Why the Middle Class is Struggling Financially: Breaking Down the Economic Challenges

For decades, the middle class was seen as the backbone of the economy, representing stability, security, and opportunity. Today, however, many middle-class families face financial struggles that threaten their stability and upward mobility. Rising living costs, stagnant wages, substantial uncontrolled debt, and limited access to high-return investments have created financial challenges that make it difficult for many families to achieve traditional financial goals like homeownership, retirement savings, and wealth building. In this blog, we’ll explore some of the major factors causing financial strain on the middle class and why achieving financial security is becoming increasingly challenging.

1. Stagnant Wages and Rising Costs

The cost of living has increased in recent years, as it has over decades, but middle-class wages have largely stagnated. Big corporations are not required to distribute the wealth or to increase wages or employment benefits for their employees even though the minimum wage for has increased.

- Rising Living Expenses: Housing, healthcare, education, and childcare costs have risen considerably. For example, housing prices in many urban areas have skyrocketed due to competition from private equity firms and investors that buy up housing limiting supply to first time and repeat individual homeowners, making it difficult for middle-class families to afford homes. Healthcare costs have also grown at rates far outpacing inflation, because the insurance industry is not regulated or encouraged to provide affordable options putting pressure on disposable income. Education costs have risen also and the value of the education, even post-secondary is not providing opportunity for graduates.

- Stagnant Wages: Despite these cost increases, wages for many middle-class jobs have not kept up. This stagnation means that while essentials like housing, food, and education cost more, middle-class income hasn’t increased to match. As a result, the purchasing power of middle-class families has eroded, making it more challenging to save or invest. Even though the minimum wage has increased big corporations are not required to increase the wages of their employee's, rather they keep the profits for themselves and their shareholders.

2. Debt as a Barrier to Financial Mobility

Debt has become a significant part of the financial landscape for middle-class families, often acting as a substantial barrier to financial security.

- Student Loan Debt: Rising college tuition has led to a massive increase in student loan debt. Middle-class families, in particular, are often caught between too high an income to qualify for need-based aid and too low an income to afford tuition outright. The result is that many middle-class individuals graduate with substantial debt, which can take decades to repay, delaying milestones like homeownership, investing, and retirement savings. In addition, some parents take out loans to pay for their child's education which then impact the family's ability to save, invest and retire.

- Consumer Debt: Credit card debt and auto loans are other significant burdens. Because of lack of financial literacy and the unrestrained use of credit as being the norm in society, some families rely on credit cards to cover essential and non-essential expenses. As interest accumulates, this debt becomes a long-term burden, draining future earnings and limiting financial flexibility.

- Mortgage Debt: Homeownership is still a goal for many middle-class families, but rising home prices mean taking on larger mortgages. This debt can strain monthly budgets, especially as other costs, like property taxes and insurance, continue to rise. Property insurance companies are not regulated well and are keeping the billions of dollars in profit that has hurt the individual consumer.

3. Lack of Access to High-Return Investments

While wealthier individuals and families often benefit from high-return investment opportunities, middle-class investors face limitations.

- Limited Access to Private Markets: Private equity, venture capital, and other high-yield investment opportunities are typically accessible only to accredited investors—those who meet specific wealth or income criteria. This means that while wealthier individuals can diversify into lucrative investments, the middle class is largely limited to traditional investments, like stocks and bonds, which may offer lower returns over time.

- Stock Market Volatility and Risk Aversion: Many middle-class families are understandably cautious about investing heavily in the stock market, given its volatility and the lack of a safety net if investments don’t perform well. Without specialized financial knowledge, they may stick to safer, lower-yield options, which limits their potential for wealth growth.

- High Fees and Limited Investment Options in Retirement Accounts: Many middle-class workers rely on 401(k)s or similar retirement plans, which often have limited investment options and fees that eat into returns. Wealthier individuals can access IRAs or alternative investments and retirement plans with broader, lower-cost and more lucrative investment choices.

4. Tax Policies and Lack of Incentives

The tax code often provides incentives that favor wealthier individuals and corporations, making it harder for the middle class to accumulate wealth. Even with the Tax Cuts and Jobs Act of 2017, the wealthy and big corporations benefited substantially while the middle class had changes that provided minimal helped and in many cases hindered them.

