Investing

What Does Middle Class Mean?

Politicians spend a lot of time talking about the middle class. That’s likely because that term has traditionally applied to the largest single segment of the population. While that remains true it now seems that the middle is shrinking. Further complicating things, as USA Today recently noted,  defining exactly what “middle class” means still seems to be a moving target.

In a survey conducted in April 2015 by Gallop 51% of Americans said they were middle or upper middle class while the other near-half saying they were “working” or “lower-class.” However a Huffington Post poll taken a month later found that 88% of those surveyed identified as middle class when the term was expanded to include both upper middle class as well as lower middle class. In that case 43% said they were just “middle class” with an additional 33% stating they were lower middle class.

While those two polls highlight the discrepancy in definition comparing other surveys show that, whatever the middle class is, it’s shrinking. The aforementioned Gallop poll found that fewer people identified as middle class than in previous surveys conducted between 2000 and 2008. Likewise a Pew Research Center poll found that, while 61% of people were middle class in 1971, only 50% fit their definition of middle class today. For the record Pew defines middle class as households that make between $42,000 and $126,000 annually (based on a household of three people). Comparing different points in time that translates to households that live on between two-thirds to twice the median income.

You might expect that many of these missing middle classers were knocked down a rung by the recession. However it seems that while that’s true for some, more people actually moved up than down. According to Pew the percentage of people in the upper class has grown from 14% to 21% while the lower class increased from representing 25% of Americans to 29%.

This all confirms that the middle class is getting smaller but understanding exactly what the middle class is is still up for debate. What makes defining middle class strictly on income (as Pew does) tricky is widely different costs of living across the country. Obviously a $70,000 salary in Des Moines will go much further than the same sum in San Fransisco. That’s why some argue that class definitions are more about stability and comfortability than anything else.

In her USA Today article, Liz Weston offered her own definition of middle class. She argues that those in the middle class can not only afford what they need and some of what they want but also have the ability to save for the future and their retirement. Additionally she adds that stability is a major factor — can someone weather a financial storm?

By this definition being middle class has less to do with how much money you make and more to do with how you use it. In the end that’s something that those in the middle class do have some control over. While it may not be clear exactly what defines the middle class it is apparent that practicing good personal finance habits can help you get or stay there.

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