5 things the lower middle class can no longer afford due to inflation

Inflation has become a pressing concern for many Americans, but its impact is particularly severe on the lower middle class. This demographic, often characterized by households with annual incomes between $30,000 and $50,000, is coming under increasing pressure as the cost of living rises faster than wages.

Many lower-middle-class families once enjoyed modest but comfortable lifestyles but now struggle to afford basic necessities. This article examines five key areas where inflation has significantly eroded purchasing power, making it difficult for these families to maintain their standard of living.

1. Rising healthcare costs: A growing burden on family budgets

Health care has long been a significant expense for American families, but in recent years costs have risen to unprecedented levels. According to the Milliman Medical Index, the cost for a family of four with employer-sponsored health insurance in 2023 will be a staggering $31,065, up 5.6% from the previous year.

This rate of increase far exceeds general inflation and puts enormous pressure on household budgets. These rising costs are making health care increasingly unaffordable for lower-middle-class families, especially those who work part-time and do not have comprehensive employer insurance.

Copayments and prescription drug prices have also increased, putting additional strain on tight budgets. A typical family in this income bracket may have to choose between paying for necessary medical care and other essential expenses.

When a child develops a chronic illness that requires regular medication, families often face monthly pharmacy bills as high as their car payments. Choosing between their child's health and maintaining reliable transportation becomes a constant source of stress and financial juggling.

The long-term consequences of inadequate access to health care go beyond the immediate financial burden. Delayed treatment and missed preventive care can lead to more serious health problems later on, potentially resulting in missed work and even higher medical bills. This vicious cycle threatens the financial stability and overall well-being of lower-middle-class families.

2. The rising price of passenger transport

Once considered a cornerstone of middle-class life, owning a reliable vehicle has become increasingly difficult for many families. New car prices rose 19% from 2021 to April 2023, while used car prices, despite recent declines, are still 34% higher than they were before the pandemic in 2019. Auto insurance and car prices have also risen dramatically during this period.

This dramatic increase is primarily due to supply chain disruptions and increased production costs. Rising insurance premiums and maintenance costs are compounding the impact of these price increases.

The dream of having a reliable car to drive to work or the kids to school has become a financial nightmare for lower-middle-class families. Many are forced to keep older, less reliable vehicles longer, leading to higher repair costs and a greater risk of breakdowns.

Some low-income families have been saving for years to replace their old sedans, but with rising prices they find that even used cars in good condition are out of their reach.

They are forced to continue using older vehicles, face frequent repair bills and live in constant fear of potential breakdowns. The inability to afford reliable transportation has far-reaching consequences.

This can limit employment opportunities, increase commute times, and make daily life more stressful. For many lower-middle-class families, the lack of reliable transportation options is a barrier to economic mobility and stability.

3. Owning your own home: A fading dream for many

The dream of homeownership, long a hallmark of the American dream, has become increasingly unattainable for lower-middle-class families. Skyrocketing real estate prices and higher interest rates have made monthly mortgage payments unaffordable for many.

This perfect storm of inflated property prices and increased borrowing costs due to high interest rates has effectively locked many families out of the property market.

According to data from the Federal Reserve Bank of St. Louis (source):

• • The median home sales price in the first quarter of 2020 was $329,000.
  • The median home sales price in the first quarter of 2024 was $420,800.

These data show a 27.9% increase in median home prices from Q1 2020 to Q1 2024.

Combined with interest rates that have more than doubled over the same period, monthly payments on the average-priced home have increased by hundreds of dollars. For a family making $50,000 a year, this often means the difference between attainable homeownership and forever renting.

Some lower-middle-class families have spent years saving diligently for a down payment on a modest home. But as prices and interest rates rise, they find that homes in their price range now require monthly payments that are more than 50 percent of their take-home pay—far more than what financial experts consider affordable.

The inability to purchase a home has long-term financial consequences. It prevents families from building equity, which plays a crucial role in wealth creation among the middle class.

