Americans struggle with financial stress

Expenses exceed income for many, study shows

Despite an improving economy that should be easing the financial struggles of all Americans, a growing number of low- and middle-income households are plagued by high debt and have little or no savings. The financial strains have especially worsened for those near the bottom of the income ladder.

While wages for low- and middleincome Americans are rising, they’re not keeping up with higher costs, such as rent and utilities. That means these households aren’t riding the hopeful trends lifting many families: unemployment tumbling to 4.1% today from 10% in 2009, debt levels close to record lows, climbing consumer confidence and spending.

They are people such as Alejandra Mejia of San Jose, whose paycheck can’t cover higher housing costs.

According to a UBS study, such households could fall behind on loan payments, reduce their spending and slow or even undercut a U.S. economy that seems to be firing on all cylinders for the first time since the Great Recession ended in 2009.

“You have a large share of the population who are struggling to meet their financial obligations and has seen modest to no improvement,” UBS Credit Strategist Stephen Caprio says.

“Stressed”: About 76 million U.S. households make up the bottom 60% of income earners, with takehome pay of $65,000 or less. Of that group, about a third were “stressed” in 2016, UBS says, near the highest level since the mid-1990s. UBS defines “stressed” Americans as those whose financial obligations — such as mortgages, rent, auto loans and leases, and credit card bills — exceed 30% of their income and who don’t have enough cash and other assets to pay their bills for six months in the event of a layoff or other shock.

Such people are far more likely to eventually fall behind on loans and rein in spending.

Even more troubling: About 25 million low-income households that earn $23,000 or less face growing burdens, with nearly half them stressed in 2016, up from 45% in 2013, UBS figures show. Struggling in San Jose: Mejia, 31, and her three children live in a room in a house for victims of domestic violence for $680 a month. She can’t afford an apartment in San Jose, where the rent, according to Rent Café, averages $2,616. She earns about $300 driving about 40 hours a week for Lyft and another $70 putting in five hours weekly as a manager at McDonald’s.

Mejia, who receives $200 a month in food stamps, says she’s frustrated she can’t get more hours at McDonald’s. “It’s very difficult,” she says, adding that she can’t afford a car or new clothes for her children and has no savings. She has to lease a car from Lyft to drive for the ride-hailing service.

Soaring rent: Many of those on lower rungs of the economic ladder are struggling. One in five working Americans, for example, aren’t saving any income, according to a Bankrate.com survey.

The culprit? Soaring apartment rents combined with tepid pay increases. Average rents jumped nearly 30% nationally since 2010, according to RealPage.

Paychecks have grown slowly. Average hourly earnings for the bottom tenth on the income ladder have increased 0.5% annually since 2010 on an inflation-adjusted basis, though the pace has picked up since 2015, according to an analysis of Labor Department figures by the Economic Policy Institute.

Don’t expect the recently-passed tax cuts to come to the rescue. Tax reform will net these stressed lowand middle-income Americans an average $26 a month, the study says.

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