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.