Income growth, market performance keeps middle-class wealth on track

Middle-class wealth and retirement savings have been kept largely on track over the last year, helped by solid income growth and the strength of stock market performance, according to a relatively new quarterly report.

The January Financial Resilience Index, developed by the American Council of Life Insurers, analyzes the interplay between typical cost pressures for middle-class households and the resources available to meet those costs, including income, access to credit and retirement assets.

The main index, based on Q3 2024 data, shows household resilience was 31.8, up 7 points from the previous quarter and up 18 points from Q3 of 2023.

Although there is still ongoing adjustment to higher prices for these households – especially for housing and childcare - inflation is easing which is reducing concerns even though income growth has also slowed (while remaining well above the historical average).  Stock market performance also boosted both retirement assets and non-retirement wealth.

The index is accompanied by a nationwide Harris Poll survey which shows that 52% of middle-class households are confident or very confident they could bounce back from an unexpected expense of $5,000, and that over a third of middle-class households (34%) have more than six months of living expenses in easily accessible savings.

But there is also a significant cohort (20%) who have less than one month’s living expenses in accessible savings.

Those with children are also less resilient with 43% saying they could bounce back from a $5K expense compared to 56% of those without children, and more parents (28%) saying they only have one month of living expenses than non-parents (16%).

Older middle-class respondents (aged 65+) were generally more resilient with 68% confident or very confident their household could bounce back from an unexpected expense of $5,000 and more than 54% saying that they have more than six months of living expenses in easily accessible savings.

For middle-class small business owners, 42% have more than 6 months of living expenses in easily accessible savings.

“It’s really resource growth that has allowed the middle class to weather the past few years of inflation highs. The flipside of easing inflation has been slower wage growth. However, middle-class wages remain well above historical averages and are a key source of financial resilience,” said ACLI Chief Economist Andrew Melnyk. “While inflation has gone down considerably, it remains a bit sticky. If incomes and assets continue to grow, easing inflation would only help alleviate the burden that higher costs of living have placed on America’s middle class.”