Thursday, May 22, 2008

What's Up with the Middle Class?

There seem to be two different angles on what it means to be middle class these days.

On the one hand, there is a sense that middle class people are greedy and spoiled. The middle class has its eye on the upper class, and wants all the luxuries that used to be seen as just for rich people. Everyone is trying to keep up with the Joneses, with bigger houses and fancier cars and clothes than the middle class used to have. They are better off than they've ever been but they can't appreciate it because they are greedy for more.

Then there is the sense that the middle class is squeezed. Today's middle class is worse off than their parents-- college and healthcare costs have skyrocketed, good jobs with benefits are more difficult to find and it's harder to make any real progress towards financial security and a comfortable retirement. For some examples of the changes a median family has faced from 1970 to today, check out Jonathan's post about a lecture called "The Coming Collapse of the Middle Class." The middle class is seen as being the segment of our society that needs the most help right now.

Who are the middle class anyway? When politicians talk about taxes, at least in the last few years, they tend to define the middle class as anyone making up to $200,000 or so a year. But only about 2% of households, I believe, make over that amount. It seems a bit too broad to define middle class as 96% of the population, excluding only the 2% who are the most wealthy and the 2% who are poorest. And actually there is a much larger percentage of the population who live at poverty level or below, usually about 12-15%. And the poverty level is defined as an income of just over $10,000 for a single person, $13,690 for 2 people, and only $20,650 for 4 people. That leaves an awful lot of people in the range of incomes between $20,000 and $200,000 to be considered middle class.

So maybe what many of us think of as "middle" is not truly in the middle? Rather than having an "upper middle class," maybe we have a "middle upper class?"

But money is not the only thing that determines class. You can still view the special report that the NY Times did a couple of years ago called Class Matters, whose interactive tools try to measure the way income, education and occupation all factor into social class. Is what we think of as middle class more about a certain set of values, like sending your children to college or owning a home or working in a white-collar job, or taking a vacation every year?

How do you define the middle class? Do you consider yourself middle class? Do you think the middle class is better off or worse off than 20 years ago?


Anonymous said...

Hubby and I have a combined income just over 100K and consider ourselves middle class. However, I really think class isn't defined by what you make, but what you have saved away for retirement and the assets you have!
We don't consider ourselves to be squeezed or affected by what is happening in the economy right now.....and I have friends who make 30K/year who aren't squeezed either.
I really think it all comes down to individual experiences!

mOOm said...

At the lower end the US definition of "middle class" covers more people than British or Australian definitions. Especially in Britain where most people traditionally considered themselves "Working Class". Certainly someone on less than average wages unless they had at least a college degree or some other "pedigree" to compensate wouldn't be middle class in those countries. The upper class in any country is small- a couple of percent at that. But here is a huge gulf between upper middle class and lower middle class.

I'm certainly middle class, whether in the middle of the middle class, in the upper middle class or the fringes of the upper class (eg I was a tenured professor at a top 50 private university in the US and likely will inherit more money than most middle class people manage to save themselves which my parents inherited in part) depends on how you measure things.

mOOm said...

PS I've always been better off than my parents were at my age. But I'm not an American :)

Anonymous said...

My personal opinion is the the term "middle class" has certainly broadened to include a much larger segment of Americans who only a few short years ago would be considered "upper class." Society has for the most part determined that "middle class" means larger homes and more luxury (non-necessity) items than years before ... and like the linked Scott and Leonhardt's article mentions, has completely done away with the "working class."

I'm not so sure that "salary" has as much to do with being "middle class" as how one chooses to live. We've all seen millionaires living in 2 bedroom bungalows and people with incomes bordering on poverty taking cruises and buying new upscale European automobiles. "Class" classifications have pretty much disappeared IMHO ... and perhaps that is a good thing?

Anonymous said...

I think the key differentiator that others have already mentioned is the divide between "upper middle class" and "lower middle class." The core (median) of the middle class barely exists anymore, and the umc is behaving as you describe in the second paragraph, while the lmc is being squeezed as you describe in the third. It's impossible to generalize about the middle class anymore.

Anonymous said...

I think anonymous, just above me, is right about the differing problems of upper- and lower-middle class.

I make about $50K a year and I own my apartment. I pay more than I used to for health insurance which covers about half my health costs, and pay out of pocket for the unusual health care that my insurance doesn't cover. But I don't have a car, so it sort of balances out.

