Posted on 11/18/2023 9:03:28 PM PST by SeekAndFind
Can an economy in which 10% of the households qualify as middle class claim to offer widespread opportunities for secure prosperity? No, it cannot.
Defining the middle class is a perpetually popular parlor game because it's well-known that the foundation of widespread prosperity is a broad-based middle class and a sturdy ladder of social mobility that enables those below the middle class to work their way up to middle class security.
Here's an example of a typical trope on the subject: What Does It Take To Be Middle Class?
The topic is also a perennial favorite because the middle class is losing ground. By basic measures of income, it's slipped from 60% of the populace to 50%.
A strong case can be made that assessed by characteristics of middle class security and prosperity rather than income, the middle class has effectively shrunk to 10% of households as only the top 30% of households earn enough to afford what was within reach of the top 60% in decades past.
By definition, the top 20% cannot be "middle class." The top 20% is comprised of the upper-middle class, the wealthy and the super-wealthy (the 80% to 95% bracket, top 5% and the top 1%).
Attempting to define the middle class by income alone is futile due to regional differences in costs and purchasing power. $100,000 annual household income that will barely pay rent and necessities in a major metro city can stretch considerably further in smaller cities far from high-cost zones.
Regardless of income, households that are living paycheck to paycheck don't qualify as middle class if we qualify "middle class" by these characteristics:
In Why the Middle Class Is Doomed (April 2012) I listed five "threshold" characteristics of membership in the middle class:
1. Meaningful healthcare insurance (i.e. not phantom coverage that only kicks in after thousands of dollars are paid in cash).
2. Significant equity (25%-50%) in a home or other real estate.
3. Income/expenses that enable the household to save at least 6% of its net income.
4. Significant retirement funds: 401Ks, IRAs, etc.
5. The ability to service all debt and expenses over the medium-term if one of the primary household wage-earners lose their job.
I then added a taken-for-granted sixth:
6. Reliable vehicles for each wage-earner that are fully covered by insurance.
Author Chris Sullins suggested adding these additional thresholds:
7. If a household requires government assistance (SNAP, Medicaid, rent subsidies, etc.) to maintain the family lifestyle, their middle class status is in doubt.
8. A percentage of non-financial hard assets such as family heirlooms, precious metals, business equity, rental income property, land, etc. that can be transferred to the next generation, i.e. generational wealth.
9. Ability to invest in offspring (education, extracurricular clubs/training, etc.).
10. Leisure time devoted to the maintenance of physical/spiritual/mental fitness.
Correspondent Mark G. suggested two more:
11. Continual accumulation of human and social capital (adding new skills, expanding social networks and markets for one's services, etc.)
And the money shot:
12. Family ownership of income-producing assets such as rental properties, bonds, etc.
The key point of these thresholds is that propping up a precarious illusion of consumption and status signifiers does not qualify as middle class. To qualify as middle class (that is, what was considered middle class a generation or two ago), the household must actually own/control wealth that won't vanish if the investment bubble du jour pops, and won't be wiped out by a medical emergency.
In Chris's phrase, "They should be focusing resources on the next generation and passing on Generational Wealth" as opposed to "keeping up appearances" via aspirational consumption financed with debt.
So how much does it cost to meet these qualifying standards? Two generations ago, public school teachers, healthcare workers, skilled craft workers and others with median-level incomes could meet all of these qualifications, for the purchasing power of their earnings was extremely high compared to now. A median wage bought a lot of shelter, vehicle, healthcare, college education, etc.
According to the US Census Bureau, Real median household income was $74,580 in 2022. (Source: Income in the United States: 2022) This is the "middle income" that presumably qualifies as "middle class," but it would take extreme frugality and sacrifices to stretch $75,000 to cover the qualifications listed above, even in low-cost regions.
As a general guideline, $75,000 would only stretch to meet these qualifications if 1) the family home was owned free and clear, i.e. no mortgage, either via inheritance or extreme efforts such as building your own home with cash savings, 2) no student loan debt, either by gaining desirable skills outside college or completing college on scholarships, with family financial aid, etc., and no vehicle loan, i.e. a reliable used car/truck that is owned free and clear.
These may strike younger readers as impossible fantasies, but as I've often noted here, forty years ago I worked my way through a four-year university program with part-time jobs and built a house from scratch with only savings, income from temp construction jobs and a $5,000 bank loan ($17,000 in today's dollars) which we paid off in two years.
Even with extreme frugality, this debt-free lifestyle is no longer within reach of the non-wealthy, as costs for college, land, permits and building materials have skyrocketed, along with the costs of healthcare, insurance, vehicles, childcare, etc.
I submit that for most households in higher-cost regions, these qualifications can only be met with an annual household income of $150,000 or more, which according to the Census Bureau, is the cutoff level for the top 20% (top quintile) of American households.
According to the Census Bureau, the top 20% earn 52% of all income, and the top 5% earn 23.5% of all income. The top 10% of households have an income of $216,000 or higher, and the top 5% have incomes of $295,000 or higher. The top 1% bracket is $867,000 and up. (TableA-4a, Income in the United States: 2022).
