Debt, Security, and the American Dream
By Jennifer Errick
Take a moment to consider one of the most common but mysterious forces at work in our daily lives: money. Almost all of us must attain more of it simply to continue living. Many of us spend a great deal of time wishing for more or worrying about how to get enough. Despite how we dress up the details - loving or hating our jobs, meeting or exceeding our budgets, spending or saving what we earn - on average we devote over a sixth of our entire lives to earning and spending a steady stream of the green stuff.
With all the emotional significance we give it, it's easy to forget what money represents on its most basic level: an all-purpose stand- in for self-sufficiency. None of us can (or should) be totally self- sufficient; even the most emphatic homesteader needs a box of nails or a cavity filled now and then. Money is simply the most versatile way to acquire something we cannot provide ourselves.
In our culture, however, money is ironically viewed as the primary means for being self-sufficient. We have a go-it-alone model of problem solving entrenched in the American way of life that glorifies a loner mentality for getting things done. When problems arise, families are often embarrassed to ask others for help. Singles and couples are expected to do heroic things almost entirely on their own, such as raising children or caring for sick relatives, that in other cultures would assume the help of extended families or whole communities. But when we are in the position of having to undertake these heroic tasks and we simply cannot do everything, we inevitably must buy many of the services and protections other people take for granted from their relatives, friends, or governments. Money does not buy self-sufficiency; it simply outsources the task at hand, usually to an assembly line of people we have never met.
Having said this, money isn't the root of all evil. Often, it is the source of our security. But we are in a precarious situation when we depend on it for every aspect of our safety, including health care, quality education, pensions, elder care, and disaster relief. With few exceptions, Americans simply can't afford to pay for all these basic needs on our own. Government support for our collective safety, beyond homeland security and military spending, is rapidly disappearing. Plus, we are hampered by skyrocketing household and national debt. How are we to actually have the security and self- reliance we all yearn for?
The Big Picture
It's important to step back and look at the big trends that are propelling more and more Americans into debt, overwork, and fear about their financial futures. American debt levels are up, savings rates are down, and average credit card balances are over $7,000 per household, more than double our consumer debt of a decade ago. Why is this happening?
Materialism is certainly part of the problem. Americans like to shop. We like big stuff and we like lots of it. Everything in our lives is getting bigger, from vehicles and houses to TV screens and bathtubs. Shopping is viewed as patriotic, credit lines arrive and expand in our mailboxes nearly every day, and we are bombarded with ads that tell us to buy our way to security, happiness, friendship, and sex.
But overconsumption is only part of the problem. Often, people who live simply and try to manage their funds carefully are having a hard time staying afloat. Why? A few major factors are at play. First, the cost of basic needs, especially housing and health care, have escalated dramatically, leaving families vulnerable.
Getting Squeezed on the Basics
A report released last month by the Center for American Progress, Middle Class Progress? Families Work Longer to Pay for Middle Class Living than a Quarter-Century Ago, sums it up neatly. According to researcher Christian E. Weller, the average two-earner family has had to work more hours since the late 1970s to cover basic expenses such as housing, health care, college, and transportation, with significantly less buying power left over to pay for clothing, food, utilities, retirement, and fun. The problem is more dramatic for minority families who have seen sharper income declines between 1980 and today.
According to The Two-Income Trap by Elizabeth Warren and Amelia Warren Tyagi, financial disaster often strikes middle-class families not because of lavish, M.C. Hammer-style spending problems, but because the nationwide epidemic of failing public schools has fueled skyrocketing home prices in districts with the best public education. As parents have scrambled to find better schools for their children, the price of real estate in good districts has drastically outpaced those of other properties, putting the squeeze on even the most responsible family budgets. Acknowledging the wide range of incomes affected by the problem, Warren and Tyagi write: "Having a child is now the single best predictor that a woman will end up in financial collapse."
According to Warren and Tyagi's research, between 1970 and 2000, median family spending went up by 81 percent for mortgages, 74 percent for health care, 47 percent for cars, and 116 percent for taxes. Although a second income - the mother's - has offset some of these financial burdens, it also adds new expenses, such as childcare, and doubles income volatility. When families depend on two paychecks instead of one, they run twice the risk of encountering layoffs or other job-related problems.
Perhaps the most serious issue driving families into debt is the rising cost of health care. In a Harvard study of bankruptcy filers in 2001, nearly half of all participants were driven to bankruptcy by sudden uninsured medial emergencies - an increase of almost 2,300 percent from the total number of medical bankruptcies in 1981. In fact, 76 percent of the medical bankruptcies in the survey were filed by individuals with medical insurance at the time of the illness, but out-of-pocket costs still averaged nearly $12,000 - indicating not only the exorbitant costs of care, but the inadequate coverage of many public and private insurance plans.
Trickle-Down Cutbacks
But the cost of living isn't the whole story either. Our country has largely abandoned social spending programs that ensure our collective health, such as Social Security, Medicare, and other incentives that support the safety of all citizens.