I am middle class by any definition, but not feeling anything like as secure as I expected middle class to feel. I am pretty frugal, so I have no problem paying the bills on the day they come in, but I have a mortgage and minimal savings, with retirement from my full-time job less than 15 years away. I expect I will have to work at least part time until I can't work at all. I, like many in the so-called middle class, am about 6 bad months away from bankruptcy.

Anonymous said...

Very thought provoking post. In some ways I think the distinctions within the broad middle class have to do with possibility of improving one's situation and overall financial security. The NYTimes tool is very good in that it shows the various elements of class. I know for us our salary is very high compared to other families in the US but we live in a big city and have VERY high expenses with the childcare we pay for. We feel totally squeezed and like we can't get ahead. However, if you look at our education, salary, retirement savings (net worth) we're in good shape. However we have BIG cash flow issues and debt and inability to save outside of 401K.

Anonymous said...

There's a series of articles (found here) that suggest that one differentiator for class is the way a person approaches money (the third article); upper class never or rarely has to think about money, middle class nearly constantly worries about money, working class cares about money inasmuch as it fills their gas tank and bellies, and lower class doesn't worry (because there's never any).

I think this is a more scalable approach to class demarcation, as it takes into account a wide range of variables (cost of living, net worth, income, resources) without requiring a complicated formula. In many ways it's a bit simplistic in its approach, and it certainly has exceptions, but I think for the most part it's an excellent rule of thumb.

I'm middle class by net worth and income, and while I'm doing rather well at keeping a strict eye on my finances, the fact that I have to do so guarantees that I'm middle class by the aforementioned definition. I'm more relaxed about money that many I know, but a large part of is that budgeting became a habit a few years ago and with the budgeting came a keen sense of "I don't need that, and I don't even really want it."

frugal zeitgeist said...

I think geography matters. My income puts me above middle class on a national level, but here in New York City I'm solidly middle class. I don't think of myself as anything but right there in the middle.

I still live like a student in some respects, although maybe more like a student with generally nicer stuff than I had when I really was a student. (I know of at least a couple of students whose lifestyle is considerably higher than mine, so I'm not sure that's a relevant comparison anymore.)

frugal zeitgeist said...

Err, yikes. $200,000 is the upper limit on middle class? If that's the case, then count me in the middle class nationally after all.

meara said...

I certainly wouldn't call a family of four making $20K "middle class" even in small town America! That sounds pretty stretched to me. It seems you almost have to have a regional definition--you can live fairly well in some places on amounts that would seem ludicrously small other places. But then I hear of families that lament how they are "barely getting by" on $200K, and I think that maybe they need to stop trying to keep up with the Joneses and think about what they really NEED.

Anonymous said...

I don't know how to define middle class anymore. Certainly, the expectation of what one should be able to do on a middle class income is changing (hence the middle class squeeze). From a income, net worth and education standpoint, I am now forced to concede that we are upper middle class. HOWEVER, I still feel middle class and live what I consider to be a very sterotypical middle class lifestyle. Ironically, being able to comfortably live the stereotypical middle class lifestyle may be the new upper middle class.

Anonymous said...

I think we are alot worse off. Look at education and healthcare. Most people can't even afford it. Most lower income jobs have been taken over by illegal immigrants working at even a lesser wage( that is not a racial jab but the truth I see it everyday in my city) that Americans cannot work for and very few middle class people can afford housing anymore.

Anonymous said...

Society as a whole is looking to define middle class, as the old definition has been smashed. We are in a period of great change, very similar to what happened at the beginning of the industrial revolution. Hence the division between the educated, or supposedly elite (clever labeling by the actual elite), and the blue collar/working class.

This change has increased the level of uncertainty, real or imagined. Thus, no one who exists on middle class wages thinks they are middle class, because they think healthcare, retirement and certain types of jobs might be falling out of reach.

Jane said...

I've been thinking about this a lot lately, and I think class definition is relative, depending on how you grew up as a child and where you live currently. By New York standards, I'm probably solidly middle class, especially considering all the rich folk who bunker down in high-rises here, but compared to how I grew up (lower middle class in the Midwest, forgoing name brands for Kmart and buying off-brand soda), my lifestyle is waaaaay upper middle class (renting my own apartment, forgoing well drinks for Ketel One-and-tonics, affording West Elm furniture, and eating out whenever I feel like it). Any way you slice it, I consider myself extremely lucky.

Anonymous said...

While reading many of the posts here, I see the overall response is one thing. "It Depends" I guess that is why this makes the answer so hard to answer. I guess I can now stand on my soapbox and begin talking :)

Historically speaking for the US stand point, there were two classes. There were the working class (people that did all the work at factories, not college educated, hourly/trade workers) and the upper class which were those that managed them. As time progressed, things got a little more confusing. There became a middle class. Those that were not in the lower class, but those that did not make enough money or had the amenities of the upper class.

