Children Are A "Luxury" Item?

In the K-shaped recovery, the lower income class has far underperformed the middle and upper class. In the past expansion, much was made about the growing gap between the rich and the poor. Therefore, you might think recessions like this are normal. However, that’s an incorrect assumption. We also don’t think this type of recession is the future template for recessions. It will only be repeated if there is another pandemic.

The chart below shows how hard it has been for the working class. As you can see, 15% of renters say their household is not caught up on last month’s rent. Furthermore, 26% of households with children aren’t caught up on rent. We recently read something very profound for long term demographics. They said children are a luxury item. Obviously, we aren’t trying to equate kids with a fancy car.

The point here is having kids is getting very expensive. 100 years ago, having kids helped the family on the farm. Now kids need to be babysat which is expensive. Furthermore, young adults are moving out later. No longer do parents need to take care of their kids from birth to 18. Now they need to take care of them until their lower 20s.

The two biggest expenses with having kids are education and healthcare. Kids are all going to pre-k and kindergarten and most young adults are trying to go to college. Healthcare is very expensive. COVID-19 made it even harder for lower income people with kids. Having kids is becoming something only upper middle class and rich people can afford to do.

Households Are In Good Shape

The previous section was bad news. Now let’s look at the good news. Consumers aren’t leveraged. They deleveraged in the last expansion. The 2000s credit bubble was the end of the long term debt cycle. The main reason consumers aren’t leveraged is housing. Interest rates are low, so debt servicing is cheap.

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