Why Do Americans Feel Broke All The Time?

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If you’re like millions of Americans across the country, you probably feel like you don’t have a whole lot of money to spend. That’s a sentiment that most working and middle class families share, which conveniently also happens to constitute most of the American populous. It begs the question: how the most wealthy nation on the planet can exist in a state where its majority population feels decidedly not so?

The answers are complex, and are every bit as philosophical as they are scientific. Many would chalk it up as a matter of perception; that, despite how they may feel, the average American is doing better than their global counterparts. On the other hand, the US has one of the worst wealth gaps in any nation, and one of the largest percentages of personal, household debt. Diving into the meat of socio-economics is no small task, but one simple surface question reveals many fascinating truths both about American families and their incomes: How do they spend their money?

It’s a question with an answer that’s changed over time. In 1900 it was mostly on the necessities. According to the U.S. Census Bureau, the cost of food alone took up 43% of a family’s income. The cost of clothing also took up a considerable chunk at 14%. Housing, meanwhile, was 23%. Today, the picture is much different. Americans only spent 13% of their income on food in 2003 and 4% of their income on clothing.

At first glance, the figures are encouraging. Because of industrialization, essential items like food and clothing have gotten much cheaper. Wages are also up, as take home pay is far higher than it used to be even adjusted for inflation. So if the numbers support the notion that most American families are doing better than they were 100 years ago then the argument can be made that the culprit behind the country’s collective feelings of a lack of wealth are the result of perception. That the goal posts for financial comfort have been moved.

When most people think of poverty in America today, they imagine a lack of luxuries like smartphones or new television sets, but they tend to assume that even the hardest hit families still have access to things like food, electricity, and running water—assumptions that would not have been made in 1900.

Food may be cheaper than it’s ever been, but other expenses have grown. Many are for items that didn’t even exist yet. In 1900, 21% of incomes were spent on “other”, expenditures that don’t fit into the categories of food, housing, apparel, healthcare, or entertainment. This percentage has increased to 39% today. The “other” category includes things like cars which are currently a necessity for work for many families not living in major cities. A vehicle is a considerable expense, and certainly not one families had at the turn of the 20th century.

Clearly, the idea of what constitutes as luxury deserves a long, hard look. Electricity was a luxury for families in 1900, but no one could make that argument today. The same should be said for appliances like a refrigerator, or central heating – even the luxury status of a computer is debatable considering our society’s reliance them. Indeed, the United Nations declared Internet access to be a human right’s issue back in 2011. So food and clothing may be cheaper, but families are spending more, and having to purchase more products, than they did 100 years ago.  

The very image of poverty has also changed. Food distribution in the US may be less of a concern, but it’s no less of an issue. The cheapest food is also the least healthy. It’s why there’s a direct correlation between poverty and obesity. West Virginia is the second poorest state in the United States behind only Mississippi, and it’s also the most obese.

Due to the major, life threatening health conditions associated with obesity and the ongoing epidemic of a lack of healthcare for lower income citizens, medical expenses are a huge cost burden on impoverished families. But it’s not just working class families that feel the impact. Unpaid hospital bills are passed on to the rest of the country through ballooning medical fees, higher insurance premiums, and more expensive services. It’s bad for families, it’s bad for health care, and it’s bad for the economy.

Finally, housing is another major component that contributes toward families feeling broke. The average family spends 33% of their income on housing today compared to 23% in 1900. It’s not a small increase, and it’s even one that’s a best case scenario for most people. Financial planners have long advocated for that a household should strive to spend no more than a third of their income on their housing costs. Unfortunately, millions of Americans are nowhere near that ratio; particularly in the major cities. Spending up to 50% is not at all uncommon in major metros like New York or San Francisco, where service sector workers in particular are being pushed further outside the city by rising rents.
Adding to the difficulty is the fact that though wages have increased considerably since 1900, they’ve remained stagnant over the past few decades. This is problematic because as the cost of living and inflation have increased, incomes haven’t for anyone not in the top 5 percentile of earners. That alone would be enough to have families feeling the squeeze, but once one factors in the significant increase in the cost of housing, the skyrocketing price of upper education, and the significant amount of debt owed by most American households, it’s not difficult to understand the sentiment. Life is certainly better in the U.S. today for society as a whole than it was in 1900. But due to a wide range of social and economic factors that we continue to debate, for the individual family, comfort may be as elusive as ever.