Defining the Middle Class: What It Really Means

Defining the middle class has become a slippery slope for just about everyone these days including economists. That’s because since the pandemic began almost two years ago, people with money, jobs, and a lifestyle a la the “rich and famous” have been out of work, earning little or no income, becoming dependent on government programs, and may even have hit bottom and fallen through the floor.

A middle class suburban house

When you think “middle class” you never think that would mean standing in line at the food bank or waiting for a check from Uncle Sam so you can get through the next month, would you?

So what is “middle class” and is it now something different than it was before? Will it ever be the way you think it is supposed to be again? Is it a goal you should have? Being in the middle may have worked for “Malcolm”, but does it work for you?

Does Income Define the Middle Class?

The numbers really have changed since I grew up and into the system that defines money and American life. That’s because after 70+ years, inflation changes it.

When I was a kid, my dad made less than $100 a week and we had a car, a house, and he and my mom raised two children. We weren’t wealthy by any means, but we had what we needed and Dad and Mom worked hard to make sure we did. It was my mom who taught me everything I needed to know about money and stretching a buck and I use what she taught me every single day.

When I got my first job as a teenager, I made literally less than a dollar an hour working in the corner luncheonette and I was totally convinced I was rich at age 14 every time “Bernie” handed me a few dollars at the end of the week. Today, a babysitter gets 68 times what I made an hour for doing what I did for 25 cents back in the 1960s. According to Sittercity, the national typical hourly rate for babysitters in July of 2021 was $17.00 per hour. Hmmm, that means that babysitters don’t actually need a $15 an hour minimum wage. They already have surpassed that.

So income, while being a big part of defining the middle class, is a constantly changing number and right now it’s in chaos.

What is Average?

According to the Pew Research Center, the median U.S. income is about $80,000 a year and a household of four earning between roughly $52,000 and $175,000 a year is considered middle class. That’s a hugely wide range.

You can do a lot more with $175,000 than you can with $52,000. And if you’re making that $175,000, say in West Virginia, you’re a lot more “upper” there than the same family living in say, San Francisco. To define the middle class solely by income is weak and unreliable because there are just too many other variables to consider.

How Do You Live?

Home location and costs (if you have a mortgage) are pretty good “middle class” indicators. To know if you’re truly middle class, ask and answer this question: “Is the majority of your net worth tied up in your home?”

If you have a net worth of $300,000 and your home is two thirds of that, you are probably in the middle class somewhere.

The amount of a mortgage payment is actually a direct indicator of your class status. No mortgage may mean you are probably not in the middle class.

Of course there are extremes involved here. No mortgage can also mean you have made it all the way to the top…you have paid off your home! Realistically though, most of the middle class hasn’t done that. But no mortgage could also mean that you don’t own a home…you are a “renter”! Is that good?

The Middle Class Aren’t (Likely) Renters

If having a mortgage signifies if you are in the middle class, what does that mean for a renter? It means, usually, that you’re beneath the middle class.

Middle class dwellers tend to be owners and are more invested in the growth of their money. It may be hard to have a mortgage and limit some of the flexibility of renting, but it’s such a tangible asset when you own and even a mortgage gives you the feeling that you will someday be where you really want to be…just like the lords and ladies of the fiefdom felt. Renters are more like the serfs in that fiefdom.

Must-Haves If You Want Middle Class Status!

If there is really just one form of measurement as necessary evidence for attaining and maintaining middle-class status, it is some kind of rainy-day fund that you can tap into in case of “emergency”. The middle class has emergency funds.

However complex the issue of defining the middle class may be, some indicators of this status are almost obvious. The fund for an emergency makes those in the middle class financially well-prepared to handle it. Pandemics aside, under normal “abnormal” circumstances, being in the middle means you have put some money aside “just in case”.

The Middle Class Is Able to Invest

Apart from their income, a good sign of middle-class status is a willingness and ability to invest your money and make it work for you. How you do that involves many options, be it stocks, bonds, or something else.

If you have a decent everyday salary, you can live comfortably in the middle class for some time, even if you spend everything you earn. However, unless you invest some of it in long-term assets, your middle-class status may eventually disappear. It is essential when you are in the middle class to find ways to supplement your income and grow it for now and for the future!

Your future will always be more expensive than your present. That’s just a fact. See my earlier notes on the cost of babysitting if you need the evidence again!

Then, of course, there is your retirement. That’s that little item that is down the line and it will come when you no longer have a steady income from your job. That’s the reason you need to save, invest, and plan for it. Otherwise, if you don’t, bye-bye middle class.

There’s Freedom in Being Middle Class Even If You Can’t Always See It

Middle class offers you the ability to change your life…almost at will. Right now, there is an emerging phenomenon called “The Great Resignation” where people are quitting their jobs for another. Even with the pandemic hitting us, the middle class has had the luxury of being able to quit their former jobs and decide to move on to something new and even better. That’s the beauty part about being self-reliant and recognizing that you can rely on yourself.

Middle class people feel freedom to act on job dissatisfaction by leaving their current employment because they have a high level of confidence.

Paying for Your Kids’ College Education

A huge middle class indicator is having the ability to provide a college education for your children. Assisting children in achieving success in life is a fundamental objective for middle-class households. The expense of a college education for a child can range from the low tens of thousands to hundreds of thousands of dollars, depending on the university or college to which you choose to admit your children. It’s a big deal and more often than not it means sacrifices and big debt.

That doesn’t stop most middle classers. That’s because they know and use all the tools in the box to get this goal accomplished and it usually starts decades before the school burden arrives. They build credit and assets, they research the costs and the solutions. They plan for it. They even ingrain children in the importance of it.

Debt and the Middle Class

I know people that have good incomes, no real debt, and never ever give a single thought about their financial futures. Congratulations to them for being completely short-sighted and missing the entire point here of getting to your long-term goals.

Debt doesn’t always mean it’s a bad thing. Yes, it can follow the middle class around every single day. Mortgages aside, there’s plenty of ways the middle class can rack up debt and in that sense they are just like most everyone else. But there is one slightly different thing here about some people with debt. It’s how the middle class is affected by debt.

Being saddled by debt, such as student loan debt, credit card debt, or any debt which makes paying the simple cost of living difficult, indicates that being in the middle class has not been fully achieved. But when that debt causes terrible stress on a regular basis for you and your family, then it indicates you are not doing all the things necessary to climb up the class ladder in the U.S. economy. That’s something you need to get a handle on and set the goals to defeat your debt.

Final Thoughts

Being a middle classer may not be a conscious thought you have. In fact, it may be just a stop on the way to being even higher than that or a subconscious thought that drives you to avoid financial disasters. It doesn’t matter how you think of it, what matters is that you take the actions you need to do to make your life better and grow into the life you want it to be. No one likes being dependent, poor, and living only day to day.

So here’s my simple plan. Take stock of your situation and make a plan. List out the steps you need to take and start doing them.

If you are 20, you should start now. If you are 30, start now. If you are 50, start now. Do you see a trend here? It’s almost never too late to start, but time is your friend when you have a lot of it in front of you. Not so much when you are ignoring that friendship.

Are you in the middle class? Do you want to be? What about your future, does it include a life you want to live or do you need to think about what that really means more than ever now?

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