Author Topic: How many Americans are REALLY Middle Class? (Read 608 times)

Matthew · « **on:** October 16, 2018, 09:12:04 PM »

How Many Households Qualify as Middle Class?

By the standards of previous generations, the middle class has been stripmined of income, assets and purchasing power.
What does it take to be middle class nowadays? Defining the middle class is a parlor game, with most of the punditry referring to income brackets as the defining factor.
People tend to self-report that they belong to the middle class based on income, but income is not the key metric: 12 other factors are more telling measures of middle class membership than income.
In Why the Middle Class Is Doomed (April 17, 2012) I listed five minimum threshold characteristics of membership in the middle class:
1. Meaningful healthcare insurance (i.e. not phantom insurance with $5,000 deductibles, etc.) and life insurance.
2. Significant equity (25%-50%) in a home or equivalent 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 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
Author Chris Sullins suggested adding these additional thresholds:
7. If a household requires government assistance to maintain the family lifestyle, their Middle Class status is in doubt.
8. A percentage of non-paper, non-family home hard assets such as family heirlooms, precious metals, tools, 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. recently suggested two more:
11. Continual accuмulation of human and social capital (new skills, networks of collaborators, 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.
What does it take in the real world to qualify as middle class?
Here are my calculations based on our own expenses and those of our friends in urban America. We can quibble about details endlessly, so these are mid-range estimates. These reflect urban costs; rural towns/cities will naturally have significantly lower cost structures. Please make adjustments as suits your area or experience, but please recall that tens of millions of people live in high-cost left and right-coast cities, and millions more have high heating/cooling/commuting costs.
The wages of those employed by Corporate America or the government do not reflect the total cost of benefits such as healthcare insurance. Self-employed people like myself pay the full costs of benefits, so we have to realize there is no ideal average of household expenses. Some households pay very little of their actual healthcare expenses, other pay for part of these costs and still others pay most or all of their healthcare insurance and co-pays.
1. Healthcare. Let's budget $15,000 annually for healthcare insurance. Yes, if you're 23 years old and single, you will pay less, so this is an average. If you're older (I'm 64), $15,000 a year only buys you and your spouse stripped down coverage: no eyewear, medication or dental coverage--and that's if your existing plan is grandfathered in. (If you want non-phantom ObamaCare coverage, the cost zooms up to $2,000/month or $24,000 annually.)
Add in co-pays and out-of-pocket expenses, and the realistic annual total is between $15,000 and $20,000 annually: Your family's health care costs: $19,393 (this was before ACA).
Let's say $15,000 annually is about as low as you can reasonably expect to maintain middle class healthcare.
2. Home equity. Building home equity requires paying meaningful principal. Let's say a household has a 15-year mortgage so the principal payments are actually meaningfully adding to equity, unlike a 30-year mortgage. Let's say $5-$10,000 of $25,000 in annual mortgage payments is interest (deductible) and $15-$20,000 goes to principal reduction.
