Financial Health Frontiers: Households Under Financial Pressure

The promise of joining the ranks of the “middle class” historically served as a beacon of hope to many Americans – offering a vision of financial security, if not wealth, and opportunity for the future. But today, earning a “middle-class” income no longer guarantees a comfortable lifestyle, a shift that has vast implications for the country’s economic future and social fabric. High costs for essentials like housing, healthcare, childcare, and education, to name just a few, make surviving – much less thriving – a challenge for many Americans. 

This is not a new problem, but one that has been brewing for decades. Between 1990 and 2019, the median family’s income grew 140%, but the cost of childcare grew more than 200%, prescription drugs about 175%, and higher education almost 400%.¹ At the same time, the ranks of the middle class – as measured by income – have contracted amid an intensifying wealth gap and enduring racial and gender disparities.^{2, 3, 4}

Moreover, even in the face of positive macroeconomic indicators, the high cost of living is creating deep barriers to economic mobility and contributing to pessimism about the future.^{5, 6} Far beyond an individual or household issue, global research shows that this sort of malaise is contributing to continued polarization and potentially hampering broader economic growth.^{7, 8, 9}

Indeed, the dire state of Americans’ financial health – their ability to manage day-to-day expenses, be resilient to shocks, and pursue future goals – should present a call to action for policymakers, community leaders, and businesses alike, no matter their politics or ideology. These issues span sectors – and like financial health itself, the solutions must also be holistic, requiring collaborative and cross-sectoral partnerships and innovations. In this brief, we detail how the cumulative effect of high prices across a range of expenses is straining the budgets of families, connect this reality to the decades-long hollowing out of America’s middle class, and ask: 

Is greater and more equitable financial health possible? How can we cross sectors and ideologies to restore the middle-class promise?

The concept of class has a deep history and is often used to highlight differences in social and economic strata. In contemporary discourse, the “middle class” is often emphasized as both a benchmark for stable household finances and standards of living.¹¹ Different ways to define the middle class all attempt to capture the various social, cultural, and economic resources people draw upon. Regardless of the definition, it appears that the middle class is increasingly squeezed. 

One way to measure the middle class is by household income, though ranges vary.^{12, 13, 14} Pew Research Center, for example, defines the middle class as households earning between two-thirds and twice the national median income, or $67,819 to $203,458 (in 2022 dollars) for a family of four.¹⁵ By this metric, about 50% of adults are in middle-class households, a figure which has declined steadily over the past five decades.¹⁶ Moreover, the incomes of middle-class households have risen slower than those of upper-income households.¹⁷ 

Other evocative definitions are sometimes used for the middle class, all of which show how the designation is increasingly out of reach. For example, a White House Task Force on the Middle Class convened by the Obama Administration provided an enduring and aspirational definition of the middle class: one’s ability to achieve common goals, like home and car ownership, college education for children, health and retirement security, and occasional family vacations.¹⁸ But today, only half of those nearing retirement age have any retirement savings, and homeownership is affordable with the median income in only a handful of metropolitan areas in the country.^{19, 20}

A recent Washington Post study leveraged even more basic lifestyle elements as a barometer for the middle class. These closely echo the Financial Health Network’s definition of financial health: having the capacity to pay all bills on time without worry, savings for the future, resources to afford an unexpected $1,000 expense without going into debt, appropriate and adequate insurance, and the security to retire comfortably. But even with this modest set of criteria, just 35% of the population qualifies as “middle class.”²¹ 

These cost-of-living pressures are doing more than straining individual households’ budgets – they are contributing to a lack of economic mobility. The Harvard-based research center Opportunity Insights has found that 90% of children born in 1940 ultimately earned more than their parents. The same is true of only half of those born in 1980.⁴⁹ Again, the racial divides are vast: in 99% of neighborhoods, Black boys earned less in adulthood than white boys who grew up in families with comparable income, indicating that many kids of color do not have access to the same pathways to economic outcomes as their white peers.⁵⁰ 

