The Impossible Question: Just Who Is The Middle Class?
| February 10, 2011 | Posted by Roshawn Watson under Uncategorized |
By: Roshawn Watson
The term “American middle class” is universally familiar but devilishly elusive. Incidentally, recent research has illustrated just how controverted this issue really is. There are several hypotheses, theories, and confounding factors pertaining to defining the middle class, and a long history dating back to a aristocracy and nobility. Let’s explore the impossible question: just who is the American Middle Class?
Everybody Claims To Be Middle Class
Clearly attitude, not income, is most relevant in defining the middle class in America. According to a recent survey (yes, there are limitations to survey data) by the Pew Research Center, nine out of ten people in the US believe they are “middle class.” Here’s the breakdown: approximately 50 percent believe they are simply “middle class”, 18 percent claim to be “upper-middle class,” and 21 percent are “lower-middle class.” Only 2 percent label themselves “upper class” and 8 percent call themselves “lower class.” Demographically, the self-described middle class ranged the entire spectrum of the population with no clear age, gender, marital status, racial, social, or political biases. In short, just about everyone claims to be middle class.
Thus, it should no longer be a surprise that a couple making $70,000 in Northern California claims to be solidly middle-class whereas another couple also living in the same part of Northern California making $140,000 a year would call his family “nowhere near what you would consider middle class” partly because they see their contemporaries making $200,000. Even a couple making around $50,000 a year living in Boston claims to be middle class.
- Note, in the case of the couple making $140,000, he says they are not middle class because of their mortgage debt, their two children, 1 car payment, and a separate home loan. Fortunately, they are able to save and invest 25% ($35,000) of their income though.
- The couple making $70,000 is middle class because they are able to take several trips a year, one of them works outside of the home part-time, and they expect to be able to fund their child’s college. They bank about 15% of their gross.
- Of course, I‘ve previously referenced the Parnell’s: the couple earning $260,000 who state (their) “family’s needs are met, but (they) don’t have a load of cash to cover wants…we were just good old middle class.”
Regardless of rationale or motivation, the phrase “middle class” has proven to be as ubiquitous as it is divisive because it means different things to different people. It appears to be less about wealth, income, and lifestyle and more about opinion and perhaps social status. This shows how people view the middle class on a sliding scale: regardless of their income, they’re apart of it. However, it has not always been that way.
“Middle Class” Background and Current Cultural Relevance
Middle class used to be the intermediate social class between the peasantry and nobility of Europe. Economically speaking, the middle class referred to someone with so much wealth that they could rival the nobility. Thus, in today’s dollars, that would make multi-millionaires and billionaires the true middle-class and everyone else, with lower wealth, the working class. With this perspective, the words of Sean Parker have greater meaning!
Sean Parker: You know what’s cooler than a million dollars?
Eduardo Saverin: You?
Sean Parker: A billion dollars. (From The Social Network, 2010)
Do you want further proof that a million dollar net worth is becoming a standard expectation of the middle class? Consider that the old million-dollar standard is now often touted as a minimum that should be invested for retirement. In fact, home equity is increasingly not being included in surveys, such as the annual World Wealth Report, which defines high net worth individuals as “those having investable assets of U.S. $1 million or more, excluding primary residence, collectibles, consumables and consumer durables.” Moreover, a recent Market Watch article suggests that a million dollars might not even buy you a house in one of America’s top 10 most expensive cities for real estate. In fact, one business tycoon said if your true net worth is between $2-$4 million, then congratulations, you are now a proud member of the “comfortably poor.” Remember, over two-thirds of millionaires have a net worth of $2.5 million or less. One would need $4 million in cash today to have the same purchasing power of $1.5 million in 1980.
With this as a frame of reference, it is easier to see why many higher income households don’t gravitate towards the “upper class” label. Economically, there is a difference; from a purely capitalistic standpoint, many would not qualify for even the “middle-class” label.
Is the Middle Class Shrinking?
The answer to whether the American middle class is shrinking depends on your definition of what is the middle class. If you refer to middle class from a sociological standpoint, one could make the case that it is growing. For example, the number of people who typically have a college education, own a family house, and hold a managerial or professional post is increasing. Also, several people who are blue collar workers also consider themselves middle class.