Personally I think that the answer to whether you are middle class comes down to a few things. What does your daily routine entail? How do you live (financially responsible or not)? What kind of job do you have? How do you look at consumerism (gotta have the latest and greatest, or wait until there is a need)? What are your viewpoints on saving for retirement? Who are your friends? Are you playing keeping up with the Jones's? What kind of debt do you have? What is your credit rating? What kind of pursuits do you want for yourself (hobbies) and kids (activities)?

Lets take one of these at a time. Please note these are generalities for purposes of comparison. Not a single person will fit in every category nice and neatly. It is a generality so that we can show some examples of where people fit on the scale.

Daily Routine:
If your daily routine is something like this you are probably middle class. Get up, shower, get ready for work, make sure the kids are ready for school, eat some cereal or something quick, get out the door and run to work. If your routine is more along the lines of get up, shower, have the maid or cook deliver something to you, great ready for work, etc. Then you probably are not middle class and probably in the upper class.

How do you live:
Being middle class, but growing up in the working class and having my family work their way up, I see a lot of things that make the different classes separate. The biggest thing I see is instant gratification. Instant gratification is something you see more and more in middle class and upper class families. This comes from "I want a new plasma TV" so they go and get it regardless of the need, their savings, etc. This goes right along with the mentality of a middle class family saying "my kids are going to have more than we did as kids." This mentality basically is what separates the working class from other classes because a true working class person could not afford a play set for their back yard for their kids to play on. They would tell the kids to ride their bike to the park and play there. They cannot drop $1000 bucks to get something like that while a middle class family might consider that kind of purchase. It is more of a list of things that you consider when you are in the middle class.

What kind of job:
The middle class has grown as companies have expanded and added more middle tiers to their work force. It used to be the guy making the decisions and the people doing the work. Now there is a middle tier that separates the working class from those that make the difficult decisions and these are the middle managers/supervisors. There are also a lot of middle tier people who are highly trained, specialized and thusly rewarded (with pay) handsomely for their knowledge and skills. If you reside in that middle tier - you are usually well educated (trade school, college, work experience, etc.) and have been around the block to see how things work.

Consumerism is something which is an interesting topic. What I mean by consumerism is how people generally look at money. If you are in the working class, you make smaller money decisions based upon needs. Do I need to get pizza hut for dinner instead of paying the phone bill. Going out and buying a plasma TV is something while you want, is not something you are going to afford for a while. If you are in the middle class, you spend much more time looking at items and determining which ones you need and will go out an get them. You cannot get everything you want (unless you get credit card debt - see debt section below) but you will prioritize what you want to get you think you need. If you are in the upper class - you don't worry too much about decisions to buy things as long as they are within reason. A plasma TV vs. a different plasma TV that is twice is much is not as hard of a decision for you.

Another factor in consumerism is the mentality of "Gotta have the latest and greatest" versus the slow and steady "get what you need" mentality. Typically people in the working class are not able (without debt) to get a lot of things outside the bare necessities so they are not necessarily in the latest greatest category. A middle class person can typically have nice things, however, they fall more in to the "get what you need" category without the going into debt category. A person who needs to have "the latest and greatest" typically falls into the upper class category. You can be a person in the middle class who has aspirations of being in the upper class if you can afford it, but again, this is just basic human behavior slicing.

Viewpoints on retirement:
Retirement is on everyone's mind at some point during the day. Whether it be "How much longer will I have to work" or "I am going to have to work forever" kind of statements. The difference is that a true working class family will have a much harder time putting things away for retirement (I am not saying that it cannot be done, but that it will be more difficult as they are living more paycheck to paycheck). Upper class folks typically don't have to worry about their retirement because they have pensions (or not) with lots of money in the bank, and know they will not starve in old age. Middle class folks typically are really worried about their retirement as they have to save a lot of money to keep up with their existing lifestyle when they "retire". Working class folks are living more paycheck to paycheck and saving for retirement is something that they are not going to do much of as they have other needs such as food and shelter which are higher on their scale.

Who are your friends? Which categories do they fall into? If your friends are all working class folks, then you probably will be more of a working class person in how you behave around most of these other categories. If you are a middle class person, you can go either way as you have aspects of both classes. If you are in the upper class, then you probably will not go down the ladder to working class much (again there are exceptions) but you might go down to the upper middle class folks.

