Its 2015, And The American Dream Is On Life Support

Sam Becker

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June 03, 2015

Photo by Spencer Platt/Getty Images

Photo by Spencer Platt/Getty Images

The inevitable has finally caught up with us: the American Dream is pretty much out of reach.

There have been warnings for years that the dream was getting farther out of reach, and according to a
study put together by USA Today, a six-figure income is required to achieve what most Americans strive
for. To be exact, Americans need to earn $130,357 annually, which was arrived at by calculating the cost
of a familys essential expenses, some extras, and taxes/savings. Also of note, that amount is what is
needed for the average family of four two adults and two children.

In fact, its now easier to achieve the American Dream when you live in another country.

If $130,000 seems like a lot, thats because to the average American family, it is. Even with two adults
working full-time, that can be a target income thats simply out of reach for most families. According to
the U.S. Census Bureau, median household income between 2008 and 2012 was $53,046 per year, less
than half of what the USA Today study calls for. While the economy has been picking up steam as of
late, its still drastically different than the climate that led to prosperous years for the middle class
during the 1990s.

The biggest issue and the factor that is really putting the American dream out of reach for the vast
majority of people, is that the middle class simply doesnt have the financial power they did before. The
cost of living has been skyrocketing over the past ten or fifteen years. Just about every standard
purchase whether it be a home or a pound of hamburger has seen prices jump dramatically. Not
to mention healthcare and transportation costs.

As household expenses have climbed, wages, on the other hand, have plateaued. As everything else has
gone up in price, wage growth has barely kept pace with inflation, leading to erosion of purchasing
power. Ever wonder why so many retail stores and restaurants closed over the past five years? Its
because those in their target demographic, the middle class, simply dont have the money to go there
anymore.

The Economic Policy Institute looked deeper into the issue, and found that flat wages and job losses
have been the major barriers to economic prosperity for many in the middle class. This lost decade for
wages comes on the heels of decades of inadequate wage growth, the EPI says. For virtually the entire
period since 1979 (with the one exception being the strong wage growth of the late 1990s), wage
growth for most workers has been weak. The median worker saw an increase of just 5.0% between 1979
and 2012, despite productivity growth of 74.5% while the 20th percentile worker saw wage erosion of
0.4% and the 80th percentile worker saw wage growth of just 17.5%.

Eroding wages and increasing costs are the two most prominent factors causing the middle class to
disappear. Most of the middle and lower classes in the U.S. have been sold on the idea of the American
dream, and have worked hard to attain it. Putting it out of reach, all the while expecting people to
continue buying into the meritocracy, is going to eventually have consequences, however.

Grocery store, shopping, list

Source: iStock

The Bare Necessities

From the USA Today study, the essentials that are mentioned are the basic tenants of life in modern
America. The study tallies up several different price points $17,062 for housing, $12,659 for groceries,
$11,039 in vehicle expenses and just over $9,000 per year in medical expenses all to get a subtotal of
around $58,500 for the essentials.

That alone the amount needed to cover the bare essentials for life in America is $5,000 more than
the median household income.

There were a few other things taken into account: apparel, utilities, and education expenses, but the
items listed above were the major price points. There is also a sound argument to include things like
Internet and telephone service in this category, as they are required for daily life by most. Instead, they
were listed under the extras category.

One other area that is not taken into account that the majority of the population is dealing with is debt.
Credit card debt and student loans, neither are put into the calculations. Its possible that these could be
factored in to things like education expenses, or miscellaneous expenses, but for a lot of people, debt
repayment represents a big monthly expense. According to Nerdwallet, the average Americans credit
card debt tallies up to more than $15,000, and student loan debt is more than $33,600.

These are things that should also be figured in.

Source: iStock
Source: iStock

The Extras

USA Today figured in things like family vacations, entertainment, eating out at restaurants and
cable/internet costs into the extras category. All together, the expenses totaled more than $17,000 per
year. Now, right off the bat many people will say there are plenty of costs that can be eliminated in this
category, and they are correct. For example, more than $4,500 is allocated for family vacations, which
can be reduced, rather drastically, in a number of ways.

However, things like Internet expenses are probably more appropriately filed under the essentials
category. A huge number (and a growing number) of individuals rely on the Internet for work and
school, and many of us really cant imagine life without some sort of online connection. There are ways
to curb the cost as well, by using public libraries or coffee shops with public wi-fi access.

As far as entertainment and eating out is concerned, a lot of wiggle room to reduce expenses can likely
be found. Entertainment expenses, for example, can be heavily reduced through modern technology.
Public libraries have vast book and movie collections, usually available for free, or for a very low fee. A
Netflix account can supply hundreds, if not thousands of hours of entertainment for less than $10 per
month.

There are obviously plenty of ways to reduce your familys extras budget, but even with money saving
methods in place, its still an area that will incur unexpected expenses and cost families plenty over the
course of a year.

Taxes and Savings

The final category USA Today takes aim at is that of taxes and savings. The former everybody takes part
in. The latter? Well, most people tend to give it a shot, but it can be increasingly difficult. A lot of people
saw their savings ruined by the financial crisis, in which either banks gambled it away, or the loss of a job
required those who had a safety cushion to actually dig into it. As the economy rebounds and more
people get back to work, setting aside money for a variety of savings accounts should become a
common expense in many households.

Taxes and savings tally up at $54,857 annually, according to USA Today. The majority of that figure
$32,357 comes from state, local, and federal taxes. The other large expense of $17,500 is attributed
to 401(k) retirement savings, assuming you are contributing the maximum amount.

Finally, college savings for two children tallied up to $5,000 per year. Of course, as the cost of education
increases every year, saving even that much annually probably wont leave the kids with enough to pay
for their education. As disheartening as that is, college savings may be an area that should be increased
in the calculations.

These are the major expenses that USA Todays study looked at to arrive at their annual figure of
$130,357. Sure, many of the details are debatable, and there are some expenses that were not taken
into account, while others could be reduced through consumer choice and money saving tactics. One
important thing to mention is that its not just about building wealth and getting rich, but also about
securing a future for the next generation.

Speaking with USA Today, Cornell University professor Thomas Hirschl made that point very clear. Its
not about getting rich and making a lot of money. Its about security, he said.They want to feel that
their children are going to have a better life than they do.

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