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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The Danger of the DIY Retirement Savings Plan

The debate around our cover story and middle-class money continues. Damon Jones, a professor the at University of Chicago Harris School of Public Policy, adds that saving for retirement is a different process than in generations past:

One of the most important financial decisions we face is saving for retirement. Over the last three decades, there has been a massive shift in how private-sector workers save for the future. Today, more workers than ever before are relying on retirement plans that depend on their personal investment choices and stock-market performance, as opposed to plans that have a guaranteed pay out built in.

Mary Pattillo, a professor of sociology and African American studies at Northwestern, points to the decline in public-sector jobs and unions to help explain the financial distress Gabler chronicles:

“An injury to one is an injury to all.”  We have traveled so far away from that classic labor-movement slogan that the widespread inability to cover a $400 unexpected expense is suffered in silence and shame. Gabler narrates the story of stagnant wages and insecure employment but fails to name two important and related contributing factors to these realities: the assaults on public-sector employment and declines in unionization rates.

Paige Marta Skiba, a law professor at Vanderbilt Law School, responds to our May cover story on shrinking middle-class wealth:

The problem is not just high interest credit cards. In the last two decades, Americans have experienced a meteoric rise of alternative financial services like payday loans, installment loans and auto-title loans. As an economist, I’d like to think this increase in choice of credit products is a good thing, especially for your typical borrower—a middle-class worker without savings or many traditional options for borrowing after a few credit hiccups.

But because we forget to pay on time, we procrastinate and we fail to predict the predictable shocks to our budget, more credit options can mean more trouble.

Dedrick Asante-Muhammad, the director of the Racial Wealth Divide Project at the Corporation for Enterprise Development (CFED), read our May cover story and submits that the inaccessibility of financial prosperity may only come as a shock to white Americans:

The secret is out: The American Dream of a secure “middle-class lifestyle” with a clear path to better future economic prospects is a too distant reality for most Americans. For white, middle-class households, this is a shock; financial security was considered their right.

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.

When Rachel Schneider, the senior vice president at the Center for Financial Services Innovation, read the cover story, she thought that one piece of the story was missing: volatility. She explains:

Neal Gabler’s beautiful and brave exploration of his financial life captures many of the reasons that millions of Americans live precarious financial lives: stagnating wages, the rising costs of a middle class life, and an overreliance on debt to fund the gap. But, there is another, more hidden cause of financial insecurity: volatility. In the U.S. Financial Diaries project, Jonathan Morduch and I found that, on average, households in our sample experienced more than 5 months a year in which their income was 25 percent more or 25 percent less than the average. The same was true for spending.

We reached out to some of the leading scholars of the American middle class to ask what they make of Neal Gabler’s analysis in our new cover story on financial insecurity. Our first contributor is Edward Wolff, an NYU professor of economics, who points to wage stagnation as the central factor:

The ultimate culprit is wage stagnation, occurring now for over 40 years (average real wages peaked in 1973). This translates into income stagnation. For a while (until about 1990 or so) families compensated for stagnant wages by the increased participation of wives in the labor force. Once this opportunity was exhausted real incomes also stagnated. Indeed, according to Census data, median family income in 2013 was less than it was in 1997.