The Real Reason You Feel Broke

feeling broke

Americans' wealth just hit a new record. So, why do so many people feel so poor?

Most people say they're falling behind financially, according to a recent Pew Research Center survey, with 56 percent reporting that their incomes aren't keeping up with the cost of living. Among those with incomes under $30,000, 70 percent say they're falling behind. Some pundits would have you believe we're unhappy because our expectations are too high.They paint us as Frappuccino-sipping, iPhone 6-lusting mega-consumers, unable to curb our desires or delay gratification as earlier generations did.

Except earlier generations could count on their incomes steadily rising. We can't. Most Americans are, in fact, worse off financially than they were before the recession, according to a Census Bureau study. Overall, incomes are shrinking. The median household income in 2012 was $51,017, down from $55,627 in 2007 and the 1999 peak of $56,080. (All figures are in inflation-adjusted, 2012 dollars.)

The gains in household wealth from rising stock and real estate prices are going mostly to those in the higher income brackets. The Federal Reserve, which announced that household wealth hit a record $81.5 trillion in June, also noted that fewer people in the bottom half of the income distribution own stocks or are contributing to retirement plans. Without exposure to equities, these households won't share in any future stock market gains.

As incomes shrink, you might think people would be taking on more debt — especially if we're the spendthrifts we're supposed to be. But that doesn't seem to be the case. Total U.S. household debt as a percentage of disposable income has been dropping since its peak of 130 percent in 2007. This summer, household debt fell to around 107 percent of disposable income.

A still-sluggish job market and the likelihood of economic setbacks contribute to Americans' sense of financial unease. In the Pew survey, most respondents (58 percent) said jobs were hard to find and only one in five expect economic conditions will be better in a year. At the same time, 45 percent said they had suffered serious financial problems in the past year, such as a layoff, problems paying the rent or mortgage, trouble getting or paying for medical care or problems with collection agencies.

Clearly, a better economy — with higher incomes all around, rather than just for a few — could ease Americans' sense that they're losing ground. In the meantime, here's what you can do to help build your own sense of financial security:

Keep saving (and investing) for retirement. Sure, the stock market crash was scary, but stock values have more than doubled since the March 2009 bottom. If you want to grow your wealth, a good portion of your retirement funds should be in stocks.

Continue to pay off debt. Target credit card and other high-rate, toxic debt first. But you shouldn't accelerate payments on mortgage or federal student loan debt until you're on track with retirement savings.

Look for opportunities to earn more. Economists say higher wages may be on the horizon, but right now your loyalty may be costing you since raises are so small. Jumping to another company may be the best way to get a substantial boost in pay.

Liz Weston is an award-winning journalist and author of several money books, including the best-selling “Your Credit Score.” She writes about personal finance at her site AskLizWeston. You can like her on Facebook and follow her on Twitter.

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