In addition, they are exposed to the volatility of the rental market, where prices can rise unpredictably, putting additional strain on budgets and affecting financial stability.

4. Urban life: Rising rental costs in big cities

For those who cannot afford to own a home, renting often seems like the next best alternative. However, rents in major cities have risen sharply, putting additional pressure on the budgets of the lower middle class.

1. Nationwide trends:

• Rents in the US rose by a total of 30.4% between 2019 and 2023, while wages rose by only 20.2% over the same period.
• The average rent in the United States reached $1,987 in March 2024, an increase of 0.8% from the previous year..

2. Specific city increases:

• In 2023 alone, rents in New York City rose 8.6%, more than seven times faster than wages (1.2%) this year.
• The Miami-Fort Lauderdale-Pompano Beach area saw a 39.2% increase, with the average rent rising from $1,715 to $2,388 over the past four years..
• Tampa-St. Petersburg-Clearwater, Florida, saw the highest increase from 2019 to 2024, at over 39.2%..

3. Regional trends 2019–2024:

• Cities in the Sun Belt saw some of the strongest increases. The Sun Belt region is home to 8 of the 10 largest metropolitan areas with the largest rent increases..
• Knoxville, Tennessee, saw the highest increase in one-bedroom apartments at 55.8% (from $582 to $907)..
• Other Sun Belt cities such as Albuquerque, NM (49.5% increase) and Greensboro-High Point, NC (44.3% increase) also saw significant increases.

These drastic wage increases force many low-income earners to make a difficult decision: they must either spend an unsustainable portion of their income on rent or move further away from job centers. The latter option often leads to longer commutes, higher transport costs and a lower quality of life.

After the recent four-year increase in housing prices, a low-income earner in a big city may find that rent accounts for almost half of his or her take-home pay.

Faced with the prospect of moving to a smaller home or a less convenient location, it becomes difficult to provide a stable home for children while maintaining proximity to work and support networks.

The far-reaching consequences of this trend are worrying. As lower-middle-class families are pushed out of city centres, cities risk losing the diversity that makes them vibrant and productive.

This economic segregation can lead to greater inequality and lower social mobility, affecting not only individual families but also the overall health of urban communities.

5. The childcare crisis: When caring for your children is beyond your budget

For many lower-middle-class families with young children, the cost of child care has become a significant financial burden. A 2023 Care.com report found that 67% of parents spend 20% or more of their household income on child care, up from just 51% the previous year.

This is in stark contrast to the U.S. Department of Health and Human Services' benchmark, which defines child care as affordable if it costs no more than 7% of household income. The pandemic exacerbated this problem by reducing available child care options while costs continued to rise.

Many establishments have closed permanently, while others have raised their prices to fund new health and safety measures, creating a perfect storm of reduced supply and increased costs for lower-middle-class families.

A low-income family may find that full-time child care costs over $19,200 per year—nearly half of their gross income. Most families (79%) expect to spend more than $9,600 per child on child care in 2023, and this is likely to continue into 2024. Given this reality, a parent might consider leaving the workforce altogether, despite the long-term career and financial implications of such a decision.

The childcare crisis has far-reaching economic consequences. When parents are forced to reduce their working hours or quit their jobs altogether because they cannot afford childcare, it impacts individual families and reduces overall economic productivity.

Managing work and family responsibilities without adequate support can also have a negative impact on parents and children.

Diploma

The financial pressures facing the lower middle class are multifaceted and increasing. From healthcare and transportation to housing and child care, inflation has eroded this population's purchasing power in all essential areas of life.

The struggle to meet these basic needs affects the quality of everyday life and threatens long-term financial stability and upward mobility. When considering the broader implications of these trends, it is clear that the challenges facing the lower middle class are not just individual problems, but social, regulatory, economic, monetary and political in nature.

With a significant proportion of the population unable to afford basic necessities, economic growth, social cohesion and community structure are at risk.

Solving these problems requires a joint effort by politicians, employers and society to ensure that the American dream remains attainable for all and not just the wealthy few.