Are You Really Middle Class?

[Belsnickel]

Came across this article, thought some folks on here would enjoy it. I'm interested to read what some of the thoughts are from folks on the board. I'm going post the source later, because I don't want that to trigger anyone's biases.

Quote:Can we define the middle class in practical terms? To be sure, there are probably as many sociological definitions of the middle class as there are commentators seeking definitions. So let’s set aside the socio-swamp of beliefs, values, and taxonomies of class in favor of a definition with measurable thresholds.

Many commentators attempt to define the middle class by income, and people tend to self-report that they belong to the middle class based on income. The self-evident way to define the middle class by income is to set aside the top 10 percent (households earning $145,000 or more) and those defined as poor by the U.S. Census Bureau (households making less than $25,000), roughly 25 percent of all households.

Somewhere between the two is the middle class, though trying to narrow it down forces us into an impassable statistical thicket. For example, government agencies report income in different ways. The IRS reports individual tax returns (147 million) while other agencies report household income (117 million households).

The median household income is around $53,000—a number that’s declined since 2007 when adjusted for inflation. This is obviously in the middle range of income, but regional cost differences render national numbers meaningless: $53,000 is near-poverty level in left and right coast cities.

Income totals don’t include government transfers, and that seriously distorts the data. If services provided to low-income households are added in—for example, SNAP (food stamps), Medicaid (free healthcare coverage) and Section 8 housing vouchers (subsidized rent)—the income for households that are defined as “poor” by earned income alone may be between $60,000 and $75,000—not wealthy but certainly not poor.

Then there’s the problem of sorting out what households do with their income. Is a family that owns no assets and lives paycheck to paycheck “middle class” because their income is high?

I propose that we define the middle class as a set of financial attributes and assets that were widely considered an attainable norm in the 1960s. If prosperity has indeed been rising for the past 50 years, households should be able to not just meet these twelve minimum thresholds, but greatly exceed them.

Meaningful hospitalization/healthcare insurance
Significant equity (25+ percent) in a home
Income/expenses that enable the household to save at least 6 percent of its income
Significant retirement savings: pensions, 401Ks, IRAs, etc.
The ability to pay all expenses over the medium-term if one of the primary wage-earners lose their job
Reliable vehicles for each wage-earner
The household does not require government transfers or subsidies to maintain their lifestyle
Ownership of non-real estate assets such as family heirlooms, tools, etc.
Time and money to invest in children (enrichment, extracurricular clubs/training, etc.).
Leisure time devoted to the maintenance of physical/spiritual/mental health
Continual accumulation of human and social capital (new skills, new markets for one’s services, etc.)
Family ownership of income-producing assets such as rental properties, bonds, businesses, etc.

The key point here is that propping up a precarious façade of debt-funded consumption does not qualify as middle class. To qualify as middle class, the household must actually own wealth that won’t vanish when the investment bubble du jour pops, and won’t be wiped out by a medical emergency.

Many of these thresholds have changed over the decades. In the 1960s, it was common to pay for doctor’s visits in cash; now insurance is required for even the most routine visit. Vehicles last longer now, but cost more, and so on.

Setting aside such quibbles, these thresholds define the key characteristic of the traditional middle class: the middle class accumulates capital that can be passed on to the next generation.

The wealthy are presumed to have inherited income-producing capital, and their job is to preserve that capital for the next generation to inherit. The working class (which includes the working poor who receive government subsidies) live paycheck to paycheck because they lack the income and skills needed to accumulate capital.

Perhaps this is why so many of those claiming membership in the middle class feel poor: by the conventions of an earlier definition of middle class, they are poor because they’re accumulating very little capital.

So what does it cost to meet these 12 minimum standards today?

Let’s start by stipulating that regional differences make it impossible to determine a national minimum; let’s aim for a mid-point between high coastal/urban costs and lower rural costs, and ask readers to make the necessary adjustments.

