Have we fallen behind our parents?

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A strain of the popular literature of personal finance argues that we're spending too much money on lattes, and if we were just thriftier we would all be better off. Why do you think that's promoted as the cause of our money problems?

There is this mythology that it's the individual's fault, because America is the country of individualism. These personal-finance books promote the idea that you can be a millionaire too. And I think it takes the pressure off government and employers to help.

Are people actually spending a higher percentage of their income on the necessities, like healthcare and housing, than they did even in the '70s?

Yes, and that's been a critical shift. Consumer spending is about the same now as it was in the '70s. But we're spending more on items that require regular monthly payments, things like childcare, healthcare, housing, things that we can't give up if money gets tighter, if someone loses a job, or gets a pay cut.

Whereas if we were spending more money on buying new suits, or new dining sets, or just lattes, it would be something we could give up. Obviously, you can't say: "OK, this month I'm not going to pay the childcare, or I'm not going to pay the mortgage."

What's confusing about this is that, thanks to globalization, consumer goods are now cheaper. So, you might be buying more clothes than you were in the '70s, but clothing costs, as a percentage of your income, could be the same.

That's true for clothes and toys and furniture. You can go to IKEA and get a whole dining set for what would have been comparably one chair in the '70s.

Do you think that easy access to credit lulls us, because we're able to live beyond our means?

Imagine the kind of trouble that families would be in if they didn't have credit cards that they could turn to in the months when the paycheck simply doesn't stretch. But at the same time it makes it very, very easy for us to buy things that we can't afford, to enjoy a lifestyle that is much finer than the lifestyle that we actually can afford.

But do you think that the fact that we have this access to easy credit makes us less politically active? Would people be more aggressively pressuring the government or their employers for these necessities that are slipping away, like pensions or healthcare, if they weren't bridging the gap with credit cards?

I think that's very possible. Our government and corporate America does everything it can to make sure that we can continue to spend, because that's a pivotal part of the economy. And if we couldn't do that, I think there would be much more anger and awareness about the financial state.

How do you reconcile the picture you're painting of this declining middle class with the fact that the average [new] American house size has more than doubled since the '50s -- it's now at more than 2,300 square feet. Or, that the average American home now has more TVs than people?

TVs are less expensive now, so it's not as much of a luxury as it used to be. Houses are being built bigger, and we buy the houses that are available to us.

But it's a mixed bag. We do need to lower some financial expectations, like thinking that you should be able to have a big house with four bedrooms and three bathrooms. I think that as part of the educated middle class we need to scale back our expectations about what that means. It doesn't necessarily mean the things that it meant even in our parents' day of being able to have two cars, because middle-class means something different now. I also think that we should be pushing for help in areas where we're having to spend a lot of our money, especially those major areas like healthcare, childcare.

Homeownership is at a historic high, but you point out that people actually own less of their home than they used to. Does owning a home not mean what it once did?

This has really come to light with the mortgage crisis recently. Ownership has become a very shaky proposition. You can actually have very little equity in a home and "own" it these days. More and more people may actually be in "homes of their own," but they owe an enormous amount of money on them, and if there is any unexpected financial blow they run a very real risk of losing that house.

We aren't just taking out the classic 30-year fixed mortgage that people took out 10 or 20 years ago. We're taking out piggyback loans, adjustable-rate mortgages, subprime mortgages. We're taking out all of these fancy things that are going to adjust at some point, and be very tricky to pay off. These foreclosure rates that are rising are not just coming from the poor, and the working poor, they're going to the middle class as well, because we're over-stretched trying to afford homes.

The house is the crux of the middle-class identity. Of course if you're a middle-class family, you can afford a home. That almost defines what middle-class is in this country. So people will stretch themselves beyond what they can afford to get themselves in a home.

Homeownership no longer means stability?

No, in order for it to provide stability and for it to be an asset that you can fall back on, you have to actually own it. You can't have this enormous amount of debt hanging over it, or you have a real chance of losing it.

Are you at all hopeful about the leading presidential candidates' responding to the issues that you're raising?

I am hopeful, particularly on the Democratic side, in terms of healthcare and student loans. I think that especially with the current mortgage crisis and the economic downturn, these issues are becoming more pressing.

Next page: "[People] feel ashamed that they don't have enough money, especially as they get older"

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