From E to IRA: These letters are defining the economy

Welcome back to MoneyNerd! This week: It’s all about the alphabet. We’re digging into the “K-shaped” economy — and why that “K” is looking more like an “E.” 

Also this week:

In recent years, economists have described the economy as “K-shaped,” with higher-earning households continuing to spend and drive growth (the top of the “K”), while lower-income Americans pulled back (the bottom). 

But the wealth gap in America is taking a new shape. As inflation lingers, gas prices skyrocket, housing remains unaffordable for many and job security feels less certain, more Americans — especially those in the middle — are tightening up their finances.

As middle-income Americans change spending habits, they’re splintering from the top of the “K” and forming a third tier. The result is what some analysts describe as an “E-shaped” economy. It may sound like alphabet soup, but the shape reflects a more fragmented financial reality for U.S. households. 

Three forces are widening the gaps between income groups:

Paychecks aren’t growing like they used to. Middle- and lower-income households’ wages are not keeping pace with those of higher income households. Over the past year, Bank of America Institute data shows higher-income households saw wage growth of about 5.6% year-over-year in March — the strongest since August 2021 — while middle- and lower-income households saw gains of just 2% and 1%, respectively. The gap is the widest since the bank began tracking it in 2015.

Your dollar still isn't going as far as it used to. Persistent inflation has taken its toll on Americans trying to afford essentials. A December report from the Brookings Institution found that about one-third of middle-class families struggle to make ends meet.  

So people are pulling back. Middle-income households increased their spending by just 1.7% over the past year, compared to 2.9% for higher earners, according to Bank of America Institute data for March. That's the biggest gap between those two groups since mid-2022, BoA said. 

There are three tiers in the E-shaped economy, each representing one of the horizontal bars of the letter E. 

Top of the "E": Higher income households — roughly 19% of the population — earn greater than $169,800 annually, according to Pew Research Center. Members of this group haven't changed their spending habits much — and they're carrying the economy as a result. The top 10% of earners account for roughly half of all U.S. consumer spending, per Moody's Analytics.

Middle of the "E": Middle income households — roughly 52% of the population — earn between $56,600 to $169,800 annually, according to Pew Research Center. This group is feeling the squeeze and pulling back. Middle-income Americans are the most likely to have a credit card — and to carry a balance on it month to month, per Federal Reserve data.

Bottom of the "E": Lower income households — roughly 28% of the population — earn less than $56,600 annually, according to Pew Research Center. Lower-income Americans lean heavily on credit, including payday loans and Buy Now, Pay Later products. They're less likely to have credit cards or bank accounts, but those who do tend to carry balances.

Your position in the “E” is increasingly tied to measurable differences in your spending power, savings buffers and reliance on debt. It also gives you a sense of how well you can weather future economic stress. Households that are feeling financial pressure may need to reassess their spending now. 

Learn more about what defines the “E-shaped” economy here.

- Anna Helhoski

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One of President Donald Trump’s latest executive orders directs the Treasury Department to create TrumpIRA.gov, a new web portal designed to help Americans find retirement accounts.

The website will also promote the Saver’s Match, a new tax credit authorized by the SECURE 2.0 Act back in 2022 that comes online in 2027. The Saver’s Match can give lower-income workers (with modified adjusted gross incomes below $35,500 for single taxpayers, or $71,000 for married-filing-jointly taxpayers) a government match of up to $1,000 on IRA contributions.

It’s worth noting that the Trump IRA website order does not create a new type of investment account, nor does it authorize a new contribution-matching program. Instead, the website — which will launch by January 2027—  will be more of a shopping tool for existing IRAs offered by the private sector, and a guide for eligible investors on how to claim the already-authorized Saver’s Match credit.

Trump IRA website will be the first government website to let investors shop for IRAs and provide information on how to get some “free money” in their retirement accounts, but it’s not the only such tool on the web today. We’d be remiss if we didn’t mention NerdWallet’s Best IRAs and Best Roth IRAs roundups here, which let investors compare fees, account minimums and promotions (including deposit bonuses and contribution-matching programs).

You can read more about the Trump IRA website (as well as Trump accounts, which are a new type of investment account due to launch in July) in the latest issue of the Nerdy Investor newsletter.

- Sam Taube

The scam playbook is always shifting from platform to platform, tech to tech, and constantly repackaging old tricks in more convincing forms. 

