Economic insecurity spreads
By Don Kuehn
Although I remain optimistic that the economy will right itself and job creation will pick up, this year one in five American families has seen a decline of 25 percent or more in their household income.
A lot of the children in your classroom right now are from these families.
Economic insecurity can actually be measured by tracking three major risks to financial well-being. The three factors that make up the Rockefeller Foundation’s Economic Security Index (ESI) are:
- experiencing a major loss in income;
- incurring large out-of-pocket medical expenses; and
- not having the financial wealth to buffer the impact of the first two.
The trend line is clear. The ESI has risen (though not steadily) over the years from 12.2 percent in 1985 to a previous high of 17 percent in early 2002. The ESI improved to 13.7 percent in 2007 before the current downturn set-in. Projections through 2009 estimate the ESI has reached 20.4 percent (the higher the index, the more families are in distress).
It can take from six to eight years for income to return to previous levels once a hit of this magnitude has been felt, according to Professor Jacob Hacker of Yale University who developed the index.
Security, as measured by the ESI, varies across the population, but has dropped among all groups. Those with the most income and education have fared the best. The less affluent, those with limited education, and African-Americans and Hispanics have suffered the most. Single parents also show disproportionate “insecurity” according to the ESI, having peaked above the 20 percent level on three occasions during the 1997-2007 period.
So, what happened? Incomes leveled off, medical costs rose faster than inflation, pensions were replaced with 401(k) plans, and fewer companies provided healthcare. At the same time, many families financed their lifestyle on a perceived inflated value of their home, taking on massive debt under the mistaken belief that they were sitting on a gold mine with four bedrooms, stainless steel appliances and granite countertops. That sense of security crashed when the housing bubble burst and many families had little or no savings to fall back on.
Although the ESI is not reliant on unemployment figures, there certainly is a correlation between lost jobs and lost income. The bottom is falling out for an increasing number of American families. More than 14 million people are out of work; even more are underemployed. Meanwhile, corporations show little sign of ratcheting up hiring any time soon—this, in spite of bulging profits and high worker productivity.
While news reports tell us that various sectors of the economy, including big financial institutions and corporations, are coming back after the Great Recession, for average Americans, things are not getting better and there is no real end in sight. Policymakers seem blinded by corporate good news while the little guys continue to suffer. What we need are extensive job creation policies and a strengthening of the safety net necessary for families to survive.
In the meantime, all Americans have to take on the responsibility to protect themselves from the kind of income loss and medical costs that could put them at risk for economic insecurity.
Save. Invest. Build a safety net of your own. It’s your money. Keep as much of it as you can.
Don Kuehn is a retired AFT senior national representative. For specific advice relative to your personal situation, consult competent legal, tax or financial counsel. Comments and questions can be sent to email@example.com.