Reporter's Notebook

What Is Driving America's Financial Woes?
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In The Atlantic’s May issue, Neal Gabler explores his own financial troubles for clues as to why so many Americans are struggling to remain financially solvent. We reached out to some of the leading scholars of the American middle class to ask what they make of Gabler’s analysis, and their responses are compiled here. (We also have a popular ongoing series of readers telling their own stories of financial woe.)

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Pension Plans Are Gone for Good

Earlier in the week Damon Jones responded to our May cover story with a discussion of retirement plans. Today, John Beshears, a professor of behavioral economics at Harvard, adds to that theme with an anecdote about his mother:  

My mom retired as a high-school teacher in the San Francisco public-school system about two years ago. Based on her 34 years of service (many of those years part-time), she now receives a check every month from the teachers’ retirement fund. It’s a modest amount, about half what she used to receive when she was working, but it is very comforting to know that the check will continue to arrive, month after month, for the rest of her life. My mother is lucky to have worked for an employer that provides such a lifetime income guarantee, more formally known as a defined-benefit pension plan (DB plan). Most Americans are not as lucky.

Kristin Seefeldt, an assistant professor of social work at the University of Michigan, expands on our discussion over Neal Gabler’s piece on the shrinking of middle-class wealth:

The financial insecurity experienced by so many Americans is not just rooted in the proliferation of credit cards and other financial products now available but also in the changed nature of the employment contract. Let’s examine Mr. Gabler’s situation.

When it comes to middle-class financial woes, Mehrsa Baradaran, a law professor and author of How the Other Half Banks, notes the shifts in how lenders and borrowers look at credit:

Marquette [the Supreme Court decision Neal Gabler discusses] marked a pivotal cultural shift. Not only did it render centuries of interest-rate caps practically meaningless, it de-stigmatized the practice of usury.

Usury laws were designed to protect vulnerable borrowers from exploitative lenders trying to profit from their distress. Once the caps were lifted, so was the shame of charging high interest on loans. Today, payday, subprime, and credit card lenders peddle predatory products under the cover of law.

Michael Sherraden, the director of the Center for Social Development at Washington University in St. Louis, read our cover story and imagines what would happen if development accounts—ones that kids could draw on for major milestones—were established at birth and implemented as U.S. policy.

Enough monthly income is important, but owning assets is the key to family stability and development. Yet many Americans struggle to accumulate even modest assets. They live with no buffer against cuts in income and unexpected expenses.

Now imagine this scenario: