The Future of the Middle Class?

[Joseph27]

I was thinking about the posting that I wrote on the Generation X post – but I wanted to pursue this line more.  It is more important than just a 20 second rant.  I grew up in Australia in the 70’s and 80’s – my parents worked hard – my dad had two jobs and my mom stayed at home looking after us (8 of us).  They did a good job – most of us have good jobs and families and are reasonably successful, but what they did is impossible now, even for people to do with 2 children.

So many people talk about life as though their own perspective is what defines the norm for the rest of us – but that now takes us well away from reality.  I will use Australia for some of these examples – however the same can apply to any modern western economy.  So many of my colleagues up here laugh about Australians as though everyone works 9 to 5 and then goes home to a big house and easy life.  In the past 10 years I have watched the house I grew up in multiply in value, I have noticed prices getting increasingly expensive – well out proportion to wages.  People are increasing working as hard as Singaporeans, working until the job is done.  Perhaps you could say that Australia is finally maturing and simply become part of the world economy – but NO I do not believe that is so – something more sinister is at work.

Life for decades ensured that families in these economies could enjoy good lives but increasingly this has changed.  Now to buy a house in a place like Sydney will cost you half a million for something well outside the CBD and it would be quite modest.  Lets do the calculation – a senior schoolteacher earns maybe $50,000 a year of which $15,000 gets taken in tax.  That leaves around $2,800 a month in take home pay.  Perhaps they are married and the partner earns $2,000 a month in the hand.  Collectively you’re talking about $4,800 a month.  That is an average family (indeed the government considers you wealthy enough to not include you in any support packages) – now a house in an average area will cost $350,000.  So somehow from $1,200 a week they have to manage to save, pay for their car, school fees, and all other bills.  This task is increasingly impossible.  I have spoken with those from many western economies and the trend seems to be repeated.

Twenty years ago, a medium dual income family could afford a life, now they can’t.  So the numbers of working poor increase, the disparity between rich and poor grows ridiculously wider and an ever-growing number of people fall out of the ‘middle class’. This is of course is coupled with an aging population.  What is happening?  I am not jumping on my pulpit and screaming of the injustice to poor people.  I am not a socialist, I am up here to make money – that is my fundamental concern at this time and I understand the concepts our market economies are built on.  I seem to have studied such topics endlessly but I just have a sneaking suspicion that we’ve chosen the wrong path.  

I remember in one of my post grad classes, my tutor asked a question of the class – “is this sustainable?”  Is our world able to go on like this forever?  Everyone said no – How can it?  What will happen I do not know, how it will change? It’s changing already.  I believe that the last year has accelerated this.  Does anyone go along with this?  Is the world just as peachy as it ever was?  Was such wide spread middle class existence simply an anomaly in the pages of western history?  I would appreciate your feedback
 

[expat1]

The need to own a home has caused suburban sprawl.  People keep moving further from urban centers for affordable housing.  Housing prices spiral upwards.  Soon the middle class cannot keep up with the Joneses.

There are many good reasons to own your own home.  However, if it drives you to the edge of solvency, it is not worthwhile.  If people would rethink home ownership, as PhilM has done, they too might find that renting is more beneficial.

I have people telling me all the time that I should buy.  I just smile and nod my head.  Like PhilM, been there, done that, and am now enjoying living in someone else's place.  Money can be enjoyed elsewhere.

Aside to PhilM, why off-shore investment - when is it feasible to have an off-shore account/investments.  

[Joseph27]

PhilM - you sound like you would be a good guy to sit and have a drink with.  I agree with what you wrote (to an extent).  

[KatyF]

Yes, but Joseph, your example really highlights the differences in real estate prices around Australia.  If you were to buy a house in Perth, for instance, on $5800 a month you would certainly be able to pay off the mortgage on a $200,000 home (which would be pretty nice, 4 beds, new estate and all that and would be around $1200 a month), plus $700 on a new car.  That leaves you with $3800 a month.  Considering schooling is free, and groceries are much cheaper, you'd stil be doing well enough to save a bit.  I'd agree that in Sydney or Melbourne, you'd be struggling.  But it doesn't have to be that way if you change your horizons.

[Lester25]

I certainly can empathise with this posting. Despite my username I am actually nearly 40 and currently we do not own a home anywhere. We regard Sydney as our home and were hoipng to return their in a year or two and buy a nice house with the money we've saved here. Unfortunately house prices are rising at a rate faster that our ability to save and we are beginning to despair of ever being able to buy anywhere bigger than a shoebox sized appartment. I would love to see another housing crash a la 1990/91 (for purely selfish reasons) but can't see it somehow. The best I can see is a period of stability. The other problem is that housing crashes tend to go hand-in-hand with recessions, so unless you are in a very secure job you are reluctant to stretch yourself financially to buy a new place.

Why do I feel I need to buy? Largely for security. When I am retired I want to own the place I live in and have the mortgage (largely) paid off so I don't have to worry about the roof over my head.

[Joseph27]

KatyF you are correct in saying that - indeed if I was like my sister I could buy a beautiful house in Mildura for $192,000 and not have to worry that much about huge mortgage payments - I could even go further afield and buy a place in between.  Truth be told Melbourne and Sydney are the only cities in Australia that could be deemed Internationally competitive - and hence the cities that people want to live in. I guess my posting was refering really to these type of trully global cities.  

As for education in Australia....  I would not consider sending my kids to 99% of government schools (almost free ones).  You get what you pay for (except schools such as Melbourne High, Canterbury Girls).  The average high school packs over 30 students in a class and you have a teacher who is usually overwhelmed by the volume of work.  Any decent school must be paid for - and those costs are out of the reach of a lot of parents caught in this cycle

But thanks for your post everyone

[Bruno]

Actually, the middle class is growing. And while the disparity between rich and poor may be widening, the poor are getting wealthier in absolute terms. Is it more important to have everyone equally poor?

As for house prices, while they are rising, affordability is quite stable. Economists say a stable market requires a ratio of house debt to earnings of about 3.5 times. It's currently 3.7 in the UK. It was more than 5 during the last crash. The last crash was also triggered by interest rates that rose to 15%. They're 4% now and unlikely to rise signifcantly because inflation is under control.

[Joseph27]

Poor getting wealthier in absolute terms?  

I guess my arguments are too often based on my perceptions rather than statistics.  I guess according to any of the Bretton woods institutions there is countless statistical data to substantiate that indeed the world is getting richer.  People aren’t poorer in absolute terms, rather Poverty is reducing and soon we will indeed be all driving our latest Daimler Chrysler back from our fulfilling job to our loving residence and fantastic lives.  Obviously the reverse is happening – the disparity on paper is one thing – living it is another.

I remember reading Economists reports telling Australians that inflation is now 1% however every time I walked into a shopping centre I noticed prices had increased.  Not the things that wealthier people buy but the things that we all buy – statistics tell government ministers what they want to hear.  Hence unemployment in Australia is around 7.6% – but that figures is an absolute lie and everybody knows it.  The job of most governments really rests in sales – selling the lie.

[KatyF]

Oh, the poor are getting wealthier, are they?  Try telling that to my mother-in-law who scraped a living by working all her life (never had any education to speak of, so did whatever she could). She now lives in a HomesWest flat on the pension that the government is good enough to give her.  Her one luxury is a small pet dog (admittedly she spoils her rotten).  Doesn't seem much for 40 years in a factory, does it?

[Sue C]

Things are not really that bad down here you know.

We recently bought quite a large (3beds, 2baths) house on a quarteracre block for A$292,000.  It is a 50 minute train ride into the city, but hey for the peace in the evenings and weekends that feel you are holidays it is worth it...can read, sew, listen to the radio on the train.

The trains generally run on time and are OK clean wise.

Most of my friends are in the income mentioned above and almost all of them own their own homes and do have manageable mortgages...admittedly we all live in the western suburbs and send our kids to public schools but schools are what the community makes them, so instead of complaining about low standards how about investing a little bit of effort?

Many of my girlfriends are stay at home mothers, and there are even a couple of stay at home dads, some do shift work so that someone can be home and others have their kids stay with friends.

It isn't Utopia but on the whole I think lower/middle Australia is fairly happy and it is only people who insist on living in the city  and having a city lifestyle who seem to think we are all poor rednecks.

BTW if you want to see multculturalism at work come out to Rooty Hill some time and I will introduce you to everyone.

Things are OK and most people realise that there isn't really anything to complain about.

[This message has been edited by Sue C (edited 11-04-2002).]

[Sue C]

KatyF,

I have to ask what are YOU doing about your mother-in-law's situation?

Not trying to start an argument, but if you say that she isn't very well off, I assume that you are helping her out?

My mother has been a widow for a long time (she also did factory work for 40+ years), but never needs to worry about money that much...she lives in a housing commission home, but is starting to talk about moving into a smaller place so that she doesn't have to clean so much...has had offers to live with her children but prefers her independance...doesn't have much money (on the pension), but her children take care of her...the problem is getting her to accept things.

Don't whine about your mother not living well because of the government, ensure she lives well because you are taking care of it.

[Bruno]

Joseph isn't driving a DaimlerChrysler and Katy's mom-in-law isn't doing too well. I must be completely wrong then.

[KatyF]

Sue C - yes, of course we help her out.  We send her money every month (cash, as a bank cheque might jeopardise her pension).  It's not really the point, though, is it?

[KatyF]

I'm a bit surprised by the rather hostile responses.  Surely no-one really believes that a pensioner in Australia is having a financial ball?  What I was disputing was Bruno's assertion.  And here's a quote from the UN:

"UNITED NATIONS The rich are getting richer and the poor are getting poorer -- with 1.6 billion people worse off than they were 10 years ago, according to a new United Nations report."

I guess my point was that if you are on the lowest bracket of wage-earning, it is impossible to save anything - your money goes on rent, food, school uniforms for the kids etc.  Public transport being what it is (at least in Western Australia) it is very hard to get around without a car.

Therefore, if you pay tax to a government that promises to support you when you are a pensionable age, a starvation allowance is not enough.  Am I wrong here?

[KatyF]

Mmmm - you're probably right and it is just a question of having certain expectations.  I agree the dog should go - it's awful - but ma-in-law wouldn't hear of it!