In contrast, when you look at economics, the data may lead you to a different conclusion. The richest 1% of U.S. households had a net worth 225 times greater than that of the average American household in 2009 (Economic Policy Institute), despite the average net worth of wealthy household tumbling 27% to about $14 million (between 2007 to 2009). The average family’s net worth plunged 41% to $62,200 from 2007 to 2009. Biases aside and regardless of whether you dispute their exact numbers, I do think that many would agree that the gap in wealth between the richest Americans and the rest has grown. Moreover, the wealth of the richest families in America is increasingly becoming disconnected with the income of American workers or the fate of the economy due to technological advances, globalization of the workforce and investments. While I don’t mention this to make the case for wealth-redistribution, this is relevant to defining the middle-class because so much of its meaning rests on “how people feel.” I’m referring to the relative-income (or wealth) hypothesis: your neighbor’s paycheck (wealth) is as important as your own in determining how you view your place on the economic ladder. Since the upper end of the distribution is rising faster and further than in the past, it’s easier for those in the middle to feel like they’re falling behind.
What Does This Mean?
I conceded earlier that this may indeed be an impossible question to answer universally because it’s so subjective, among other things. Perhaps one of the most pragmatic definitions for the middle class is: having roughly a third of your income left for discretionary spending (i.e. after paying for basic food and shelter). This would allows families to buy consumer goods, have adequate health care coverage, own vehicles, own a home, invest for retirement, provide for their children’s education, take vacations, and not live from paycheck to paycheck.
If one has a reasonable income and cannot accomplish these goals, then perhaps debt, pricey real-estate, and high expectations could be the culprit. One thing is for sure: this debate will continue for a long time to come!
Tell me: How do YOU define the middle class?
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Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.
Based on your definition, I am at least middle class. Using the 2010 census quartiles for income by class (upper limit – $91,705), I am above middle class. Frankly, I don't care what category it is called, but I was and am able to do all you stated and much more. That is more important to me than if I am middle or upper class. My goal is to maintain my reasonably good lifestyle and more now and in retirement.
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I agree pretty much with the comments. I consider myself rich. I have my health, live in a peaceful nation, have great kids who are pursuing their dreams, eat excellent food from all over the world. Who can ask for anything more? Sure some people will look at my 2004 Toyota Camry and look down their noses but who cares.
The fact that we have many people that can be called middle class in the U.S. is a tremendous advance. In the history you reviewed there were nations where there was no middle class – just the ultra rich and the very poor. In fact, that''s part of Egypt's problem today as Mubarek is learning.
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We are right in the middle of middle class. 🙂
It's tough to define middle class, but to me middle class mean I can comfortable pay my bills and not worry about the future too much.
We never kept up with the Jones and we are surrounded by middle class people so lifestyle inflation is pretty small. It would be tougher if we live in Beverly Hills or San Francisco. I would feel poor then.
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That's just such a refreshing way to looking at it. It is really great to live in a nation where there are so many opportunities and people are not confined to staying in one class by virtue of their birth.
My recent post The Impossible Question- Just Who Is The Middle Class
Yes, where you are can make a BIG difference. I do think there would be significantly more pressure for lifestyle inflation and more discontent wen people are surrounded by the Joneses. That's a great point!
My recent post The Impossible Question- Just Who Is The Middle Class
Andrew, I think you bring up a wonderful point. I had the fortune of visiting Jamaica last year, and once I was off my resort, I was just amazed at the vast poverty all around me. Middle class in the U.S. definitely means something entirely different than middle elsewhere.
I almost had to ROFL when you mentioned retiring as contented peasants!
Cheers!
My recent post The Impossible Question- Just Who Is The Middle Class
The poor in the US live like the middle class in many other countries. I am not a big fan of class distinctions, though it is hard to get away from it. For me, the poor are those that struggle to provide the basics of life like food and shelter, the middle class easily have the basics and are trying to build wealth (or spend themselves poor trying to act like they are upper class), while the upper class has enough wealth that they don't have to work if they choose not to.
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Money is a valid measuring-stick of some sort, I guess. I am financially independent but only within certain lifestyle limitations; if I bought an Audi A-8 my status as such would be in serious jeopardy!
But I have two houses, two cars, and I look and feel middle-class and, by that, I mean that I am certainly not poor but not some rich jet-setter, either!
So, I guess, I would conclude that counting your blessings is much more rewarding than counting your money.
"Sean Parker: You know what's cooler than a million dollars?
Eduardo Saverin: You?
Sean Parker: A billion dollars. (From The Social Network, 2010) "
Loved those lines.
I believe that the middle class is a relative and mental distinction. The poor in Canada and the U.S. have astronomical living standards compared to the common citizen of a couple of hundred years ago, yet they still feel poor. Why? Relative status. That is the way we humans are built.
I believe that the most important attributes a society can have for long-term prosperity and stability is to shake down the chains that prevent motivated people from rising out of their starting circumstances. It is in places like Egypt that revolts rise out because the people are held and stamped down by those who would oppress them. I believe the path to a bright future is liberty and opportunity. Wealth inequality will always be with us and is not even necessarily a bad thing because with modern technology even poor people can live fairly comfortable in the rich nations, and global growth is raising the living standards of everyone around the world, but it is a bad thing when you artificially hold people down and take from them by force. This is what we need to work and fight against in this world in order to make a better world for tomorrow.
