Stagnant pay for many Americans is already a defining issue of this year's populism-filled presidential election. But add in the rising cost of living, and the picture is even bleaker.
A new report from the Pew Charitable Trusts, released on Wednesday, reveals that spending on necessities like housing and transportation is taking a bigger bite out of Americans’ paychecks than it was 20 years ago. Families across the earnings spectrum are being squeezed, though people with lower incomes are bearing the brunt, sometimes taking on more debt just to pay their bills.
“When we think about family finances, it is easy to think about income alone as this key metric that will tell you whether a family is secure,” said Erin Currier, director of Pew's financial security and mobility project. “We are hoping to provide a holistic look at families’ balance sheets.”
The nonprofit analyzed consumer expenditures surveys from the Bureau of Labor Statistics for the years 1996 to 2014. It tracked changes in the budget of the median household and in the balance sheets of families in the top, middle and bottom thirds of the income distribution.
One of Pew’s key findings is that while household expenses have returned to pre-recession levels, incomes have yet to recover.
Even looking at the entire 19-year period, which includes years of greater income growth, reveals that pay has failed to keep pace with rising living costs.
The after-tax income of the median family with two earners and two children rose over $12,000 from 1996 to 2014, but the family's expenses grew faster -- from 71 percent of after-tax income in 1996 to 75 percent in 2014. The vast majority of that growth in spending was on essential goods like housing, transportation and food -- costs that can't easily be cut from the family budget.
Rising housing costs have hit the one-third of families with the lowest incomes the hardest. By 2014, their housing costs constituted some 40 percent of pre-tax income.
The numbers are even starker for low-income renters. Households in the bottom third that rent their homes spend close to half of their pre-tax income on rent.
Currier attributed part of the rise in rents for lower earners to the migration of many middle-income families into the rental market as a result of the Great Recession. The rental vacancy rate is now at 7 percent, according to Census data, lower than it has been in about a quarter-century.
“With vacancy rates being so low, it pushes overall rents up,” she said.
The rising burden of transportation costs is equally striking: Households in the bottom third spent more on just gasoline and motor oil in 2014 than their entire transportation budget in 1996.
Families at all income levels had less of what Pew calls “financial slack,” or money left over after expenditures, than they did as recently as 2004. In fact, the median household in the bottom third went $2,339 in debt in 2014, versus having positive financial slack of $1,417 in 2004.
“There is very little money left for these families to save or make investments for the long term,” Currier said.
Currier argues that the latest study helps explain the results of a March 2015 Pew Charitable Trusts survey in which 92 percent of Americans said it was more important to have “financial stability” than to “move up the income ladder.” That percentage had risen 7 points since 2011.
Given the state of Americans’ finances, Currier said, it is easy to understand why they would put a premium on “just being able to sleep well at night” without worrying about money.