to occur, with resulting job losses, only half of the middle class households would have three months savings for living expenses. The hand to mouth existence is evident by considering if just a $400 emergency were to take place, it would force many in the middle class to go into debt, which could take months to pay off.
Middle class may be less vulnerable during an economic downturn
The report noted that the upper middle class may be less vulnerable than lower income groups during an economic downturn due to access to credit – that is, assuming credit standards don’t tighten if the economy were suddenly hit with another downturn. While only half of upper middle class have enough savings to cover a long spell of unemployment or a major health concern, 70 percent are confident that borrowing could get them through the troubled times, according to the report.
The jump in upper middle class savings broke out of a range in 2007, just before the 2008 big bank derivatives implosion led to the great recession, jumping nearly 33% higher in than 3 years while remaining under the 30 percent level for over a decade. The median nest egg that upper middle class earners had saved was just $7,000 – less than one month’s gross pay for a wage earner accustomed to take home close to $8,000 per month. (Upper middle class in the report was defined as yearly income from $75,000 to $99,000.)
The report notes various reasons for why upper middle class earners aren’t saving, but chief among them easy access to credit cards and home equity loans where they may not have understood the full risks. The official US Federal Reserve report did not link its own stimulus efforts – criticized as helping only the upper crust of society – as a factor in why the upper middle class was having difficulty saving.