We also need to account for the costs typically paid by corporate and government employers—healthcare insurance, pension/401K contributions, and the employer’s share of Social Security and Medicare payroll taxes. We have to look at total compensation costs—not just wages/salaries, but the combined costs of compensation and benefits paid by employers

Self-employed people (I raise my hand here) pay healthcare insurance, IRA/401K contributions, and the employer’s share of Social Security and Medicare payroll taxes out of pocket, so we’re keenly aware of these costs that are often invisible to employees.

With the acknowledgement that debates about each item could fill volumes, here is my rough estimate of what it takes to meet the 12 thresholds of membership in the middle class.

Healthcare: $15,000
Mortgage: $25,000
Savings: $6,000
Retirement: $12,000
Vehicles: $13,000
Property taxes: $7,000
Income and other taxes: $20,000
Basic living expenses: $15,000
Donations, tithes, summer camps, lessons, hobbies, sports, etc.: $7,000

Total: $120,000

If this seems high, it’s not; rather, these are at the lower end of realistic estimates.

For example, according to health care consulting firm Milliman Inc., healthcare for a family of four is more than $19,000 annually. (My wife and I pay $13,000 for basic coverage, and pay cash for eyewear, dental care and medications, so this looks low-ball to me.)

The AAA estimates the cost of each compact car at $6,700 annually, and the average cost of auto ownership at $8,946 per year, so $13,000 per year assumes two compacts each driven 15,000 miles. Two well-maintained clunkers will cost less, of course, but it’s easy to argue that other estimates in this list are way under typical expenses. Property taxes are much higher in many states, and basic expenses cost more in many locales. The enrichment line item doesn’t include a family vacation, which can easily add thousands more, or savings for college.

There’s no line item for servicing student loans or subsidizing post-college offspring or care for elderly parents. Nudge up a few items and you’re soon pushing the line separating “middle class” from the top 10 percent.

What can we conclude from this experiment? One inescapable conclusion is that costs have soared for things that were once affordable while incomes have by and large not kept pace.

Another is that by this definition, there are far fewer members of the middle class than the nation owns up to.

[Belsnickel]

I've known for quite some time that our definition of middle class really doesn't mean the same thing as it once did. This is a bit more detailed than some other things I have read, which is nice. The trouble with how we are currently defining middle class, which is based on income and ignores all of this, is that it results in policies that don't do a good enough job of addressing the issues. If we only look at income, sure, we can look at difference fiscal or monetary tools to adjust these things. But does that actually help out? Does it address the costs listed in this article? The answer to that is no, and in order to truly address the widening socio-economic gaps in this country we need to look more holistically at the problem. We need a gestalt solution, and recognizing that how we define the middle class is wrong is the first step.

[Bengalzona]

(10-27-2017, 09:54 AM)Belsnickel Wrote: I've known for quite some time that our definition of middle class really doesn't mean the same thing as it once did. This is a bit more detailed than some other things I have read, which is nice. The trouble with how we are currently defining middle class, which is based on income and ignores all of this, is that it results in policies that don't do a good enough job of addressing the issues. If we only look at income, sure, we can look at difference fiscal or monetary tools to adjust these things. But does that actually help out? Does it address the costs listed in this article? The answer to that is no, and in order to truly address the widening socio-economic gaps in this country we need to look more holistically at the problem. We need a gestalt solution, and recognizing that how we define the middle class is wrong is the first step.

We are a two-class society anymore. Just like medieval times. And if you are reading this, then you ain't in the upper class. Bow to your lords and do as they say, because they have wealth and are therefore virtuous.

[Yojimbo]

I’m getting there, but mostly because I’m not married, have no children, live in a small town in Oregon and got a good state job this year with full benefits, pension and starting salary of $41k.

Last year I was making $13.00/hr working on an assembly line and only made $25k for the year, which was very hard to live on.

[*TheLeonardLeap*]

I have a couple problems with this article, the primary one being the idea that you have to be saving money in order to be middle class. That somehow middle class can't be paycheck-to-paycheck.

Look at NFL players. They make $500k-25m/yr and when there was a holdout some of them were lasting only WEEKS after taking out million dollar loans. They still made millions of dollars though, so how are they ineligible to even be middle class?

