The American middle class is falling deeper into debt to maintain a middle-class lifestyle.
Cars, college, houses and medical care have become steadily more costly, but incomes have been largely stagnant for two decades, despite a recent uptick.
Filling the gap between earning and spending is an explosion of finance into nearly every corner of the consumer economy.
As The Wall Street Journal reports, consumer debt, not counting mortgages, has climbed to $4 trillion—higher than it has ever been even after adjusting for inflation. Mortgage debt slid after the financial crisis a decade ago but is rebounding.
Wages haven’t kept up. Median household income in the U.S. was $61,372 at the end of 2017, according to the Census Bureau. When inflation is taken into account, that is just above the 1999 level. Over a longer stretch—the three decades through 2017—incomes are up 14% in inflation-adjusted terms.
Average housing prices, however, swelled 290% over those three decades in inflation-adjusted terms, according to an analysis by Adam Levitin, a Georgetown Law professor who studies bankruptcy, financial regulation and consumer finance.
Average tuition at public four-year colleges went up 311%, adjusted for inflation, by his calculation. And average per capita personal health-care expenditures rose about 51% in real terms over a slightly shorter period, 1990 to 2017.
“The costs of staying in the middle class are going up,” Levitin said.
The borrowing can signal confidence because people expect to be able to pay it off. But the debt pile is also an accumulated ledger of economic risk. It should be manageable so long as unemployment remains low. If job losses begin to rise, it would become unsustainable for some share of borrowers, raising chances of an increase in missed payments and lenders writing off unpaid balances. Read the full story.