3. Savings. Anything less than $5,000 in annual savings is not very meaningful if college costs, co-pays for medical emergencies, etc. are being anticipated, and $10,000 is a more realistic number given the need to stockpile cash in the event of job loss or reduced hours/pay. So let's go with a minimum of $5,000 in cash savings annually.
4. Retirement. Let's assume $6,000 per wage earner per year, or $12,000 per household. That won't buy much of a retirement unless you start at age 25, and even then the return at current rates is so abysmal the nestegg won't grow faster than inflation unless you take horrendous risks (and win).
5. Vehicles. The AAA pegs the cost of each compact car at $7,000 annually, so $14K per year assumes two compacts each driven 15,000 miles. The cost declines for two paid-for, well-maintained clunkers and increases for sedans and trucks. Let's assume a scrimp-and-save household who manages to operate and insure two vehicles for $10,000 annually.
6. Social Security and Medicare Taxes. Self-employed people pay full freight Social Security and Medicare taxes: 15.3% of all net income, starting with dollar one and going up to $127,200 for SSA. But let's take a household of two employed wage-earners and put in $8,000.
Property taxes: These are low in many parts of the country, but let's assume a level between New Jersey/New York/California level of property tax and very low property tax rates: $10,000 annually.
Income tax: There are too many complexities, so let's assume $2,000 in state and local taxes and $5,000 in federal taxes for a total of $7,000.
7. Living expenses: Some people spend hundreds of dollars on food each week, others considerably less. Let's assume a two-adult household will need at least $12,000 annually for food, utilities, phone service, Internet, home maintenance, clothing, furnishings, books, films, etc., while those who like to dine out often, take week-ends away for skiing or equivalent will need more like $20,000.
8. Donations, church tithes, community organizations, adult education, hobbies, etc.: Let's say $2,000 annually at a minimum.
Note that this does not include the cost of maintaining boats, RVs, pools, etc., or the cost of an annual vacation.
Here's the annual summary:
Healthcare: $15,000
Mortgage: $25,000
Savings: $5,000
Retirement: $12,000
Vehicles: $10,000
Property taxes: $10,000
Income and Social Security/Medicare taxes: $15,000
Living expenses: $12,000
Other: $2,000
Minimum Total: $106,000
Vacations, travel, unexpected expenses, etc: $5,000.
Realistic Total: $111,000
That's almost double the median household income of $59,000. Note that this $111,000 household income has no budget for lavish vacations, luxury vehicles, large pickup trucks, boats, second homes, college expenses, etc. There is no budget for private schooling. Most of the family income goes to the mortgage, taxes and healthcare. Savings are modest, along with living expenses and retirement contributions. This is a barebones budget.
$111,000 household income is right about the cut-off point for the top 20% of household income. How close are you to the top 1%?
Toss in a jumbo mortgage, college tuition paid in cash, an aging parent to care for or any of a dozen other major expenses and the minimum quickly rises to $155,000, which puts the household in the top 10% of household income.
How can we even talk about a "middle class" when the minimum thresholds put the household in the top 20%? And we haven't even considered the ultimate minimum threshold of middle class membership: family ownership of income-producing assets such as businesses, rental properties, bonds, etc.
The key takeaway of this chart is the concentration of the household wealth of the bottom 90% in the family home. The wealthy and upper-middle class own income-producing assets, while the bottom 90% own some life insurance, cash and pensions, but their largest asset by far is the family home. (They also "own" a tremendous amount of debt.)

