Are You a Part of America’s Underclass?

There’s no doubt the Great Recession, which officially occurred from Dec. 2007 to June 2009, has severely impacted the economy. It has left millions struggling to find a job, hold onto their homes and keep food on the table.

But a recent IRS report revealed that though the recession has created many challenges, American households had already been struggling. In fact, middle-class incomes have been stuck in neutral for at least an entire generation.

What’s even more alarming is that the wealthiest individuals in the country have been experiencing significant income surges over the same period of time. This leads some to believe a gaping hole is forming in the class system that is booting middle-income earners into the underclass.

Average Incomes Have Not Increased in 2 Decades

Shocking numbers released by the IRS earlier this year revealed that the annual income of the average American taxpayer was $33,000 in 2008, which is several hundred dollars less than the $33,400 average in 1988.

How could this happen, especially when it’s no secret that inflation has occurred in other areas of life? Take a look at the various cost adjustments that occurred from 1988 to 2008:

It is apparent that costs elevated significantly in critical areas of living over the 20-year period, which makes it even more baffling that income did not increase, too, especially when the richest 1 percent (those earning $380,000 or more per year) saw their incomes jump 33 percent from 1988 to 2008.

Some say the widening gap between the incomes of the middle class and wealthy has a lot to do with globalization (carrying economic activity across national borders), which reduced the need for U.S. labor and eliminated jobs.

While corporations have benefited from reduced costs and boosted profits, many middle-income Americans found themselves struggling for work. This, in conjunction with the Great Recession, has pushed millions of middle-class workers into smaller-income brackets, creating a massive underclass.

Why the Middle Class Can’t Escape the Underclass Category

What exactly is an underclass? As defined by Princeton University, individuals in the underclass are those “belonging to the lowest and least privileged social stratum.” Another definition is “consisting of the poor and unemployed.”

Middle class, on the other hand, means having “the resources to cover all of your needs and some of your wants, plus the ability to save for the future,” said MSN Money personal finance columnist Liz Pulliam Weston in a recent article. Those in the middle class are often categorized as earning between $25,000 and $100,000 annually, though the numbers vary depending on the source.

However, if we examine our surroundings, we definitely don’t see a majority of Americans living in the least-privileged social stratum. There are still millions of people in nice houses, driving nice cars, paying their bills and eating plenty of food every day.

But how have these luxuries been maintained? Are they leftovers from what was purchased on credit cards, through subprime mortgages or from overly-lenient lenders prior to the financial crisis? Could it be that many of these people are among the 13.5 million unemployed, 3.68 million collecting unemployment benefits and/or 43 million on food stamps?

How many are among the 2.9 million who had foreclosures filed against them in 2010 and are waiting for their homes to be repossessed? It could be that many people we view as having the means to cover their needs and save for the future are really the struggling unemployed living with middle-class leftovers.

And let’s not forget the employed workers who are still struggling. Recent stats show 61 percent of workers always or usually live paycheck to paycheck. More than 40 percent are working service jobs, many of which are low paying. Even worse, one-third feel unable to contribute to their retirement savings.

Whether we like it or not, deflating incomes and savings–coupled with inflating costs–are slowly eliminating the middle class category. The rich are getting richer, the poor are getting poorer, and the middle class are getting pushed toward the underclass.

Is It Still Possible to Become Wealthy?

One would like to think that America is still considered a land of opportunity and that working hard is enough to make great financial strides in even the toughest economy, but this could be very difficult to achieve if a person simply relies on finding a job and working until retirement to build any type of wealth. The truth is, no matter how they do it, most high-earning Americans use strategies for growing wealth that exceed simply relying on a paycheck.

The good news is that despite the financial crisis, the number of millionaires in the U.S. rose 16 percent to 7.8 million in 2009. This means there’s still room for low- to middle-income workers to bridge the gap between themselves and the wealthy.

For some, this reality may be contingent upon the economy improving and providing an ability to earn enough money to start saving and investing. For others, however, it could just be a matter of learning how to save money properly and take advantage of interest-bearing accounts.