Is The Middle Class In The Same Financial Class As Low Income Earners?

You may have heard of the Economides.  They are a family of 7 who made a name for themselves thanks to their penny pinching ways.  They’ve been able to get ahead financially and save money even though they were a one income family for most of their marriage and even though they had 5 children who are now grown.

Now, the Economides are teaching others how to be financially responsible and save for their futures.  I recently saw them interviewed on U.S. News Money, and what struck me was something that Annette Economides said at the end of the interview (at minute 8:52):

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“The other thing that I think is a common mistake that Americans are making today is debt.  The middle class is really almost no different than the low income because they don’t own anything.  They have no accumulated wealth.  They have car payments, they have house payments, they have credit card payments, they have school loans.  There is no accumulated wealth.  The only difference between the middle class today and the low income is that they have a degree or they have a better career or they have a better looking car or house.  So they earn more money, but they’re not accumulating.  Their net worth is about zero.  They are three to six months away from homelessness if they lose their job.”

Avoid The Debt TrapAre You Middle Class But Saddled With Debt?

What Annette Economides said rang true for me.  I have a Master’s and my husband has a Ph.D.  My husband has about $30k in student loan debt, and 14 years after I completed my Master’s and graduated with a little over $20k in student loan debt, I’m less than $3k away from paying it off.

We’ve set a goal to get my student loan paid off by the end of summer, but the irony that I’m no longer even using my degree (I was a teacher for 10 years but quit 3 years ago) is not lost on us.  The degree was earned, I worked in that field, quit, and now, 3 years after I quit the job, the loan will finally be paid off.

We’re actually in a better position than most because our car is paid for and we don’t yet own a home.  However, we do have those pesky student loans and one credit card to pay off.  We’ve set aside $800 a month to pay down debt (which is more than the minimum we have to pay), and we funnel as much extra money on the debt as we can.  We are probably averaging $1,000 a month on debt repayment.

Essentially, that is $1,000 a month that we don’t have to accumulate wealth as Annette Economides says.  That’s money that can’t go in our retirement fund or our children’s college fund.  It’s money that can’t be used for a house payment or to build up a 6 to 12 month emergency fund.

Basically, that debt reduces our income by $1,000 a month, and without factoring in that money, we are indeed at the low income level of earning.

Take One Action To Prevent This Situation

Steve and Annette Economides offer a solution to this problem at the end of the interview:

“I would say today, be careful about that debt that you’re taking on.  It’s one thing to have debt for one thing, but by the time you take on debt for five different things, you’re up to your eyeballs.  So one of our mantras is to keep our overhead low.  So we would never take on payments.  What we would do is save the cash in advance and buy the thing for cash.  We remodeled two kitchens, paid cash for our cars, and paid cash for all of our vacations.  Basically we determine what money we have, and then we determine what we’re going to buy.  It’s not the other way around.  One of the things we say is that debt destroys and frugality frees.  I wish more Americans would realize that.”

Are you middle class but feel like you’re living a low income life because of your debt burden?

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Last Edited: 10th February 2014

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Comments

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  1. says

    Melissa, the heading “Take One Action To Prevent This Situation” is the one that struck me the most. Spending is often so automated that we don’t even realize we have taken an action that could have consequences. Your blog helps us remember to think about what we are doing.

  2. says

    That is so very true what you said in your article! Everyone learnt how to spend but no one learnt how to save money. There are very few people who don’t eat out a lot, don’t use their credit cards every day, who don’t have several payments on different loans and lines of credit.
    Does anyone think about their future any more? What happens if you get sick, lose your job, get hit by a car and so on? Are you prepared for a rainy day? This is the question we should ask ourselves all the time. Saving money on a daily basis should be our second nature, then we could survive through anything. Thanks for a great article!

  3. says

    The middle class isn’t what it used to be. We don’t have to go too far back in history to see that the middle class has taken on exponentially more debt relative to income over a short period of time. My parents had a mortgage for a few years, but that was it as far as debt went for them. My dad studied for a PhD during the ’60s, and worked part-time cleaning a church to help pay for it. By the time he graduated, he had a stay-at-home wife with four children – but no debt. They lived very simply and didn’t resent doing so. The middle class of today has to downsize expectations and stop giving in to the temptation of materialism. Thank you for your post. My husband and I are on a journey out of debt too, and it’s always good to get a dose of wisdom – such as the one you have provided.

  4. says

    I really hate to, but I do agree with that statement. The only thing that makes a true upper class person special is the fact that they have wealth and possessions that will create them more wealth (stocks, properties, businesses, etc). Being middle class is just a higher paying version of being lower class. You still get stuck with debt and bills galore. But you have nothing of value to show for it. Really the only way to break the chain is to realize this problem and start making a focused effort on wealth creation; be that through a 401k, savings account, rental properties, etc. When your wealth eventually produces your income, then you’ve got financial freedom.

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