Today, Americans feel a deep pessimism about the future. In a poll that predated the pandemic, about three-quarters of people (73%) believed that the gap between the rich and the poor would grow in the coming decades, and half of the public said children in 2050 will have a worse standard of living than they do today.⁵¹ And the implications could be even more dire: as income distribution becomes increasingly unequal, many researchers have hypothesized that it is a contributing factor to the uneasy politics of the moment, with deep polarization and little optimism.^{52, 53}

Financial health is core to our economy and our collective perspective on the future, but more than that, it is central to a collective American identity. Yet, it has become increasingly clear that financial opportunity and prosperity are out of reach for so many, with barriers particularly entrenched for some people and places.

Financial health should be front and center in the conversation about America’s future, no matter one’s politics or ideology. Indeed, the financial health challenges the vast majority of Americans face – making ends meet, saving for the future, and creating security for their families – are challenges shared by both sides of the aisle, with profound implications for future generations. In a divided country, financial health for all is a holistic goal that we can share, bringing us together to influence public policy and shape our collective efforts. 

We propose that financial health be central to efforts to improve Americans’ economic opportunity, build quality of life, and dismantle historical barriers. We suggest several core focus areas for this endeavor:

Measurement, Evaluation, and Research 

We manage what we measure, which is why it’s critical that we understand the state of financial health across the country. The Financial Health Network and others recognize that traditional economic measures – gross domestic product (GDP), the consumer price index (CPI), and the aggregate unemployment rate – do not fully capture the true state of families’ finances.⁵⁴ And now, multiple actors across public and private sectors are already changing how they assess financial health. For example, the Treasury Department is developing a Financial Inclusion Strategy with measurement at the fore.⁵⁵ State and local measurements – for use by stakeholders in various institutions and sectors – provide deep and tailored insights.⁵⁶ 

Measurement, and the research it supports, is a first step to demonstrating “what works” and building the knowledge base. This, in turn, is essential to build solutions for the middle class across industries and sectors. Research initiatives could include analyses of how community and place-based factors, like housing supply, labor markets, environmental risks, and educational investments, shape opportunities for financial health and the middle class. Equally helpful could be evaluations of public policies that are targeted at making a difference in household and community economic well-being and the risks of not building the middle class.

Innovation 

We must continue to explore new solutions that address the challenges families face in making ends meet. Part of innovation involves deeply understanding the financial realities that people are facing. Shedding light on the pain points that consumers are experiencing is a necessary first step to innovation: we must better understand the realities and choices that families are facing, with a particular focus on how different communities experience the barriers to a middle-class lifestyle. 

Innovators could look at the big expenses that many American families face – childcare, housing, transportation – and think about both the challenges and the unconventional opportunities that these issues might bring.  Innovations could and should address both affordability and also asset and wealth-building, making meaningful progress on both sides of a household’s balance sheet. Families and households face intersecting challenges; solutions likewise need to address these intersections. In particular, we hope that new solutions are relevant for, responsive to, and built by the communities for whom the middle class has been kept out of reach.

Collaboration

Broadening financial health and building the middle class is a massive endeavor, requiring collaboration and cooperation that crosses sectors and puts aside politics for the entire country’s well-being. Indeed, innovative solutions to the problems outlined in this brief are and should be inherently collaborative.

A litany of actors – from businesses to community-based organizations to government agencies to policymakers working in sectors like housing, education, transportation, finance, and healthcare to name a few – play a role in improving financial health and building the middle class. There is no single actor who can measure, innovate, or solve this challenge alone. We all must work together and holistically to take bold steps to build America’s middle class and bolster financial health for all. 

We’d love to hear from you and explore opportunities for collaboration across sectors and industries. To engage with Financial Health Frontiers and stay up to date about financial health in the U.S., please also sign up for our newsletter at finhealthnetwork.org/programs/financial-health-frontiers.

Financial Health Frontiers is grateful to the visionary members of its Advisory Council for their input and guidance: