Report: Middle Class Loses Ground but Likes Its Financial Savvy

A member of the middle class in America can make as little as $30,000 or as much as $100,000, depending on whom you believe, but one defining characteristic isn’t so broad, experts say.

That is, the middle class is losing financial ground.

A new report from the Consumer Federation of America (CFA) presents an accurate statistical and behavioral snapshot of the current financial condition of the country’s middle class families. And while middle-class Americans believe they mostly make sound financial decisions – and often admit when they do not make good ones – they also are surrendering ground to others around them.

The report, entitled “The Financial Status and Decision-Making of the American Middle Class,” is based on two sources – an analysis of data found in the Federal Reserve Board’s 2010 Survey of Consumer Finances; and a July 2012 survey of approximately 2000 Americans from all income groups, carried out by the Opinion Research Corporation (ORC).

According to the Federal Reserve, in 2010 the American middle class was poorer than at the outset of the recession three years earlier.

Middle-Class Assets Fall

Between 2007 and 2010, the net worth of the typical American middle-class family declined 35 percent, from $145,600 to $94,700.

Financial assets fell 28 percent, from $37,800 to $27,300, largely because of declines in retirement accounts. Likewise, non-financial assets fell 18 percent – from $199,100 to $163,900 – primarily because of the decay in home values.

While the Federal Reserve data classifies middle-class household income as between $35,600 and $94,600, the ORC survey slightly expands the category to include incomes between $30,000 and $100,000.

However, even with these somewhat bleak statistics, the report states: “Most middle class Americans are not financially desperate.” Instead, they have enough to sustain themselves financially and their families. They have, according to the report:

• Sufficient funds in liquid accounts to cover unexpected expenses
• Approximately $27,000 in total financial assets
• And their debt load is “manageable,” with a debt-to-asset ratio of 27 percent and a debt-to-income ratio of 20 percent

The Fed study did not include data on homes that are underwater, which would likely increase these percentages.

Survey: Middle Class Likes Its Financial Decision-Making

Beyond the numbers, the report’s ORC survey provides additional insight into the psychology and decision-making patterns of the nation’s middle class. Respondents were asked to:

• Rate their financial decision-making abilities
• List the sources of information they use to make their financial decisions
• Report any “bad financial decisions” they may have made over the past several years and their costs.

They were also queried about their choices if they were given $10,000, $100,000 or $1,000,000 to invest.

In the area of financial decision-making, 81 percent rated their ability to make decisions on less complex financial matters – household budgeting, managing credit-card debt and buying automobile insurance, for example – as “good” or “excellent.”

About two-thirds gave themselves the same high marks for more complex (and less-frequently made) decisions. Examples of those are saving for retirement, getting a mortgage and purchasing life insurance.

Conversely, respondents were somewhat harder on themselves when admitting they made a “really bad financial decision.” Two-thirds – 67 percent – said they made at least one bad decision over the past few years, and 47 percent acknowledged having made more than one poor decision.

The rest of the report, including sources of financial information used by the middle class, hypothetical investment choices they would make, and comparisons to higher-income Americans, can be viewed here.