We saw many of these shortcomings demonstrated in the Federal Emergency Management Association's response to Hurricane Katrina this past fall. If this incident brought anything to the forefront of our minds, it was the expectation that our government would care for its people in times of need and the realization that life-or-death catastrophes can occur when its resources fail. Love or hate "big government," no one can offer an organized response to widespread public needs like Uncle Sam.
However, America today, like its private citizens, is in a record amount of debt - over $7.9 trillion of it. As of press time, the most recent presidential and congressional budget proposals for 2006 were loaded with cuts to domestic spending, including $10 billion in cuts to Medicaid over five years, $6.6 billion in cuts to the Pension Benefit Guaranty Corporation (which insures private employer pension plans), and $4.7 billion in cuts to student loan programs. An analysis of the current budget proposals by the Aspen Institute projects $40 billion to $71.5 billion in cuts to programs of interest to nonprofit organizations, including housing, employment, education, and social services programs. Yet the proposals also include $70 billion in tax cuts, including capital gains cuts.
Loss of federal money impacts localities directly and indirectly as state and local officials are forced to cut regional social initiatives as well as federal ones to make ends meet. Cash-strapped schools have cut everything from art teachers to nurses. Some communities, such as Detroit, Michigan, have had to make dire choices, including laying off hundreds of city employees, closing schools, and reducing bus service. Residents of John Steinbeck's hometown of Salinas, California, barely managed to keep their public libraries open at drastically reduced hours after a state funding gap threatened to close them permanently. Losing these parts of our communities is heartbreaking for whole neighborhoods and the people who live in them.
The Hard Part
There is no easy solution to finding security when we lose financial backing from our government. Obviously, this is a fundamental debate in the political sphere and citizens need to be engaged. Do we or don't we believe that government has a fundamental role to play in ensuring our common security - not just in the event of war or terrorist attacks, but on a day-to-day basis - with programs that provide some safety net for the elderly, sick, or unemployed?
There are some specific policy fights - such as preventing the repeal of the estate tax, which could come before the Senate this year - that could help garner resources to support the public good. However, we all know that any struggle to reorient our federal spending priorities and revamp systemic issues like health care will take time. Fortunately, there is a partial safety net beyond government resources that individuals and families have increasingly neglected as our society has become more money-dependent: the village.
We can all learn from societies that have very little financial or material security yet are rich in community. Often in our own culture we fail to truly make the most of our friends, neighbors, and extended families. So few of us live near our aunts, uncles, cousins, or grandparents anymore, and this not only reduces our happiness, but it cuts out many other side benefits too, such as free child care, help during illnesses, clothes sharing, meal sharing, free advice, recipes, heirlooms, and stories to pass down to our children. Sometimes the value of this kind of safety net is simply incalculable. But if, for example, you lose your job, can't make the rent, and are offered a guest bedroom, the value can be tangible and significant.
Much like our families, our neighbors are another resource many of us rarely tap. Knowing and relying on our neighbors is the first step toward strengthening our communities, and strong communities foster not only close friendships but better shared resources. Good schools are often a direct result of active community members working in tandem to build a better environment for their children. Becoming civically involved also fosters more responsive, and responsible, government officials. For a town such as Salinas, California, civic activism was the difference between having libraries or shutting them down.
Sure, an uphill fight may seem less appealing than buying into a good community, but not all of us, clearly, can afford them. All of us, can, however, choose those issues that matter most to us and volunteer selectively, regardless of where we are or how much we earn. The tougher road is often not only within our financial grasp, but presents far more rewarding opportunities.
Being more active in the community also pays dividends in other ways. Babysitting co-ops, community gardening, carpooling, and tool sharing are all tremendous ways to offset costs - and just as small expenses add up, so do small savings. Neighborhood listservs (in which community members communicate regularly via email) are wonderful ways to get free items like baby clothes and unwanted furniture that might otherwise go to waste. Even having a simple dinner trade in which two families take turns cooking once a week and splitting the leftovers is a great way to save time in the kitchen that could be spent on other things. Reducing unnecessary consumption is a key way to reduce debt, and it is always easiest to do in conjunction with family and friends (or, if that's not always feasible, with Freecycle.org, Craigslist.org, and other networks of people who like to share).
Finally, while pushing for federal programs that increase our safety and building strong relations with our neighbors, we must also attend to our spending and saving decisions. There are concrete things all of us can do to save more and avoid maxing out our credit cards. The credit problem is set to get worse: New laws went into effect last month that will make it much harder for Americans to file for bankruptcy protection. In many cases, cutting back on material needs and having a financial cushion in the event of an emergency could be the difference between a minor disruption and complete disaster that puts all of a family's assets in jeopardy.
This winter New American Dream is preparing several new resources to continue exploring how we can have greater self-reliance and counter the problem of widespread debt in our culture, including a new poll on American overspending and debt during the holidays. I will be launching an online column this month, Living Green Below Your Means, on how to be environmentally conscious without breaking the bank.
Jennifer Errick is Communications Associate for the Center for a New American Dream.