By Don Kuehn

Most of the people living in poverty today have jobs. They’re not on welfare, but they may be hungry … or homeless. They find themselves behind the eight ball because of circumstances way beyond their control. No matter what lengths they go to to match spending with income, they lose.

Even many who think they have their heads above water are at risk of sinking into terrible debt if slammed by an unexpected expense. Just when they think they have almost caught up, the hot water heater needs to be replaced, the car needs repairs or one of the kids has to go to the dentist.

America’s Second Harvest (A2H) has released Hunger in America 2006, its survey of member food banks and pantries (see http://www.harvesters.org/). An estimated 25.35 million people receive emergency hunger relief services annually (roughly 9 percent of all Americans) through A2H, and I suspect that this is just the tip of the iceberg. This represents an 8 percent increase since A2H’s earlier studies of its clientele for Hunger in America 2001 and an 18 percent increase since Hunger 1997: The Faces and Facts.

The survey points out that America is headed for disaster: people being forced to choose between feeding the family and paying the rent, between filling a prescription and eating dinner, between a warm home and buying groceries. Some 36 percent of all food bank client households have at least one adult working at least one job. They fight every day to put food on the table but cannot do it on their low-wage jobs.

It’s easy for politicians to tout gains in the economy and to traffic in that old saw that "a rising tide lifts all boats." It ain’t true. In spite of stock market gains, a housing boom and surging corporate profits, higher living expenses have wiped out wage gains for the average American worker. Last year, we spent all that we earned … and more. For the first time since the Great Depression, our savings rate fell below zero (negative 0.5 percent).

In a Feb. 25 article in the Kansas City Star, columnist Dianne Stafford cited example after example of middle-class couples doing all the right things to make ends meet, but falling further behind. They worked longer hours, took on second (or third) jobs, cut down on cable TV and newspaper subscriptions, raised insurance deductibles, eliminated entertainment expenses, shopped at discount stores, and cancelled land-line phone service in favor of wireless phones to save money. But they still felt themselves slipping deeper into debt.

Even those who are getting annual raises are not keeping up, according to Harvard professor Elizabeth Warren.

"After they pay for the basics--mortgage, health insurance, cars, child care and taxes--they have less money to spend than their one-income parents had," Warren notes.

Over the past 12 years, such basic expenses as gasoline, heating fuel, education and healthcare have outstripped earnings gains by twice the rate of inflation, or more. To cover, many families (seven out of 10) have borrowed against the equity in their homes and are using credit cards as a safety net to cover basic expenses. This is a recipe for disaster.

People who borrow against equity could lose their homes if they suffer a job loss or serious illness. If the "housing bubble" bursts, the value of a house against which loans have been taken could be insufficient to pay off the debt. A recent Federal Reserve Board survey showed that 17.2 percent of homeowners have home equity lines of credit with a median balance of $22,000, up from $16,000 in 2001. Rising home values often come at the cost of increased property taxes, causing more problems for the typical family struggling to make ends meet.

The traditional picture of America’s middle class is vanishing … and they’re hungry. Of more than 25 million people who seek food help from the America’s Second Harvest network each year, many are children and the elderly. About 36 percent are under 18 years old, 9 percent are children under 5 years of age, and 11 percent are elderly. Sixty-eight percent have incomes under the federal poverty level. Only 5 percent are on welfare and 12 percent are homeless.

What is happening to America? The general perception is that educational levels protect people from poverty and hunger, and to some extent that is still true, but education alone is not enough to guarantee that you can benefit from the growth in our economy. In fact, almost no one can.

Princeton’s Paul Krugman, who writes for the New York Times, calls it the 80-20 fallacy: the notion that the winners in our "increasingly unequal" society are a fairly large, well educated group: the 20 percent who can benefit from new technology and globalization. In fact, between 1975 and 2004, the average earnings of college graduates rose by less than 1 percent per year, and real earnings actually fell more than 5 percent between 2000 and 2004, according to Krugman.

Here’s the fallacy debunked, thanks to Ian Dew-Becker and Robert Gordon of Northwestern University: Between 1972 and 2001, the wage-and-salary income of Americans at the 90th percentile level rose 34 percent--barely 1 percent a year--not exactly a ticket to the rarified stratosphere of the economy.

But at the 99th percentile (annual income $402,306 this year, according to the Tax Policy Center), income rose 87 percent. At the 99.9th percentile ($1,672,726), income rose 181 percent.

The real winners, as you might have suspected, are those few at the 99.99th percentile of all Americans (legacy billionaires and corporate CEOs "earning" well over $6 million) whose income rose 497 percent!

Want more? Here are some numbers from a Federal Reserve Board survey on the financial condition of America’s households:

• The average inflation-adjusted household income declined 2.3 percent during the 2001-2004 period. This is in contrast to a gain of 17.3 percent in the preceding three-year period.
• Because of the "paper" gains in real estate (primary residences increased in value by 28.1 percent during the period), household net worth actually increased by 6.3 percent from 2001 to 2004, although that was 22.4 percent lower than the gain in net worth in the preceding period.
• The proportion of families in debt climbed to 76.4 percent and the depth of their debt really jumped--by 33.9 percent.

"As debt rose over the period, families devoted more of their incomes to servicing their debt, despite a general decline in interest rates," the Fed said. "Also, the fraction of families with large required debt service payments relative to their incomes rose a small amount, and the fraction of families that had payments that were late 60 days or more in the year preceding the survey rose more substantially. These increases affected mainly the bottom 80 percent of the income distribution."

You can read the whole report by going to www.federalreserve.gov/pubs/bulletin/2006/
financesurvey.pdf.

All of these facts have serious consequences for the students in your classrooms and for you and your colleagues. While there is no magic formula to keep you from falling into the economic sinkhole that used to be the middle class, judicious management of your resources--before they get out of hand--is the only hope.

It is the same refrain I have sung in this space before: Live below your means, avoid "growing into" your annual salary increases, stash away an emergency fund to cover at least six months’ living expenses, save for short-term goals and invest for the longer-range plans that you want to achieve, like a home or college for your children or retirement.

Do it a little at a time by dollar-cost-averaging into investments. Avoid getting stuck in a credit card-fueled life, and cut back if necessary to bring your income and expenses into line.

It is your money, and the only one who can control it is you.