The Pew Research Center’s recent report The American Middle Class Is Losing Ground: No longer the majority and falling behind financially made a media splash, as it reported that less than 50% of adults are members of the Great American Middle Class.
My analysis suggests that by more qualitative measures, no more than a third of U.S. households qualify as middle class: claiming 49% of the nation’s households are still middle class is a gross exaggeration.
My analysis starts with the minimum fundamental lifestyle and wealth requirements of middle class membership: In What Does It Take To Be Middle Class?, I listed these requirements:
1. Meaningful healthcare insurance ($5,000 deductible healthcare plans don’t qualify; they are simulacrum/phantom coverage).
2. Significant equity (25%+) in a home or other real estate.
3. Income/expenses that enable the household to save at least 6% of its income.
4. Significant retirement funds: 401Ks, IRAs, etc.
5. The ability to service all expenses over the medium-term if one of the primary household wage-earners lose their job.
6. Reliable vehicles for each wage-earner.
7. The household does not depend on government assistance to maintain the family lifestyle.
8. A percentage of hard assets beyond the family home that can be transferred to the next generation.
9. Surplus income to invest in children (extracurricular activities, lessons, etc.).
10. Leisure time devoted to the maintenance of physical/spiritual/mental fitness.
In other words, middle class cannot be meaningfully defined by income alone. The middle class is more than owning a home (especially if the equity is modest or dependent on the asset bubble du jour): then most fundamental qualities of the middle class are not measures of income or bling, though obviously income is necessary to provide them:
— real healthcare coverage
— wealth that can’t be destroyed by one bad break or one popped asset bubble
— the ability (and willingness) to invest in children
— the ability (and willingness) to transfer accumulated real wealth to the next generation.
Income is not an accurate proxy, as many high-income households are living paycheck to paycheck: regardless of their income, they don’t qualify as middle class by qualitative standards.
$100,000 and up is not enough – even the ‘rich’ live paycheck to paycheck
Middle class is more than income–it’s a value system that recognizes the necessity of sacrifice, frugality, capital and long-term planning. If high-income households squander all the income on eating out, lavish vacations, matching luxury-brand autos, etc., they aren’t middle class: their values do not support investing in their children’s future, their own retirement (so they won’t be a burden to their adult kids) and on building wealth that won’t vanish when the current asset bubble bursts.
By my calculation (admittedly coarse, given the huge range of living expenses from lower-cost regions to sky-high locales on the Left and Right Coasts), around $100,000 for…