“Middle class” is a common term spoken by news pundits, politicians, and that annoying friend of yours who likes to debate politics at dinner parties.
While a lot of people like to bloviate about the middle class, there’s no hard set definition for what middle class means. In fact, not a lot of economists know exactly how to define it.
There are some ranges we can point to though.
For example, a three-person household would be considered middle class if they earned $45,200 to $135,600 a year (per Pew Research).
Of course, there’s a lot more to that range than meets the eye. Let’s take a peek behind the numbers and see where you fall.
What is middle class?
Middle class refers to a social and economic class in America.
I’ll say that again: Middle class refers to a social and economic class in America.
That’s because middle class can encompass much more than just how much you earn each year. Some sociologists believe that the middle class is as much a state of mind as it is how much you earn.
Christine L. Owens, the executive director of the employment advocacy firm National Employment Law Project, says, “I would consider middle class to be people who can live comfortably on what they earn, can pay their bills, can set aside something to save for retirement and for kids in college and can have vacations and entertainment.”
What do you notice about that definition?
It didn’t even mention income once.
That’s not to say that income isn’t a huge part of the equation — it is. But it’s just one part. Other factors such as where you live, your education, and your job can play a role as well.
Sherry Linkon, a co-director for the Center for Working-Class Studies at Youngstown State University, believes so too.
“I think that we define middle class in a couple of different ways,” she said to NPR. “We do it, in part, by income. […] But if you also include things like college education, the status of people’s jobs, and their sense of whether or not they’ve achieved the American Dream and whether that’s possible, then we have to think about it a little bit differently.”
Okay, so we know that the middle class is as much a psychological and social issue as much as it is to do with our finances — but what income ranges do middle-class people fall under?
Middle-class income ranges
As mentioned above, the amount these people earn is a big topic of debate amongst economist and other nerdy weirdos.
Using extensive survey data, Pew Research was able to come up with some good ranges for what income level would be considered middle class though.
According to their 2016 study, a household of three (the average size for an American household) earns about $45,200 to $135,600.
In 2016, the national middle-income range was about $45,200 to $135,600 annually for a household of three. Lower-income households had incomes less than $45,200 and upper-income households had incomes greater than $135,600 (incomes in 2016 dollars).
Here’s a table from Pew that illustrates middle-income ranges for household size:
Source: Pew Research
So now you know roughly what can be considered middle class in America … BUT that doesn’t answer the question of what middle class looks like to you.
Middle class across the country
Middle class is going to look different to different people across the country.
After all, a middle-class person in Sioux City, Iowa, is going to likely look very different than a middle-class person in New York City. This is known as “purchasing power parity” — a concept of economics that describes the differences in purchasing power in different locations.
For example, there was a recent study done by the U.S. Department of Housing that found that a family of four living in San Francisco earning $100,000 a year would be considered a “low-income” family.
Compare that to $60,000, or about the income for the average American household, and you have a great example of purchasing power parity.
NOTE: IWT has explored this topic before in our article “What it looks like when six figures isn’t enough.” Be sure to check that article out for first-hand accounts of how purchasing power parity can impact your livelihood.
But what does middle class look from a state-by-state basis? Take a look:
Source: Business Insider
This information comes courtesy of Business Insider using information from the U.S. Census Bureau coupled with the Pew Research study above.
Is the middle class shrinking?
There are a lot of talking points around the middle class — the most prevalent of which is the idea that the middle class is “shrinking.”
BUT WHAT DOES IT MEAN???
To understand why this is often a popular talking point for pundits and politicians, you need to understand that middle-class households have made up the majority within the income classes for decades.
However, since 1971, we have seen a decline in people in the middle class. From Pew:
It’s decreased nearly 10% over the four-decade period.
Why is that bad? A healthy economy requires people participating in the market. That means buying goods and services, and having a good amount of consumer confidence in the market.
Can you guess which class consumes the most? That’s right. The middle class.
As the middle class shrinks, the market tends to shrink with it. People become less confident in the market and are less likely to participate in it.
There are a lot of theories behind why that is — and much of it is partisan finger-pointing and fearmongering. So we’re not going to get into them in this article.
A better approach
Whether you’re in the middle class or not, I do have one piece of advice for you: Ignore the noise.
Much of what you’re going to hear on the news from pundits and politicians is going to be fearmongering, plain and simple. They know that’s what is going to get people to tune in and that’s what’s going to get them more attention.
Ignore all that.
Instead of worrying about whether or not the middle class is shrinking, I suggest focusing on the things you can control. And when it comes to your finances and building your own wealth, that means putting in place a few simple systems to make sure you are:
- Hedged against financial emergencies
- Investing passively
- Earning more money
To help you get started I want to offer you our Ultimate Guide to Personal Finance. It’ll give you all the tools you need to put automatic financial systems in place. Just enter your name and email below and I’ll send it straight to your inbox.
What is middle class? is a post from: I Will Teach You To Be Rich.
Original source: https://www.iwillteachyoutoberich.com/blog/what-is-middle-class/