I know that's an extreme example with the NFL, but I really just don't see how saving money determines what your income class is. If a person makes $100k/yr, but blows it on a huge downpayment for an Aston Martin, that shouldn't take away from the fact that they make $100k/yr and have an Aston Martin.

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A smaller problem is the requirement of a vehicle in that calculation. If you live in a big enough city, a vehicle simply might not be needed between walking distance and public transportation. There's plenty of people who make a lot of money in a city like New York who don't own a car.

- - - - - - - - -

And finally the other problem I would want to point out is mortgage and property tax are ridiculously different in different parts of the country.

$7k in property taxes in Ohio at it's 1.532% tax would mean a $457,000 home, which is a really large and nice home if you live even slightly rural.

https://www.realtor.com/realestateandhomes-detail/2208-Van-Blaricum-Rd_Cincinnati_OH_45233_M41464-59061 (6 bedroom, 3 full/1 half bath, 4,758 sq ft, 2.5 acres of land, $450k

As you go further away from the city, your money goes further as well.

[Belsnickel]

(10-27-2017, 12:40 PM)TheLeonardLeap Wrote: I have a couple problems with this article, the primary one being the idea that you have to be saving money in order to be middle class. That somehow middle class can't be paycheck-to-paycheck.

Look at NFL players. They make $500k-25m/yr and when there was a holdout some of them were lasting only WEEKS after taking out million dollar loans. They still made millions of dollars though, so how are they ineligible to even be middle class?

I know that's an extreme example with the NFL, but I really just don't see how saving money determines what your income class is. If a person makes $100k/yr, but blows it on a huge downpayment for an Aston Martin, that shouldn't take away from the fact that they make $100k/yr and have an Aston Martin.

- - - - - - - - -

A smaller problem is the requirement of a vehicle in that calculation. If you live in a big enough city, a vehicle simply might not be needed between walking distance and public transportation. There's plenty of people who make a lot of money in a city like New York who don't own a car.

- - - - - - - - -

And finally the other problem I would want to point out is mortgage and property tax are ridiculously different in different parts of the country.

$7k in property taxes in Ohio at it's 1.532% tax would mean a $457,000 home, which is a really large and nice home if you live even slightly rural.

https://www.realtor.com/realestateandhomes-detail/2208-Van-Blaricum-Rd_Cincinnati_OH_45233_M41464-59061 (6 bedroom, 3 full/1 half bath, 4,758 sq ft, 2.5 acres of land, $450k

As you go further away from the city, your money goes further as well.

I think what you're missing in your reading of the article, is that the author is not saying that having those things is necessary to be middle-class. What he is saying is that these are the things that defined the middle-class before, and being able to afford them (not necessarily having them) is what should continue to define them. You can be stupid with your money, but could you afford to save the money if you weren't blowing it on stupid shit?

As for the area differences, that is true of any attempted definition of the middle-class, or any socio-economic classification. There is always going to be the problem of regional variation. His point is that basing it on income alone is more problematic than looking at these other factors. Also, you talk about the vehicle thing and then the mortgage costs, when looking at the issue as a whole, those are tradeoffs. If you live in a urban setting, you may spend less on transportation, but more on housing. Rural would be the opposite.

[*bfine32*]

Given the above criteria I do not qualify as middle-class as I an the only source of income for my family. "The ability to pay all expenses over the medium-term if one of the primary wage-earners lose their job."

I hit all other thresholds and live in a community with a very low cost of living. I think the "classes" became blurred on buying on credit became a way of life.

[Belsnickel]

(10-27-2017, 02:06 PM)bfine32 Wrote: Given the above criteria I do not qualify as middle-class as I an the only source of income for my family. "The ability to pay all expenses over the medium-term if one of the primary wage-earners lose their job."

I hit all other thresholds and live in a community with a very low cost of living. I think the "classes" became blurred on buying on credit became a way of life.

And that was something that the author definitely feels the same way about.

FWIW, I'll go ahead and share the source in case anyone is interested: http://www.theamericanconservative.com/articles/are-you-really-middle-class/