In lower-cost regions, it may be possible for frugal households in the 70% to 80% income bracket to qualify. According to the Census Bureau, this bracket earns between $118,700 and $153,000. This 10% might qualify as middle class. Households earning less would likely qualify only if they inherited significant wealth from their families or received substantial financial aid from their families, such as college paid for in full, a down payment for a home purchase, etc.
In summary: if we set minimum standards for qualifying as middle class by what was within reach of typical American households two generations ago, relatively few households qualify as middle class. Middle class means more than being able to charge a lavish cruise or foreign vacation on a credit card or buying a new truck with a huge loan. It once meant owning assets, not owing debt on assets.
Consider a few charts. Here we see the percentage of wealth owned by the 50% to 90% bracket--what we might consider middle class--has declined sharply as wealth has concentrated in the top 10%.
By way of example, the top 10% own 90% of stocks.
Wages are the bedrock of middle class income and wealth accumulation, and here we see wages share of the national income has been in a freefall for 45 years. It has recently ticked up, but it is not yet clear if this is just another temporary blip or an overdue clawback of income that has predominantly flowed to capital.
Can an economy in which 10% of the households qualify as middle class claim to offer widespread opportunities for secure prosperity? No, it cannot. "Middle class" isn't just income or consumption; it demands a toehold of ownership of real assets that offer security, not a lifetime of debt servitude.
As security becomes increasingly precarious and unaffordable, Self-Reliance offers an alternative to a lifetime of debt servitude.
* * *
I’ve been a continuously employed LEO for 18 years.
My wife has been continuously employed as an ICU Nurse for 23 years.
We’ve received 2-3% raises the last two years but have faced 30% inflation over that same period of time.
We make a nice living, through years of toil and sacrifice. We talk to co-workers and they’re embarrassed to admit they’re now struggling.
How are folks who have a husband who’s an assistant manager at the Rite Aid and a wife who drives a school bus part time and have three children supposed to survive?
I guess President Double Scoop would suggest they put one of their 3 mansions up on AirbNb?
but now that we are retired, I feel very very poor....stock market crash and that's it for us...
we live simply...but its not enough....
and the reason?....taxes...huge taxes on our 5acre property with a decent home...
we are slaves...
FRiend, that is my worst nightmare, but like a "Casandra Complex" I'd be shocked if that ending wasn't awaiting me too, but what can you do?
Even if many of us were smart enough to know Social Security was a ponzi scam, robbed by the Federal Government, and invested privately, Joe Biden's America (and really the administrations since Reagan) has raped our retirement. A sad, but true fact.
All depends where you live
No public assistance.
Have insurance (funny the 2012 note on phantom coverage in that article as that is all most of us can get nowadays)
Reliable transportation and money to pay for fuel
Able to spend on day-to-day necessities without counting pennies
I guess having retirement funds, homes/equity, etc.
Reality check. I'm not middle class. I'm not poor either. I can check off most boxes.
And therein lies part of the problem. It's defining that lifestyle.
Lots of people live beyond their means because they spend a lot of their income on luxury items and then complain that they cannot manage the basics but are unwilling to give up the luxuries.
/
Insurance pays for the unexpected and extreme. Car insurance pays for crashes, not gas and oil changes. If it does pay for gas and oil changes, then your premium would have to pay for your gas and oil plus handling fees. In most cases, health insurance is to get your employer to pay for your healthcare from the first dollar. That's not insurance.
A percentage of non-financial hard assets such as family heirlooms, precious metals, business equity, rental income property, land, etc. that can be transferred to the next generation, i.e. generational wealth.
So the family home, savings and a 401k don't count. I think this requirement is pushing the "middle" class requirements well into the wealthy.
Significant equity (25%-50%) in a home or other real estate.
So it is impossible to be middle class in a rental? Even if you buy with 10% down on a 30 year mortgage, it will take 10 years to hit 25% equity and about 20 years to hit 50% without inflation driving up the value. That means you can't be middle class for your apartment years or at least the first ten years of home ownership.
I think a lot if this article is not about a shrinking middle class, but rather a redefinition upward for political purposes.
It takes more to be middle class than the middle class can afford, and that is a purposeful, deliberate policy choice by the Democrats.
stock market crash and that’s it for us...
I recall reading advice years ago that you get out of the stock market five years before retirement. I don’t think anyone follows that advice now.
What Does It Take To Be Middle Class Now?
Learn to do with out the best of things and do your best besides the more things you have the more to worry about.
10. Leisure time devoted to the maintenance of physical/spiritual/mental fitness.
~~~~~~~~~~>>>>THIS>>>>>>>>>>>>>>
I need more of. I only have 24 hours of leisure time in a day and have been that way for 24 years now and loving it.
Taxes, regulations and inflation destroy retirement.
Many retirees have addressed these issues by retiring overseas. Places such as Portugal, Spain, Croatia, Uruguay, Philippines etc. offer a less expensive cost of living and high quality of life. Geographic arbitrage.
CHS has many great discussions—he is excellent at “systems thinking”, a lost art these days.
I am retired and have zero percent in the stock market.
Money markets are paying over 5% and that is good enough for me—I am not greedy.
Many wealthy folks do not “own” real estate at all—at least not in their own name.
They play by totally different rules.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.