Here are some of the most recent scam trends as reported by the Federal Trade Commission: 

Mortgage relief scams

The scam: Scammers try to take advantage of homeowners by offering fake “help” with payments or foreclosure relief in exchange for upfront fees.

Warning signs: Telling you to stop communicating with your lender; requiring payment by cashier’s check, wire transfer or mobile payment app; convincing you to transfer the deed to your home. 

“Expiring rewards” texts

The scam: Scammers say you need to click a link to save your rewards program points before they expire. When you click, they try to steal your personal information or download malware on your phone. 

Warning signs: Texts that say your points are about to expire and push you to click a fake link.

Traffic violation text scams

The scam: Text messages that include a traffic hearing notice and a QR code telling you when a supposed hearing is scheduled. They claim you owe fines or missed a ticket and demand immediate payment. Instead, they’ll steal your money, personal information and download malware on your phone.  

Warning signs: Texts with QR codes, threats and requests to pay via links. 

Investment scams

The scam: Scammers reach out to you on social media, online ads or WhatsApp promising you can make money fast in stocks, forex or crypto investments with the help of their “coaching.” Once you invest, they’ll provide reassurance of how well your stock is doing or show phony “proof” that you’ll make money. Instead, they’ve stolen it. 

Warning signs: Messages advertising “guaranteed profits,” pressure to invest fast, unfamiliar investing platforms. 

Credit card rate reduction offers

The scam: Scammers call you with offers to help lower your credit card interest rate if you pay an upfront fee. 

Warning signs: Cold calls, upfront fees, asking for personal information and pressure to act quickly. 

Job offer text scams

The scam: Fake recruiters text you claiming to be with legitimate companies saying they have job openings for remote work positions. They ask you to reply “yes” or “interested” then they come up with reasons for you to send money. They may also ask you to do online tasks like leaving positive ratings or reviews. 

Warning signs: Unsolicited job offers via text with no interview, vague job details and requests for payment or information.

Check out these articles for more guidance on spotting scams:

- A.H.

We’re in the peak of prom season, with families across the country doing their best to scrape up the price of the ritual and all its trimmings — the dress, the tux, the ticket, the makeup, the hair, the meal, you name it.

Amarra, a maker of prom dresses and other formal wear, estimates that an “average” prom in 2026 runs about $950 to $1,100, while an “all-out” prom (with a designer dress and other “full glam” touches) can run $1,500 to $2,100. 

A dress is naturally a big slice of that cost, running from $90 to $750, according to Amarra. At a time when inflation is still running hot and other economic uncertainties abound, that can make prom a real stretch — if not an impossibility — for many families. 

Prom dresses are typically worn only once before being tucked away in a closet. But some nonprofits across the country are giving those barely used dresses a second life by making them available for free to lower-income students.

I talked to the woman who runs one such operation, Twirl, based in Centralia, Washington, an old railroad town almost exactly halfway between Seattle and Portland. Twirl has its own storefront in a historic downtown dotted with antique malls, boutiques and other local businesses. 

Holly Ryan, who runs Twirl, is the owner of the Shady Lady, a shop selling antiques, used clothing and other vintage items. About 15 years ago, she started receiving donations of used formal wear at her shop, and over time found herself giving away some of the dresses to local students in need of a prom dress. 

Eventually, Ryan expanded on the idea and founded a 501(c)(3) nonprofit that allowed her to organize events, raise money and expand her reach — and when a friend offered up some empty retail space nearby, she jumped at the chance. 

That has allowed Twirl to give a shopping-like experience. Over the years, Twirl has given away more than 6,000 dresses — in addition to shoes (for boys and girls), clutches, handbags, suits, dress socks and bowties. The nonprofit serves all of Lewis County and beyond, and Ryan said demand is rising.

People have “never worked so hard and been this poor,” Ryan says. “Whether you're a single mom or a two-parent family, the rising cost of rent, insurance, gas, groceries has hit all at one time.” 

Becca’s Closet is a national network of organizations that help give free prom dresses to families in need. Operation Prom National Network is another. You can check their sites for a chapter near you. You can also search on your city + “free prom dress” (or, if you’re looking to donate, search your city + “prom dress donation”).

- Rick VanderKnyff

Your MoneyNerd team: Courtney Neidel, Anna Helhoski, Rick VanderKnyff.

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