The Middle Class Squeeze

Dave Pollard posted a wonderful post today on the financial bind that is squeezing the middle class in North America. I recall so well feeling so frustrated in Toronto where my then substantial earnings were sucked into a black pit of high costs. Making this worse was the sense of uncertainty about job security that I could not control. We were always a step away from a merger and hence lay offs. This dependency on the high paying job and the sense of uncertainty of keeping it now affects nearly all who have a middle class life linked to a large employer. It used to be just blue collar jobs that were exported. Now every large firm is subject to merger and layoffs. Now many professional jobs are being outsourced. Now many high tech jobs are off to India as well as large firms outsource much of the head office work to large scale service suppliers such as IBM. EDS and HP.

In 1965 a policeman on one salary could comfortably raise a family in a middle class way. Now as Dave points out two adults earning a lot more relatively can hardly get by. Especially in the US. Children, a job loss, an illness - any hiccup can spell disaster. What is going on?

1. The Mc-jobbing of North America - In the 1970's and 1980's blue collar jobs in manufacturing were exported by corporations. Now with the advent of white collar outsourcing, Tech jobs are going to places like India. Most jobs are in the process of being commoditized. Even manufacturing jobs in Mexico are going to China. No large corporation is safe from merger. This leads to the hollowing out of the middle class job market in NA. While this is going on as a trend, as Dave points out the trend for our most important costs is going the other way creating vulnerability and the highest personal debt-loads ever. Here I am with you Dave and MrG - the corporate world is anti life

2. We have bumped up our core expenses both by choice and by default. The core cost is our home. The average home in the 1960 was 800 sq feet. Now it is 2,000. Renovation has become the hobby of choice. Relatively housing is at the heart of our expenses. Attached to housing costs are mortgage debt, insurance and other structural costs such as heating and cooling and transportation. Many live in suburbs where both need their own car. In the 1960, many lived in urban areas and could take transit. Huge costs are embedded here. At least $9000 a year per car when you add back depreciation and travel time. Our choice of housing both in size and location is a core driver of the cost spiral. We are largely at choice in this area. Here I think our buy in to the idea that we will find happiness in a big house on a big lot is partly to blame

3. How we see our children. The public school system that we could rely on is now often a problem. Parents feel that they have to spend a lot not just on a private alternative but also on a legion of preschool and post school stuff. Daycare is a gigantic cost. I suspect that our guilt about having to be at work all the time also drives our kids to win the consumer war with us as well and drives a host of other costs such as rooms of their own - hence larger houses, toys games etc. So if you add kids to the mix, as Dave says you are really at risk. We say that we need the two salaries. My casual research suggests that after all the costs of daycare, two cars etc that we don't. Most families do best to break even after all the extra costs are added up. Here we have made the choice to find satisfaction at work rather than as parents. I am not saying that we return to Leave it to Beaver. I am suggesting that we are not honest with ourselves about what is going on and what other choices we may have.

In the mid 1990's I knew that unless, I got off this train, it would end my marriage and my family. I had become consumed with the world of work and the need to feed the monster of our lifestyle. My response to this has been to go the other way.

1. To reduce my structural costs. I used to be one of those bankers and earned banker money. But after my expenses, I had nothing but debt. I had a lovely looking house, nice cars and my kids were in private school - bottom line I was broke and I was utterly dependent on my employer even though I was a senior executive. By cashing out and moving to a low cost place like PEI my monthly costs dropped at first to about $1,000 a month! Now I have built them up again after being here for a long time but they are still a fraction of what I used to pay. Our family income would be at the very low end of any family in Toronto but here we live well with no give up.

2. This means that my little consulting business from home - almost no structural costs - leaves me also largely at choice for assignments. So I have a lot of control at work too and I am embedded in my community.

3. When my children were born, I started to save money every month. I have been astonished at the power of forced savings. Consequently they were able to go to university and leave with some money still in their pocket. With forced savings it has to come out of the paycheck up front. I only noticed it in that we did not have as much cash as my friends who did not save and whose kids now have large debts.

I am not saying that everyone one has to do what I did. But I am saying that we can find our own ways of taking back some control or at least opening up more choices by structurally reducing our costs.