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That's a great point. Many of the poor in America do have a better lifestyle than our global brethren. There's a lot to be thankful for.
Although I find the class distinctions interesting, I also recognize that they are trivial too. I will say that many people who are technically financially independent don't feel upper class. That appears to be one of the many gray areas 🙂
My recent post The Impossible Question- Just Who Is The Middle Class
Very quotable "counting your blessings is much more rewarding than counting your money." I agree. There's a lot to be thankful for, yet all too often we're easily beset by other things. Your comment and Biz's comment about financial independence being a yardstick could really go together. I feel that financial independence alone does not put you into the "upper class" (I know it's trivial) because independence doesn't mean "comfort" or "fun"
My recent post The Impossible Question- Just Who Is The Middle Class
I agree wholeheartedly. There's no excuse for oppression and thievery. It can only last for so long.
With respect to these distinctions being relative, I'm with you. I think it is clear that your neighbor's wealth is just as important as your wealth. That's how we gauge our own progress (like you said… like it or not). It's actually okay as long as it doesn't lead to so much discontentment that you can never enjoy yourself, your life, your passions, etc.
My recent post The Impossible Question- Just Who Is The Middle Class
I think that middle class can be defined quantitatively, using data, or subjectively based on an individual's interpretation/perception of what constitutes middle class.
To me, it's some one who is not at the extremes. By that, I mean:
A) Wealthy – no real NEED to work for survival; enough funds available to cover forseeable expenses going forward
B) Poor – low income level and/or low level of savings. Little fallback financially, and struggling to stay afloat financially and have income = reasonable day to day expenses.
A non-quantitiative view, based on how I perceive things, tells me that the wealthier are getting wealthier, and there's a small but noticable increase in the "poor" category, who have migrated there from the middle class in recent years.
America's heyday has been with a strong middle class. We'll see what the future brings. Here's hoping for the best, with a motivated and informed nation ready to charge forward.
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Here's some perspective with the numbers. $52k is median income in my community (Monroe MI) and $40k is when a four-person family starts becoming eligible for many assistance programs such as WIC and reduced price lunches.
Seems to me, then, that middle class in my community runs about $45k to $60k maybe $75k. With an income beyond $75k, one is definitely living a different lifestyle than average.
One might still feel part of the middle class culture even at 100k but more money does make a difference in size of house, what vehicles are driven, how often vacations are taken and where, and where the kids will go to school or college. Call it "upper middle class" if you like; but the bell curve is what it is.
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Everybody seems to be middle class, except for those in the news seem to be middle class to me 🙂
I get your point and agree it is not defined by extremes. The main challenge in defining the middle class seems to be people who are financially-independent (no need to work) but not wealthy (having an overabundance). They claim to be middle class, but they are typically worth a lot more than the average household. Another group that is difficult to define are those who are low net worth but above normal income. With a median income of $52K, 50% of the population are above $52K. How high can you go before you are out of he middle if you choose to define it by income?
Some people deliberately diminish their income for tax purposes, but do they qualify for middle class if they have sizable assets?
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I completely agree. How high can one go before you are no longer truly in the middle is a frequent challenge. Ulterior motives aside for claiming middle class status, there seems to be legitimate confusion on how much qualifies. There are challenges for basing middle class status on income anyway. For example, if someone is worth $2 million and gets $80,000K a year, are they really middle class? Using a an income only definition they really are. However, their net worth is higher than 90% of the population.
Perhaps a combined (income + net worth) approach or net worth-only approach would be better.
My recent post The Impossible Question- Just Who Is The Middle Class
Nearly everybody does seem to be middle class, but as you're alluding to… everyone being middle class is impossible. I just think this whole class issue needs to be given up. I am in serious doubt that there will ever be a universally recognized definition in the US
This term is so relative Roshawn! A hedge fund manager's application to buy a super exclusive apartment was rejected because the co-op decided the hedge fund manager was too poor.
The manager already owns two apartments in the complex and pays annual mortgage payments totaling $1.5 million!
They could've atleast rated him 'middle class' rather than 'too poor'!
http://www.businessinsider.com/the-reason-hedge-f…
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The millionaires used to be in the category of the richest people but now they belong to the middle-class category. And that makes me a middle-class citizen too. Great post!
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This is really a new way to look at it. It is really very interesting to stay in a nation where there are several chances and people are not restricted to stay in one class by good value of their birth.
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