I came across this fantastic lecture by Harvard Law Professor Elizabeth Warren from UC Berkley entitled The Coming Collapse of the Middle Class. Warren seems to be the media’s go-to lately when talking about bankruptcy and credit card debt. I’ve seen her in several New York Times articles, on Frontline, and in the documentary Maxed Out.
The lecture talks about the change in the middle class from the mid-70s to today and presents some really interesting data. Warren spends the majority of the lecture talking about the decline in savings rates and asks the question “where is all the money going”. Around the 15-minute mark she starts going into different items and shows how basically all consumer goods (like clothes, food, home appliances, etc) are 20-50% cheaper today (inflation adjusted) than back in the mid-70s. Where the money is going is in mortgage payments (up 75% excluding upkeep costs), owning a second car (50% increase), and health care costs (up 75%). She then spends quite a bit of time talking about why the increase in housing and health care costs create a “living on the edge” situation for dual income families.
The part which I found really interesting was her discussion about education and bankruptcy in the middle class. On education, she mentions how in the mid-70s the majority of Americans believed you could enter “the middle class” with a high school diploma and a strong work ethic. Today, twice as many Americans believe the moon landing was faked than believe you can make it into the middle class on a high school education. She then goes on to discuss how that means, in a generation, getting to the middle class went from 12 years of taxpayer paid education to 2 years of paid pre-school, 12 years of taxpayer paid education, and 4 years of paid post-secondary.
The numbers on bankruptcy filing was genuinely surprising to me. Ninety percent of families file for bankruptcy because of one of three reasons: job loss, medical problem in the family, or family breakup. Nearly half of those who filed had two of those three. “More children live in homes that will file for bankruptcy this year than live in homes that will file for divorce. This has been true since the late 1990s.” Put another way, “you know anyone who got divorced in the last 6 or 7 years? Know any children who come from divorced families in the last 6 or 7 years? Than statistically speaking, assuming you know a random cross sampling of Americans, you know more people whose family has filed for bankruptcy.” She goes on to mention how there is an enormous stigma attached to bankruptcy. Also telling, in some research Warren had done, 85% of people they spoke to who had filed for bankruptcy had kept it a secret from their parents, a best friend, or their children.
Here’s the full video. It’s an hours long so you might want to get in a comfy seat. Also just wanted to give a hat tip to Little Bites of Point for the link. That blog comes across some great youtube content concerning economics.