Money

What Is Considered Middle Class?

Last updated on September 24, 2020 by
middle class family

A study by Northwestern Mutual found that 68 percent of Americans consider themselves middle-class. That’s two percent less than the previous year but still far away from what the reality is. Based on the current definition of middle class (which is based on income), just over 50 percent of the US population is actually middle class.

Why the discrepancy? Because figuring out how to define middle class is, at best, incredibly confusing. And that’s partly because being middle class means different things depending on many factors. A middle class income affords different people very different lifestyles depending on where they live, what kind of job they have, and what their family situation is like.

How the Middle class is Defined

The official definition of middle class by the Pew Research Center is somebody who earns “67% to 200% (two-thirds to double) of the overall median household income.” In the US, this means people earning between $40,500 and $122,000 or a median household income of $61,372.

You could argue that there’s a big difference between $40,000 and $122,000 –and you would be right. And that’s where things start to get a little complicated.

Numbers Aren’t That Exact

For starters, the median household income isn’t about a single person but about the household, which assumes a household composed of three individuals live at home. Add a couple of extra kids or get divorced and numbers get a little blurry.

The other big issue is location. A median household income of $61,372 probably gets you a comfortable lifestyle in states with a lower cost of living, but in places like California or New York, it doesn’t go very far.

To solve this, Pew has a separate calculation for states in addition to the national median numbers. Based on those numbers, a two-person family needs an income of $35,087 to $104,738 to be considered middle class in Arkansas, but the same family needs to earn $58,147 to $173,576 to fall in the middle class range in Maryland. In states with high taxes, a salary that seems impressively high is actually still middle class. For example, if you earn $175,000 a year in California, 32.7% of that will go to taxes. This leaves you with $117,692, which would not be considered upper-level income in the state. In California, you need to earn more than $120,380 a year to be out of the middle class.

So, are you really middle class? You can use the Pew calculator to get a more or less accurate answer based on income, location, educational level and marital status. The calculator compares your information with other American adults in similar situations to obtain the most accurate results.

The Middle Class is Shrinking

There might be some true to the “good old days” saying after all. A report by the Pew Research Center shows that 61 percent of Americans fit into the definition of middle class in 1971 but only 52 perfect fall into that group in 2018. And while this is in due in part to the lower class growing slightly (from 25 to 29%), it’s also the upper class that’s growing – from 14 to 19 percent. So the poorer are slightly poorer and the rich are richer – and as a result, fewer people are entering or staying in the middle.

The median upper-income class income was $187,872 in 2015, according to a report from the Economic Policy Institute. The super rich –the top 1% of wage earners – has an average annual income of $1,316,985. And the rich are getting richer. The top 1 percent now makes 26.3 more money than the bottom 99% of the population.

The middle class, on the other hand, is becoming less secure and more likely to stagnate. Why? Because middle class incomes are slow to grow compared to incomes in the lower and the top classes, according to a report published by the Organization for Economic Co-Operation and Development.

And while income isn’t going up, the cost of healthcare, housing and education continues to grow, resulting in debt and pushing many former middle class households into near poverty.
Changes in technology are also destroying many industry and career fields, and directly affecting income. Highly skilled workers such as IT professionals, software developers, nurses and accountants are now steadily earning mid-level salaries and much less likely to make it to the higher-income class than they were a decade or two ago.

Other careers that were once middle-class earners are losing ground and sliding out of middle class.

Middle Class is About More Than Just Money

Experts and intellectuals have long debated the factors that define the middle class. One of the bigger argumnets is that earnings alone are a poor way to determine class. For example, somebody living from wealth, an inheritance or alimony could spend as much as the average middle-class person, even though there is no actual regular income (in the strict sense) coming in.

Or let’s take somebody who is currently unemployed and not earning anything but instead living from his savings or investments. If class is based on a certain income, then somebody earning zero couldn’t be middle class. The same is true of somebody living on a mix of government payments and savings or other money.

Back in 2011, University of Notre Dame Economics Professor James Sullivan propose d a different way of evaluating an individual financial circumstances. He suggested looking at consumption rather than income at a better way of determining who is middle class. This includes, for example, how much a person spends on food, entertainment and housing.

Under the Obama administration, the Middle Class Task Force – created to “raise the living standards of middle-class, working families in America” – also reevaluated what middle class is. They based their definitions a report by the US Department of Commerce, which stated that “Middle-class families are defined by their aspirations more than their income. The Commerce report assumes that middle-class families aspire to home ownership, a car, college education for their children, health and retirement security and occasional family vacations.”