Middle class feels the squeeze

NEW YORK (CNNMoney.com) -- Middle-class households in America have to work harder than ever to maintain their standard of living, according to a report released Wednesday.

Sixty nine percent of middle-class households are at risk of losing their standard of living in the long term, says Demos, an advocacy group for lower and middle-class Americans.

And the rising costs of health care, housing, and education are forcing middle-class families to work harder to maintain that standard, said Jennifer Wheary, the report's co-author in an interview with CNNMoney.com.

"The way that they have stayed secure is by tightening belts," said Wheary. "People now have to work more hours to be at that same level."

Demos defined middle-class households as those whose income is approximately between $40,000 and $129,000 (based on a family of four), whose head of household is between the ages of 25 and 64, and excludes those who held more than $500,000 in net financial assets (the top one percent).

The Demos report is designed to measure the financial health of the American middle class by measuring certain key variables.

If their main source of income dries up, only 13 percent of middle class households can live off their assets for nine months, after reducing basic living expenses by one quarter, estimates Demos.

52 percent have no net financial assets at all after debt (excluding home equity), and live paycheck to paycheck.

The average middle-class family is carrying $8,328 in personal debt, which includes credit card debt, student loans, vehicle loans, and medical debt, according to the report. The cost of essential living expenses like health care, housing costs and educational expenses is rising higher than both the rate of inflation and the incomes of most families.

"All these things add up to higher bars that people need to climb over," said Wheary.

Demos's research claims that 23 percent of middle-class families have at least one uninsured member, leaving them vulnerable to a financially draining medical disaster.

The boom in the housing market that began in the mid-1990s thanks to low interest rates and easy credit encouraged families to take on riskier and more expensive mortgages than they might have otherwise, and the recent decline in home prices has left many vulnerable to further financial strain because their homes are worth less and the interest rates on adjustable rate mortgages are much higher now.

What's more, rising tuition costs put a further burden on middle class families.

Wheary advised middle class households to "be conscious of the balanced picture" by planning for long- and short-term expenses, not taking on a bigger mortgage than they can afford and building in a safety net of emergency savings to tide them over should they lose their jobs or be hit with unforeseen expenses.