A few weeks ago I spoke to Zach Shrier of Shrier Wealth Management (who also happens to double as Lauren’s cousin and was my investing teacher my freshman year of high school) about the definition of “Middle Class.” Last year, about 50% of Americans classified themselves as part of the middle class.
Statistical Definitions of Middle Class
There are many ways of defining middle class. You can simply look at raw data and define each class as a percentage of Americans earning incomes within a range. Using three classes, we might get something like this:
- Upper Class – Top 25% of Population – Earning more than $87,000/year
- Middle Class – Middle 50% of Population – Earning between $20,000 and $87,000/year
- Lower Class – Top 25% of Population – Earning Less Than $20,000/year
You can play with the data however you’d like and define upper class as the top 5% (earning over $200,000) or even the top 1% (earning over $506,000) of the population. However, it doesn’t help define what it means to be middle class (or upper or lower).
Zach had a very nice idea, that rather than the amount you make, concerns are what define each class. Making $50,000 in Manhattan is very different than making $50,000 in a small town in Texas, so it’s clear that a number itself isn’t a great definition.
New Definitions of The Classes
When we look at what concerns people have, we get a breakdown of each of the classes:
People in the lower class are concerned with having a place to sleep and food to eat. These are people who are struggling to come up with the most basic needs. They may not have to worry about these things every day, but it’s something that’s always looming over their head. Will they be able to afford rent next month? Basic federal benefits are very important to them because they have few alternatives to government help.
People in the lower middle class are definitely concerned with the short-term, but less so than people in lower class. They may have the very basics covered, but government subsidies are still very important. They’re not able to save regularly as almost all income goes towards managing their day-to-day life (getting to and from work, food, housing, and basic “wants”). The people often make big sacrifices to get by, including living in multi-generational homes to keep costs as low as possible.
People in the middle class are concerned with having consistent employment as well as the costs of getting around and being able to save. While they might not be living month to month, they are worried about being able to support their family. They want to save to be able to afford to go on vacation with their family and not have to worry so much about the near future. Changes in gas prices are significant because high gas prices mean less money for the other things in their life.
People in the upper middle class worry not about gas prices, but about the costs of home ownership and the costs of education. They may be cognizant of the changes in gas prices in their area, they do not worry about affording the price. Whether it is $3 a gallon or $4 a gallon, they will pay the price because they have no alternative to getting around. They may want to send their children to private school or live in an area where the public school system is of high quality. But living in that area likely means houses are more expensive, and they are concerned with being able to handle all of the responsibilities.
People in the upper class are people who have a different set of concerns: passing wealth onto the next generation. They don’t have to worry about money to cover the costs of their needs and wants, but they still want to make sure their children won’t have to worry about the same things.
Concerns Define Us
Everyone worries about money. While people in the upper class may not have to worry about affording things in the short-term, they have other concerns nonetheless. They too may never feel complacent with their wealth, something everyone can identify with.
Every class has a different set of concerns, and while there may be some overlap, it’s clear that higher up the ladder you get, the less you worry about your short-term finances.