Wednesday, October 8, 2014

The New Normal for the American Dream


3 Cornerstones: Low wage jobs, high levels of college debt, and a retirement that consists of working until you pass away


There seems to be a growing acceptance that the American Dream is hardly as accessible as it once was. Low wage jobs, higher education tuition pushing many into untenable levels of debt, and a new vision of retirement all seem to connect into one new theme. The new theme revolves on a much more challenging road in achieving the American Dream. The majority of working Americans have no sizable portion of stock wealth. In fact, close to 90 percent of stock wealth is in the hands of 10 percent of the population. That is why in spite of the rise of the stock market by 200 percent since 2009, many Americans remain gloomy when it comes to the economy. They are merely spectators to the high flying charts of Wall Street. Most Americans do know that their wages are stagnant, that food costs are jumping, healthcare is anything but affordable, and the road to a college education is paved with high levels of debt. Even the cornerstone of the American Dream which is a home, is very expensive thanks to hot money flowing into the sector and crowding out regular home buyers and pushing the home ownership rate to multi-decade lows. What is the New Normal when it comes to the American Dream?
New Normal #1 – Low Wage Jobs
The first obvious change is the prevalence of low wage jobs across the country. Coastal regions in California and New York have a hard time understanding what is going on in a large part of the country. Wages are being slashed and benefits are being reduced. This means more of the burden is shifted directly onto the employee to meet the needs of basic living.
The US has a very high portion of its population working in what one would consider lower paid work (under $10 per hour):
low-wage-2
1 out of 4 Americans with a job (many have no employment and are part of the massive non-labor force) work in jobs that pay $10 or less per hour. I think this comic sums it up for many younger workers:
new america
It isn’t all that surprising when you look at the top occupations in the country in terms of raw number of employees:
top-employment-fields
All of these jobs beside registered nurses pay paltry wages, barely enough to be considered part of the working poor. And nursing by the way requires a formal education and this is becoming more expensive. Where the costs are low, say a community college, you have waiting lists that are nearly comical. We will examine this trend in the next section.
Many of the new jobs after the recession ended in 2009 have come in the form of low wage jobs:
low-wage-jobs
Roughly 40 percent of jobs added came in the form of low wage work. The math is simple here: good paying jobs gone, lower wage jobs added.
New Normal #2 – A Very Expensive Education
Many of the jobs that do provide an entry into the middle class require a college degree: engineers, doctors, accountants, tech workers, and healthcare usually require formal education. This education path has become incredibly expensive over the last decade. Since many Americans cannot afford to pay this outright, they simply go into debt:
student-debt
In the span of roughly one decade we went from $200 billion of student debt to over $1.2 trillion in student debt (the Fed chart lags the actual amount). The rate of growth is incredible:
student-debt-household-service
There is no other debt sector that has grown as fast as student debt, including what happened in the housing bubble. What is troubling is that older Americans are not very well prepared for retirement while younger workers have a tougher hill to climb as well.
New Normal #3 – No Retirement
1 out of 3 Americans have no savings at all. Half of the country is living paycheck to paycheck. Most retirees are going to rely on Social Security as their primary source of income in retirement. This is why for most of the country, the new retirement is no retirement. Many will be working until their hearts stop beating.
This goes back to real wealth distribution in this country. Many Americans simply do not have enough saved up to sustain their lives in retirement. Obviously if you can, you should save starting early and be wise with your money. Debt is a necessary part of our daily lives but be cautious about taking on too much debt when it comes to student debt, housing debt, and auto debt. You have many taking on subprime auto loans – this is a horrible decision.
The American Dream usually meant a good paying job, a home you could afford, and being able to send your kids to college for a reasonable price. All of these cornerstones are being challenged under the New Normal when it comes to the American Dream.