Working Hard to achieve “Middle-Class”

By Philip O. Johnson, CFP®

Although most of my clients are at or near retirement, one of their greatest challenges is helping friends and family who are working to get back on their feet after this recession—a recession that really slammed the middle-class.

How do you define middle-class? For some, it is an income level. For others, it means having enough money to pay the mortgage, obtain medical care, put the kids through college, and plan for a comfortable retirement. It is often seen as the vast group that aspires to live the “American Dream.”

America, and specifically our home state of Arizona, had a thriving middle-class prior to the recession. Recent data, however, shows how deeply our population has been impacted. Our state lost about one-tenth of its jobs during this last recession, many of them being construction and blue-collar jobs tied to the housing industry.1 Now, one in five Arizona households lives in poverty. In September, the U.S. Census Bureau said Arizona had the nation’s second-worst poverty rate. (We normally are in the top third for standard of living.)2 Many individuals and families who were used to living comfortably, are struggling to adjust to their new reality.

The middle-class lifestyle costs a great deal more than it used to. Prices for health care, college, and housing have risen faster than incomes, notes a government task force that recently studied America’s working classes.3 Most families now require two incomes to live comfortably, whereas it once took just one. It also takes more education than ever to reach that “middle-class” level. As a result, many young adults enter the workforce already saddled with student loans, making it even more difficult to get ahead.

But what is especially dangerous for the middle-class budget is the explosion of consumer products. Many families now consider a flat-panel TV and Blu-ray player a necessity, but is it really? Does every teenager have to have the newest iPod or smart-phone? No, but the social pressure sometimes feels like it.

There is a glimmer of hope out there on the horizon. The good news is that Arizona employers are finally creating more jobs than they are cutting and things are looking up on both local and national levels.

I would caution, however, that it will probably take years for Arizona’s middle class to recover. And this is where I want to make my point. Financial success is going to require more work. Those who are ambitious and have the discipline to live within their means are going to get back on their feet and prosper. Those who lack that discipline will likely find themselves always trying to reach middle-class and still falling short.