Middle-Class Financial Struggles: Rising Costs, Stagnant Wages, and the Growing Gap.
Anam Banu
October 08, 2024. 4 minute Read
We live in a time when peer pressure can force you to buy the latest iPhone on EMI, but often, we are least aware of how much it can dent our financial health.
Financial struggles for middle-class families are increasing worldwide because of rising cost of living with stagnant salaries and a growing gap.
High cost purchases look affordable in the short term but often adds extra burden on our monthly budget. So, it is important that we balance between needs and wants.
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In short, at the core of the hustle in urban India, the vision of many middle-class families is often veiled by the harsh reality of rising costs, stagnant wages, and growing gaps.
One of the most important problems for middle-class people is the rise in the cost of living and stagnant salaries.
Rising Prices for basic needs like housing, healthcare, and education are increasing, which is widening financial issues and expectations for middle-class people to maintain a standard of living, and maintain steady growth in salary.
For example, Raju, a middle-class employee, lives in Mumbai.
He wakes up every morning to take the local train regularly but he is still disturbed by the rising cost of living, from high monthly rent to the children’s school fees. Inflation, and bills even doubled this year. The rent on his apartment consumes more than half of his salary. Moreover, health and medical costs are yet another concern for him.Even family vacation seems questionable for him. Now he is left with little savings from his salary.
For this, he visits many budgeting websites but can manage all these rising expenses.
According to Oxfam India’s “ Survival of the Richest” report, the richest 1% of India’s population now hold more than 40% of the country’s total wealth, highlighting a stark income inequality.
The middle class’s financial struggles create a conflict between economic trends and government policies.
This article explains the financial struggles of the middle class, economic trends, and government policies that are exacerbating these challenges.
Here are some economic trends or financial struggles middle-class people face in managing their monthly expenses.
Current Economic Trends
Rising Costs and Stagnant Wages
1. The rising cost of living
The rise in prices for essential things such as housing, food, and children’s education fees creates a burden on the middle class and puts them into difficulties.
In metro cities like Mumbai, Delhi, Chennai, and Kolkata, property prices have risen significantly.In fact, the minimum price per square foot in metro cities is around 1 lakh in some areas, which makes it challenging for middle-class families to afford homes.
As of 2023, India’s consumer price inflation (CPI) averaged around 6.71%, significantly affecting the cost of essential goods and services, including food, fuel, and housing. Food inflation surged to 11.5%, driving up the cost of basic items such as vegetables, dairy, and cereals, placing a heavy burden on middle-class families. The Ministry of Statistics and Program Implementation (MoSPI) and other reports indicate that food inflation, which accounts for a large portion of the CPI basket, has been a key driver behind these rising costs.
2. Stagnant Salaries
As the cost of living rises, wage growth is prolonged, reducing middle-class people’s purchasing power. Around 5-8% annual salary raises are inadequate when the cost of living is rising at a faster pace.
The market circumstances are volatile, and middle-class employees are facing layoffs or reduced working hours, which creates financial uncertainty.
The stagnation of salaries in India is a growing concern, particularly for the middle class, as it struggles to keep pace with rising costs. A report by Azim Premji University’s Centre for Sustainable Employment, titled “State of Working India 2023,” highlights that the average wage growth has been minimal, with increases averaging only 3-4% between 2017 and 2021. This modest growth is insufficient to keep up with inflation, particularly in urban areas, where many sectors have seen stagnation post-pandemic.
3. Debt Accumulation
To deal with rising costs and manage daily expenses and unforeseen emergencies,
many middle-class families depend on credit cards and loans, which leads them into
debt that can be difficult to escape. Loans and credit cards come with high interest rates, making it challenging for middle-class families to pay off debt. This may cause financial stress and the inability to save for the future.
4. Education Expenses
As the cost of quality education has risen significantly, many private schools and colleges charge high fees, leading middle-class families to spend a substantial portion of their income to pay off expenses.
Many middle-class families may need help paying off fees, including books, uniforms, buses, and extracurricular activities.
Parents in India spend around 20,000 to 2 lakhs annually on school fees and further higher education, which can cost several lakhs for engineering or medical fields.
Many middle-class families take out student loans for higher education, which creates student debt that has become a financial strain and may impact future financial stability.
5. Healthcare Expenses
Private hospitals charge upwards of 50,000 to 2 lakhs, depending on the treatment. Families need to prepare for medical emergencies, which creates a burden on middle-class people to manage all the healthcare expenses.
Many middle-class families do not have medical or health insurance, which can cause sudden financial shocks due to unforeseen circumstances. This puts pressure on their limited savings.
6. Limited savings and investments
To do savings and investments, middle-class families often find it difficult as the cost of living is rising, which leads to minimum savings for emergencies or retirement funds.
It can also be due to a lack of financial planning, financial literacy and awareness among middle-class people.
Fear of market uncertainties which ignores the investing opportunities, like investing in the stock market or mutual funds that can help middle-class families to grow their wealth for the future and make financial stability.
7. Budgeting challenges for the middle-class
Creating a budget is important for tracking monthly expenses. With a number of financial obligations, such as day-to-day expenses, education, healthcare, and loans, it is difficult to manage all these matters with limited wages. Middle-class families also have to be prepared for unexpected expenses, such as emergencies of medical bills, home repairs, etc., and they struggle to keep track of their spending and prioritise savings and investments.