- Capital Gains vs. Earned Income: The tax code favors capital gains (profits from investments) over earned income (wages). This benefits those who have significant investments, often wealthier individuals, while middle-class families who primarily rely on wages face higher effective tax rates on their income.

- Limited Deductions and Credits: Many middle-class families don’t have enough deductions to itemize on their taxes, meaning they can’t fully benefit from the same tax advantages available to wealthier families. Additionally, credits for things like education, childcare, and retirement savings are often capped at levels that don’t provide substantial relief.

- Real Estate Tax Incentives: Wealthier individuals can take advantage of tax incentives for real estate investments, such as depreciation, deductions and 1031 exchanges. Middle-class homeowners have fewer options for tax relief, often limited to the mortgage interest deduction, which is more restrictive after recent tax law changes.

5. Healthcare Costs and Lack of Financial Safety Nets

Healthcare expenses are a significant financial burden, with many middle-class families facing high insurance premiums, deductibles, and out-of-pocket costs. If you do not have an employer plan, or an HSA this is expensive. Insurance companies are making loads of money but still passing costs onto the consumer.

- High Insurance Premiums: Even with employer-sponsored health insurance, premiums have increased substantially. Many families find that the cost of healthcare, even with coverage, takes a significant chunk of their income.

- Medical Debt: Medical emergencies can be financially devastating, especially if they lead to extended time away from work. For middle-class families without substantial savings, unexpected medical expenses can lead to long-term debt, impacting financial security for years.

- Lack of Long-Term Care Planning: Many middle-class families lack long-term care insurance or savings for elder care. If they learned to plan early and buy assets that can pay for their long term care or if they created medical savings accounts to cover costs they would have resources to pay for health care. This lack of knowledge and planning often forces them to dip into savings or take on additional debt if elderly family members need extended care, further limiting their financial stability.

6. Inflation and the Erosion of Purchasing Power

Inflation has risen sharply in recent years, making essentials like groceries, gas, and utilities more expensive. The reason for inflation is the rising costs charged by companies that are making more and more profits increasing their bottom line which in turn has taken advantage of the consumer to their detriment.

- Rising Costs Without Wage Increases: Inflation disproportionately affects those with fixed or stagnant incomes. As purchasing power declines, middle-class families find it increasingly difficult to keep up with necessary expenses, much less save for the future.

- Impact on Retirement Savings: Inflation erodes the value of retirement savings, meaning that middle-class families must save more to maintain the same standard of living in the future. For those already struggling to save, this reality makes retirement security even more difficult to achieve.

7. Limited Financial Education and Wealth-Building Resources

Finally, many middle-class families lack access to financial education and resources for wealth-building.

- Lack of Financial Literacy: Many people don’t receive adequate financial education, leaving them unprepared to make informed decisions about saving, investing, and managing debt. Without the knowledge to navigate complex financial markets or tax strategies, middle-class families miss out on opportunities to grow wealth.

- Access to Advisors: Financial advisors can be costly, and they tend to focus on what benefits them and not what is best for you. Making getting ahead inaccessible for some middle-class families. Without the right education and professional guidance, families may miss out on strategic planning opportunities that could improve their financial outlook.

- Missed Opportunities for Generational Wealth Building: The lack of resources and guidance often means that middle-class families focus on immediate financial needs rather than building wealth that could benefit future generations.

Conclusion: Moving Forward

While the financial struggles of the middle class are significant, there are steps that individuals, policymakers, and society as a whole can take to improve financial stability. On a personal level, increasing financial literacy, prioritizing savings, starting a business, investing in cash-flowing assets, and investing in the right vehicles that provide income, security and tax benefits for the long term can help families gain more control over their financial futures. At the policy level, advocating for changes that benefit wage earners, such as tax reforms, corporate reforms, and affordable healthcare, can help relieve the pressure on middle-class families.

The challenges faced by the middle class are complex and multifaceted. Addressing them will require a combination of individual efforts, systemic changes, and a renewed focus on financial stability for all. By recognizing these issues and exploring solutions, we can create a more equitable economic environment that allows the middle class not only to survive but to thrive.

Join One of Our Trainings