Thinking of buying a franchise?
I think the single saddest reality I have learned since I qualified as one of the top franchise consultants is that “middle class” Americans save very little and mostly live paycheck to paycheck.
The ideal candidate looking into buying a franchise in my franchise consulting business is:
- 45-55 years old,
- college educated (or has a Sr. level of business experience)
- has $35,000 or more in savings
- and has a credit score over 720.
When I got into the business, I honestly thought that sounded like most Americans. The typical “middle class,” right? Hardly. And most of you reading this can probably relate.
It begs the question, what is “middle class?”
According to October 2015 Federal Reserve data the average American family also carries $7529 in credit card debt. Some are fortunate enough to carry a $0 balance and that actually drives the average down! But when only those that carry a monthly credit card balance are considered, the average credit card debt jumps to $16,140. That must mean the vast majority of middle class Americans cannot save enough to sustain the family for 6 months between jobs.
OECD studies also show that Americans save about 4.5% of what they earn. That is a very low rate compared to other developed nations and even that rate is skewed by high earners who save at higher rates. At 4.5% that means it would take over 22 years to save enough for one year in retirement at a current modest income. Pretty sad indeed.
Now, there is some good news when 401k savings are reviewed. In an April 2015 article in Money Magazine, Donna Rosato reported that 401k savings had reached a record high. Average Fidelity 401k balances for accounts over 10 years old had climbed to $251,600. Once again the average is skewed by high income earners…not the “middle class.” According to a recent report by Boston College’s Center for Retirement Research, the typical working household nearing retirement with a 401(k) and an IRA has accumulated a median $111,000 combined. This would yield less than $400 a month in retirement!
For households ages 55 to 64 earning $40,000 to $60,000 a year, the median balance in 401(k) and IRA accounts is just $53,000. For the same age group earning $138,000 or more, the median account is $452,000, according to CRR. “Middle class?” And these figures are from April 2015. How has your 401k or IRA performed since then?
Who makes up the “middle class?” The Pew Research Center has done many studies on the middle class, and there seems to be no universally accepted definition on what the “middle class” is. But, whether it is defined through income, lifestyle, state of mind, or consumption, the typical middle class American is:
- college educated
- specifically skilled
- employed in some level of management or sales
- and constitutes somewhere between 25 and 66% of all American households.
Sadly, the following is the reality of the “middle class.”
I have discussed the fragile nature of U.S. employment in my book, “Pink Slip Paradise.” So when we strip away the facts, regardless of social status, the “middle class” American is:
- college educated or has unique skills
- in a semi-professional or management position
- has tenuous employment (or hates the JOB)
- has not saved enough money to sustain the family through a 28 week unemployment period
- loaded with debt (we have not discussed college debt or mortgages)
- lives paycheck to paycheck
- not prepared for retirement.
Not a pretty picture.
So, since the Pew Research Center has already determined that up to 2 out of 3 of us fall into the “middle class” abyss, no wonder it is so hard to find an ideal candidate to qualify for, and then proceed to learn how to buy a franchise.