Who is the Middle Class Now?

The definition of middle class can vary depending on who you ask.

A young college graduate with a $22,000 entry-level job may consider herself middle class because her parents were, she graduated from college and she’s just starting her white-collar career.

A married blue-collar worker with two children making $41,000 a year may consider himself middle class because the family owns a lovely three-bedroom home in the Midwest and their kids attend a good public school.

According to standards followed by Pew Research, these people would be considered “lower income.” Pew categorizes middle-class household incomes as ranging from $42,000 to $125,000, and upper-income households as having incomes of $125,000 and above (measured with assumptions regarding household size and geographic cost of living).

Unfortunately, even those who truly fall under the “middle-class” category aren’t always in an optimal financial position. In a recent survey, people across all income thresholds responded that they would have a difficult time coming up with just $1,000 to pay for an emergency expense. This is how the numbers broke down:

•    75% of people in households earning less than $50,000
•    67% of people in households earning between $50,000 and $100,000
•    38% of people in households earning more than $100,000 

It’s worth repeating that more than one-third of households earning more than $100,000 a year don’t have $1,000 set aside in an emergency fund.

The thing about emergencies is that we don’t adequately plan for them. We happily auto-transfer money from our paychecks to our 401(k) plans each month, but pay for out-of-pocket car repairs with a credit card. Which, incidentally, is how many people overburdened with credit card debt get started down that path. 

We believe that insurance takes many forms, and one of them is emergency funds. If you don’t have a liquid cash account for unexpected expenses, we encourage you to start saving. 

While money is typically the biggest factor in determining class, the St. Louis Federal Reserve Bank looked at three demographic characteristics -- age, education and race -- to assess middle class status. By and large, most people who fall into its middle class statistics are those who finished college, regardless of their age or race.

One reason for this is because even in low-wage industries, such as retail or food and beverage, employers appear more likely to hire a college graduate over applicants who did not finish college. In fact, this may account for why Americans with a bachelor’s degree have a 2.4 percent unemployment rate compared to the 5.9 percent of those with a high school diploma or less.

Just how much money does it take to live in a middle class household in this day and age? According to the Economic Policy Institute, the basic family budget for a two-parent, two-child family ranges from $49,114 in Morristown, Tennessee, to $106,493 in Washington, D.C. Geographic variations are primarily due to housing and child care costs.

We keep seeing headlines claiming that there are Americans who work full time and yet still live in poverty. For example, a full-time, full-year worker paid $7.25 per hour (the federal minimum wage) will earn about $15,080 a year before taxes, based on 2,080 annual hours. This is below the federal poverty line of $16,317 for a single parent with one child. Of course, that applies only to workers who make the federal minimum wage, but states can set their own laws.

For example, if you live in Montana and work for a business not covered by the Fair Labor Standards Act with gross annual sales of $110,000 or less, the minimum wage can be as low as $4 an hour. A full-timer in that scenario would earn about $8,320 a year, which makes it easy to see how coming up with $1,000 for an emergency expense could be difficult.

Interested in reading more? Here are some articles that may be of interest to you:

[CLICK HERE to read the article, “Are you in the American middle class? Find out with our income calculator,” from Pew Research Center, May 11, 2016.]

[CLICK HERE to read the article, “Poll: Two-thirds of US would struggle to cover $1,000 crisis,” from The Associated Press, May 19, 2016.]

[CLICK HERE to read the article, “What is middle class, anyway?” from CNNMoney, May 20, 2016.]

[CLICK HERE to read the article, “Poll: Americans more upbeat about own finances than economy,” from The Associated Press, May 18, 2016.]

[CLICK HERE to read the article, “What Families Need to Get By,” from Economic Policy Institute, Aug. 26, 2015.]

[CLICK HERE to read the article, “Minimum Wage Laws in the States – January 1, 2016,” from United States Department of Labor.]


Raymond C. Lantz, Jr. is the president and founder of USA Wealth  Group, Inc. Ray has many years of experience advising clients in retirement and sophisticated tax planning strategies, multi-family and commercial real estate projects, and legacy planning. Ray is a graduate of Clark University, holds a law degree from Boston College, and a master of laws in taxation from Boston University. You can hear him every Sunday on Money Wise with  Ray Lantz on WBSM 1420AM or on the Radio Pup app.