8. Impact of government policies
Government policies creating savings might be difficult to affect the middle class, which impacts their disposable income(the amount of wages left after paying taxes).
Presently, social safety nets such as health insurance and pension schemes fail to support middle-class families during economic inflation. While aiming to simplify taxation policy, GST( goods and services tax) has increased the prices of various goods and services.
More comprehensive policies are required to support the challenges faced by middle-class families.
9. Middle-class families are changing behaviour.
Middle-class families often overspend because they desire to maintain a particular lifestyle and feel pressure to keep up with peers regarding goods and experiences.
The leap in e-commerce platforms has created unnecessary pressure for instant gratification, making overspending on non-essential things easier.
10. Economic uncertainty
Economic fluctuations create uncertainty that affects middle-class people’s job security and overall financial distress.
Many middle-class families are worried about the recession stage in their livelihoods due to the rising cost of living.
Government Policies for the middle class in India and their impact
Government policies can significantly impact the economic development of the middle class in India to improve their financial status. Here are some concerns:
1. Government policies to address inflation
The Indian government has implemented measures like the Monetary Policy Committee’s (MPC) interest rate and fiscal policies to fight inflation. Some efforts made by the Reserve Bank of India(RBI) to control inflation by stabilising it benefit the middle class by minimising the cost of living.
However, rising prices, especially for housing, food and fuel, continue to inflate.
2. Social safety nets for the middle class
These programs provide support to the middle class during economic downturns. The middle class falls into a growing gap where assistance is limited.
Schemes like Pradhan Jeevan Jyoti Bima Yojana, which provides life insurance to middle-class families, and Pradhan Mantri Suraksha Bima Yojana, which provides accident insurance, offer social security.
Low cost insurance plans provide financial protection to middle class families for emergencies.
3. Housing affordability initiatives
Government initiatives such as Pradhan Mantri Awas Yojana ( PMAY) provide subsidies for home loans to promote affordable housing.
Middle-class families benefit from home loans at low interest rates, which helps to make homeownership more accessible.
4. Tax Breaks for middle-class families
Tax breaks, such as standard deductions and Income tax exemptions, provide relief for middle-class families. Higher-income earners get more benefits from this. Tax reforms introduced a new tax regime with lower rates and few Income tax deductions. Middle-class taxpayers have the option to choose a tax regime that is more suitable to their financial goals.
However, the complex tax structure and limited benefits mean that many middle-class families need to gain substantial benefits.
5. Education policies
Government schemes such as scholarships for deserving students also fund public schools and colleges. The government also encourages online learning teaching.
6. Health Insurance schemes
Schemes such as Ayushman Bharat and others provide financial security for health services. Their main objective is to provide health benefits to middle-class families with low incomes by reducing the healthcare burden and improving accessibility and affordability.
7. Government initiatives to reduce living costs
Government initiatives to reduce living costs through price controls and subsidies can help relieve some of the financial strain on middle-class families.
8. Employment Generation programs
Employment generation programs such as the Mahatma Gandhi National Rural Employment Guarantee Act ( MGNREGA) mainly focus on rural areas by creating job opportunities. Jobs in manufacturing and related sectors benefit the middle class by providing employment opportunities.
9. Digital India and Start-up India
Digital India encourages digitalization, and start-ups promote entrepreneurial ventures with tax breaks, making compliance easier.
The middle class receives support in starting businesses, mainly in the tech sector, which leads to new job opportunities and digitalization.
10. Subsidies on LPG and cooking gas
The government provides Direct Benefit Transfer (DBT) on LPG subsidies by ensuring affordable cooking gas prices. Middle-class households benefit from low costs on essential cooking fuel, which can provide financial relief.
Middle class families have numerous economic challenges.
Strategies for Middle Class Families
1. Apply budgeting strategies
Create a detailed budget for your monthly expenses, which helps you identify areas where you can save income for the future. Middle-class families can utilise budgeting apps like Moneycontrol to monitor their costs and savings.
2. Debt management
A crucial aspect of financial stability for middle-class families is debt management. They try to prioritise paying off high-interest debts, such as loans. When consolidating loans, it’s better to address credit card debts, as this helps reduce monthly payments.
3. Explore various investment opportunities
Additionally, middle-class families explore various investment opportunities.
Middle-class families can invest in the stock market through platforms such as Zerodha or in mutual funds, which provide opportunities for wealth growth. Middle class families can discover low cost investment that aligns with their financial goals.
4. Engage in various side hustle ideas for extra income
The middle class should explore side hustles, such as freelancing through Freelancer.com, Upwork, or Fiverr, or start a start-up to earn extra income, which helps build financial resilience.
5. Emergency fund
Middle-class families can establish emergency funds for 3 to 6 months’ living expenses. That fund can protect them from emergencies or unexpected circumstances such as job loss, medical emergencies or other emergencies.
Final Thoughts
In conclusion!
Every day, middle-class families face many problems as the cost of living increases, including food, housing, education, and healthcare. As inflation continuously rises, middle-class families may struggle more with their expenses, especially when wages stagnate.
Middle-class families suffer from economic trends and challenges, which create financial struggles. Implementing financial management strategies can effectively help them cope with rising costs of living and stagnant wages.
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