The thing to remember about this - is it is not about being a snob, elitist, etc. It is more about who are your friends. You are friends with those people who are more like you - and those that you have more in common with.

Keeping up with the Jones's:
The next two categories are the biggest differentiators of class. People use debt (below) to keep up with the Jones's. People who are in the working class do not care as much about their appearances as they do about being ale to provide the basics. Yes they might go into debt (if they can get it) to get something nice. However, your "Jones's" are only those that are your friends (listed above). If you are in the middle class there is a HUGE amount of keeping up with the "Jones's." Middle class folks like to show up they have made "It." They have enough money to be financially solvent and prove to their friends and family that they are not the screw up they once were :) People go into extreme debt (comparatively speaking) to try and show off to others that they have as much as everyone else. Someone who is in the upper class typically has enough money to not have to worry about impressing other by showing off for appearances. They know what they have and know what they want typically. Don't get me wrong - they can go deep into debt to show off - but in general, they are more level headed about their spending.

Three Examples:
Corporate VP, Makes $200K a year. They live in a $200K home (3000 sq feet), drive 3 year old cars, etc. Kids gone and several million saved in the bank.

IT specialist, Makes $100k a year. Lives in a $200k home (3000 sq feet) with one teenage child (not married), drives a leased car, and about $400k in the bank and $40k in the bank for college fund for the child.

Teacher and Home builder. Makes $70K a year. Lives in a $550K home (5500 sq feet) with one infant child. Drive older paid off cars, but limited to no savings. Each year, they have season football tickets and some other large expenses for entertainment.

Which one's do you think are keeping up with the "Jones's"?

The use of debt to obtain things is as old as time itself. "I will gladly pay you Tuesday for a hamburger today." Well the use of debt depends on what class you live in. Each class uses debt differently to try to make things work for them. Working class people have a harder time getting debt because they do not have steady or enough income to pay back the loans. They typically use debt to pay for other things they owe (rent, utilities, etc.). Upper class people typically do not have a lot of debt as they can pay for what they have or have a hard time getting it (because they have not had to borrow money for a while and are not considered a good risk). If they do go into debt, it is more for a investment opportunity to get a higher return on investment than trying to cover costs of items.

Middle class folks are the ones in the middle. They have ample opportunities for debt, between credit cards, mortgage loans, car loans, etc. They typically use the debt to try to better themselves. For example a person who has a mortgage and car payment is trying to get a better car than they could afford with cash and a nicer home than they could afford with money on hand. This is also an investment in to their future if they are going to pay off the car and drive it until the wheels drop off and they live in the home for 30 years. However, if they are using credit card debt to pay for furniture, clothes and other items, they are going beyond their normal comfort zone to get things now that they should be saving for into the future.

Credit Rating:
Credit Ratings are another indicator of what class people are in. A working class person will have a harder time getting credit due to lower and infrequent incomes. This would mean they will only be able to get a "secured" credit card or what not. Upper class people typically have good credit scores or none at all. Again if they are in the upper class they might not have to borrow money much therefore not establish credit. I know a couple who is upper middle class, they canceled their credit card as their bank gave them a debit card with rewards. Well, they went several years later to get DISH satellite, and they could not because they had no credit rating (houses had been paid for, etc.) Well they have to get a "secured" credit card even though they made 300K a year and 5 million in the bank because their risk was unknown to a credit card company.

Middle class people make the majority of the swing in this category. If they use credit right, they can have some of the highest ratings (paying off everything every month, only having something like a mortgage and a car payment), etc. Some people with 10 credit cards maxxed and several home loans, etc. Those are the ones that have the lower scores. It all depends on where you fit on the scale.

What kinds of activates:
Last but not least, Activities. Every person has activities they like to do - they are called hobbies. If you are in the lower classes, your hobbies are probably cheaper and more accessible to get into (martial arts, books, movies, gaming, etc.). If you are in the middle class your hobbies might be more varied and expensive (model airplanes, buying movies, artwork, etc.) and this is something that you like to do a lot of. You are more cautious of your costs, but you can afford to do these every so often, etc. Upper class people typically have expensive hobbies and like to do them as often as possible. Things like sailing a yacht or going to a country club, etc. are things that more of an upper class person would do. The costs for them are not as prohibitive, and they are able to cover the costs of maintenance and upkeep.

