Debt, Evictions, Job Losses: America’s Hollowed Out Middle Class Needs More Help

Congressional action on more financial relief for struggling families and businesses is welcome news, but America’s middle class will need more help next year. The signs are already there that the recession has caused longer-term economic pain. Even before the pandemic, many middle-class families lacked sufficient financial cushions in case of an emergency, never mind multiple emergencies such as job losses, higher childcare costs and more health care expenses. They turned to more debt, amid rising costs for childcare and health care. Many still struggled to pay their rent or mortgage. Stimulus checks and expanded unemployment insurance benefits are a good, quick shot of financial security for many families. But Congress’ work is not done. President-elect Biden correctly called this relief bill “a down payment” and argued that more will need to be done early in 2021.

The longer-term economic pain of many middle-class families is already apparent. The Census has collected biweekly data on households’ finances since August of this year. Many households with incomes from $35,000 to $100,000 struggle and will continue to doing so well into 2021.

Housing insecurity has been a persistent theme throughout the pandemic. Many families fell behind on their rent and mortgage payments. One-in-seven renters with family incomes from $35,000 to $100,000 were not current on their rent in November. The overwhelming majority of these renters – 79.9% — expected to face eviction within two months. Similarly, 9.6% of homeowners with a mortgage were not current on their mortgage in November. And 56.1% of those homeowners expected they will be foreclosed on in the subsequent two months. Housing instability will continue to linger as people are out of a job and face additional costs for childcare and health care, making it difficult to pay current rent and pay back what people owe for their past rent and utilities.

Housing instability could get worse in the coming months. In November, 26.1% of renters and 15.3% homeowners with incomes from $35,000 to $100,000 expected that they could not pay their rent or mortgage next month. This was a sharp increase in housing instability for renters in just one month as only 21.4% of renters expected that they would need to delay or not pay their rent in October. As the labor market slows, many renters will fall again behind on their rent payments and possibly face eviction in the coming months.  

Many renters who are behind on their rent and who face evictions will need help beyond what is included in the latest legislation. The new coronavirus relief bill includes financial support for renters facing evictions. Reportedly, Congress set aside $25 billion in rental assistance to state and local governments as well as an expansion of a federal eviction moratorium to the end of January 2021. This is not even half of the money that renters are projected to owe in back rent and utilities by the end of January. Moody’s estimates that 12 million renters will owe an average of $5,850 for a total of $70 billion or almost three times as much as the current bill includes.

Middle-class families’ debt burden has also grown during the recession, leaving them with additional costs over the coming months and years. Many middle-class families have gone deeper into debt to pay for their current spending. More than one-third of households with incomes between $35,000 and $100,000 borrowed from credit cards, other loans as well as from friends and family to pay for their current expenses in November. Soon, debt payments will come due, burdening families that still suffer from long-term unemployment and added health care costs. This could mean rising credit default rates as well as spillovers of economic pain to other households, from who people borrowed to pay their bills.

The increased indebtedness is unevenly distributed. Black, Latinx, Asian and Latinx families and those of multiple and other races and ethnicities with incomes from $35,000 to $100,000 borrowed more to pay for their expenses than White families from August to November 2020. For example, 42.1% of Latinx families in this income group used debt from credit cards, loans, family and friends to pay for expenses. In comparison, only 30.8% of White families did during that time. Moreover, single women, those with less than a college degree and younger families went deeper into debt than single men, those with college degree and older families. For example, 44.5% of families between the ages of 25 and 34 years with incomes from $35,000 to $100,000 borrowed more to pay for their regular expenses. This was the highest share of any group of families that used debt to pay for ongoing expenses.

Importantly, these were likely not families that had save past stimulus payments for the continued rainy days of the pandemic. Single women, people of color and those without a college degree in families with incomes from $35,000 to $100,000 were less likely to use the initial stimulus payments to pay down debt or to save and invest that money in the spring and summer of 2020. Debt then increased mainly among families that already were financially strapped.

For decades, more debt has been a critical lifeline for a fraying middle-class. It has allowed many families to cover the high and rising costs of education, health care, housing and childcare, to name some of the most important ones, even as their incomes did not rise and employers cut benefits. The recession continued this trend. But that also means that many middle-class families are saddled with new and often costly debt long after the recession ends. This indebtedness will make it harder for families to get ahead, start families, buy a house, start or expand their businesses and help their children with their education. Debt will put the brakes on people’s recovery and opportunities.

A slow recovery, though, will make it especially hard for those, who left jobs to care for others or out of worries over their own health, to get a new one. In November 2020, for instance, 14.2% of non-retired people living in families with incomes between $35,000 and $100,000 did not work because they took care of children or other family members and another 13.7% stayed away from work because of health worries then. Long-term unemployment is becoming more widespread and the labor market recovery has slowed amid resurgent virus cases. Many of those who left the labor force because they worried about their health and that of others will find it more and more difficult to find new jobs.

Families struggle with the many risks of the pandemic because they often had little wealth to cover emergencies even before the recession. Two decades of slow job and income growth amid rising costs and risks left middle-class families financially insecure before the recession hit. The recession exacerbated that insecurity. Families will need more help than a one-time relief bill with limited financial assistance to get back on their feet. Congress failed to provide the necessary relief for a strong middle-class recovery after the Great Recession. American families cannot afford another ill-advised return to debt hysteria and austerity. The work for Congress and the next administration has only begun.