The problem is life insurance, cash and pensions don't generate much income, and neither does the family home. Households counting on the equity in bubble-priced housing are not factoring in the unwelcome reality that all bubbles pop, even housing bubbles that can't possibly pop.
To have the equivalent security and generational wealth enjoyed by the middle class two generations ago, households have to check off all 12 minimum thresholds. I'm not sure there is a "middle class" any more; if we use these 12 minimum thresholds, the U.S. now has a super-wealthy class (top .01%), a very wealthy class (top .5%), an upper class (top 9.5% below the wealthy) and the rest (bottom 90%), with varying levels of security and assets but at levels far below what median-income households enjoyed in bygone eras.
By the standards of previous generations, the middle class has been stripmined of income, assets and purchasing power.

http://charleshughsmith.blogspot.com/2018/10/how-many-households-qualify-as-middle.html

RomanCatholic1953 · « **Reply #1 on:** October 22, 2018, 02:48:34 PM »

How many Americans are REALLY Middle Class? That is the Question:

Middle Class Destroyed: 50 Percent Of All American Workers Make Less Than $30,533 A Year
October 22, 2018 | Michael Snyder | The Economic Collapse |

The middle class in America has been declining for decades, and we continue to get even more evidence of the catastrophic damage that has already been done. According to the Social Security Administration, the median yearly wage in the United States is just $30,533 at this point. That means 50 percent of all American workers make at least that much per year, but that also means that 50 percent of all American workers make that much or less per year. When you divide $30,533 by 12, you get a median monthly wage of just over $2,500. But of course nobody can provide a middle class standard of living for a family of four for just $2,500 a month, and we will discuss this further below. So in most households at least two people are working, and in many cases multiple jobs are being taken on by a single individual in a desperate attempt to make ends meet. The American people are working harder than ever, and yet the middle class just continues to erode.
The deeper we dig into the numbers provided by the Social Security Administration, the more depressing they become. Here are just a few examples from their official website…
-34 percent of all American workers made less than $20,000 last year.
-48 percent of all American workers made less than $30,000 last year.
-59 percent of all American workers made less than $40,000 last year.
-68 percent of all American workers made less than $50,000 last year.
At this moment, the federal poverty level for a family of five is $29,420, and yet about half the workers in the entire country don’t even make that much on a yearly basis.
So can someone please explain to me again why people are saying that the economy is “doing well”?
Many will point to how well the stock market has been doing, but the stock market has not been an accurate barometer for the overall economy in a very, very long time.
And the stock market has already fallen nearly 1,500 points since the beginning of the month. The bull market appears to be over and the bears are licking their chops.
No matter who has been in the White House, and no matter which political party has controlled Congress, the U.S. middle class has been systematically eviscerated year after year. Many that used to be thriving may still even call themselves “middle class”, but that doesn’t make it true.
You would think that someone making “the median income” in a country as wealthy as the United States would be doing quite well. But the truth is that $2,500 a month won’t get you very far these days.
First of all, your family is going to need somewhere to live. Especially on the east and west coasts, it is really hard to find something habitable for under $1,000 a month in 2018. If you live in the middle of the country or in a rural area, housing prices are significantly cheaper. But for the vast majority of us, let’s assume a minimum of $1,000 a month for housing costs.
Secondly, you will also need to pay your utility bills and other home-related expenses. These costs include power, water, phone, television, Internet, etc. I will be extremely conservative and estimate that this total will be about $300 a month.
Thirdly, each income earner will need a vehicle in order to get to work. In this example we will assume one income earner and a car payment of just $200 a month.
So now we are already up to $1,500 a month. The money is running out fast.
Next, insurance bills will have to be paid. Health insurance premiums have gotten ridiculously expensive in recent years, and many family plans are now well over $1,000 a month. But for this example let’s assume a health insurance payment of just $450 a month and a car insurance payment of just $50 a month.
Of course your family will have to eat, and I don’t know anyone that can feed a family of four for just $500 a month, but let’s go with that number.
So now we have already spent the entire $2,500, and we don’t have a single penny left over for anything else.
But wait, we didn’t even account for taxes yet. When you deduct taxes, our fictional family of four is well into the red every month and will need plenty of government assistance.
This is life in America today, and it isn’t pretty.
In his most recent article, Charles Hugh Smith estimated that an income of at least $106,000 is required to maintain a middle class lifestyle in America today. That estimate may be a bit high, but not by too much.
Yes, there is a very limited sliver of the population that has been doing well in recent years, but most of the country continues to barely scrape by from month to month. Out in California, Silicon Valley has generated quite a few millionaires, but the state also has the highest poverty in the entire nation. For every Silicon Valley millionaire, there are thousands upon thousands of poor people living in towns such as Huron, California…

Quote

Nearly 40 percent of Huron residents — and almost half of all children — live below the poverty line, according to the U.S. Census Bureau. That’s more than double the statewide rate of 19 percent reported last month, which is the highest in the U.S. The national average is 12.3 percent.
“We’re in the Appalachians of the West,” Mayor Rey Leon said. “I don’t think enough urgency is being taken to resolve a problem that has existed for way too long.”
Multiple families and boarders pack rundown homes, only about a quarter of residents have high school diplomas and most lack adequate health care in an area plagued with diabetes and high asthma rates in one the nation’s most polluted air basins.

One recent study found that the gap between the wealthy and the poor is the largest that it has been since the 1920s, and America’s once thriving middle class is evaporating right in front of our eyes.
We could have made much different choices as a society, but we didn’t, and now we are going to have a great price to pay for our foolishness…
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Contributed by Michael Snyder of The Economic Collapse.
Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream , The Truth and Economic Collapse Blog.
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Vintagewife3 · « **Reply #2 on:** October 22, 2018, 03:40:26 PM »

They want to destroy the middle class all to work towards their goals of communism/socialism.

Seraphina · « **Reply #3 on:** October 22, 2018, 04:32:05 PM »

I'm definitely NOT middle class! At least nobody will fight over my wealth when I'm gone!

Author Topic: How many Americans are REALLY Middle Class? (Read 608 times)

Matthew

How many Americans are REALLY Middle Class?

RomanCatholic1953

Re: How many Americans are REALLY Middle Class?

Vintagewife3

Re: How many Americans are REALLY Middle Class?

Seraphina

Re: How many Americans are REALLY Middle Class?