The other thing is the activities of offspring. Children of working class families typically include things that are done by local organizations (band in school, school sports, etc.) as the extra payments would be hard on the family. A middle class family will typically (again because of the "I want my kids to have everything I never did" mentality) will have their kids do a lot of varied activities. This is not wrong, but families will spend a lot of time doing these activities usually forgoing "family time" activities. An example of this might be 3 kids, each different ages, playing soccer. Parents spend an entire weekend day getting kids to practices and games. Also each child might have multiple activities. Upper class individuals usually have the activities come to them. A good teacher might come to their house to teach piano, or other musical instrument.

I think that what makes everyone have issues defining and having difficulty with the "middle class" question is because people in general have not make good financial decisions and are now having to pay those decisions off. Credit card debt for one (or one hundred) too many beer runs in college, that outfit you had to have, that motorcycle you had to get, etc. If you were disciplined and stuck to a budget, etc. then you would be in a better position (I am not being preachy - I have screwed up a lot too until I "saw the light"). It is our pasts that make our futures harder.

The final thought I have to say about it is simple. To determine if someone is middle class - you have to answer the following question. If you were in that person's shoes, and you had their income, and assuming you had a middle of the road credit rating, and no serious debt, could you get a little piece of suburbia with their income and situations? I think that if you can do that - then you are middle class. Can you buy a house in a suburb of a Midwestern town with $40k a year, and have 2 cars and have enough for food and utils? If the answer is yes, then you are middle class. I mean a $150k home (4 bedroom vinyl sided 2400 Sq foot place) is nothing uncommon around here. You can get that with 10% down and get a decent rate and that will be only $800 a month in mortgage (30 year fixed). Drive older cars that are paid off, etc. Then you have enough money for life, liberty, and the pursuit of happiness.

FYI - this will be posted on my blog when I get one :)

Anonymous said...

Today's middle class is NOT worse off that the previous generation. Instead, we've chosen a much higher standard of living, which leaves less room for saving. We have more gagdets, more toys, more entertainment options, and more meals out.

We may have made worse choices (from the long-term financial security perspective), but we're in no way, whatsoever, "worse off".

Anonymous said...

We have the rich and poor. Everyone else comprises the middle class, upper middle class, the working class and working poor.

mOOm said...

How about this definition:

"If you don't have to worry or think about saving for retirement you are a member of the upper class. With the caveat that you are not trying to show off your wealth, i.e. a nouveau riche. Also people who come from families where this was the case in the past might also be members of the upper class"

This might be because you have inherited wealth or your CEO or whatever who just earns so much that you don't really need to think about saving.

I was just thinking today, personalised licence/registration plates on cars about one the most nouveau riche things you can do.

I certainly don't identify at all with all the descriptions of the middle class as people trying to display their status. I remember growing up my father commenting on the nouveau riche types that drove around in Rolls Royces etc. in a very negative way - not because they were wasting their money but because they were "ostentatious".

Rachella said...

Where does working class fit in this description? The American notion of class seems to jump from poor to middle class. Many working class people make good, solid incomes. Do they become middle class as their salaries increase?

Meg said...

I just found this post, but apparently we're asking the same questions:

See my recent post:

lola aronovich said...

In my country, Brazil, the media never talks about an upper class. If the person portrayed is clearly rich, they use "upper middle class". I guess we have the same problems with definitions as you do in the US. People tend to believe the middle class is way broader than it really is. I am middle class, but, by my standards, I think my family used to be rich when I was a child. I see the difference! And if it's only 2% of the population who earns a certain amount of money, I think it's even immoral to call that a middle class.

Anonymous said...

It always boils down to your philosophy; not your income. The poor spend their money and invest what's left. The rich invest their money and spend what's left.

ekingout said...

Due to circumstances beyond our control, when I was growing up, my family's income was solidly lower middle class. I believe we lived a sort of average middle class life, though, due to the option of consumer credit (read: debt). Just awful.

Anonymous said...

I often feel like it's trendy to talk about how you are stretched for cash. Hubby and I (and our friends) are in our mid 30s and we see lots of overspending yet complaints about how they have no money. Or those who obviously make quite a bit and are doing well, just never talk about it at all. Maybe they don't want to brag? Personally, I am proud to be debt free and I will tell anyone who asks and hopefully lead by example. It's very strange to me, this clandestine way that, even friends, approach the subject of money. It seems taboo at times to be doing well.

Jerry said...

This is a hot topic. Class hits home for everyone and is a taboo subject to discuss with most of polite society. Discussing it can lead to hurt feelings and even resentment. It's true there's no insurance that you'll be born into a family that can provide you with a comfortable let alone well-to-do life but the great thing about American in comparison to other countries is that you can still achieve financial success regardless of background. I hope the "American Dream" never dies.