If you read my “Definitions Of A Middle Class Income” article, you'll come across my theory that almost all of us identify as middle class, no matter how much we make.
Post-pandemic, it's even more important to stay in the middle class given the K-shaped recovery. Further, President Biden is focused on supporting the middle class so the country can fully recover.
Why We All Want To Be In The Middle Class
1) We want to blend in.
Just like in high school, if you are the only jackass who drives a sports car to school that your parents bought you, you will likely get beaten to a pulp. You might get a lot of hot dates in the short-term, but that's all the more reason for other kids to beat you up. As we grow older, we tend to have loved ones to provide for. Things get really real as adults because you don't want to cross people with actual means who could destroy you.
Your career could get crushed if your boss, who has an inferiority complex about not having a graduate school degree, hears you bragging about your time at Harvard Business School.
You could get stabbed walking home in the middle of the night by the bartender who is sick and tired of you talking about your amazing conquests, one of which could have been her ex-boyfriend. Envy lives strongly within us all! Please practice Stealth Wealth, unless you're really insecure about yourself.
2) We don't want to be perceived as inferior.
Part of the reason why I'm writing this article at 6am before I have to drive 40 minutes south to a consulting job is because I don't want to fail on Financial Samurai. As a result, I tend to get up early every morning to write and produce before making some shekels. I don't want this site to scrape the bottom of the barrel after almost six years of hard mental labor. No ma'am. It feels like the world is watching in my little head.
Even if we are making below the median individual income of ~$28,500 or the median household income of ~$53,000, we will still believe we are middle class citizens. Even if we know we didn't try hard in high school or ended up going to an unknown university that cost us a fortune, we will be hard-pressed to admit our mistakes as adults.
The reality is, we all fail ALL THE TIME! In order to cope with our failure, we tell ourselves we're part of the middle, or we try harder to make up for our deficiencies as adults when we finally realize that it's now or never to get our crap together!
3) We never want to lose hope.
President Obama initially campaigned on the word “Hope” and won. Who doesn't love hope? Hope allows us to keep going when life starts breaking our toes and pokes our eyes out while we're already feeling nauseous after eating some bad chicken curry. But when we're soaking in our beds with curry sweat, we keep hope alive that one day we'll feel like a million bucks again.
Every time I make an investment, or do something crazy like leave a lucrative job to make little money as a blogger, I hold onto the hope that everything will be OK. I know bad things happen all the time, and they always tend to happen to us when we least expect it. But my hope is that the good times will outweigh the bad, and we'll die satisfied knowing that everything turned out alright in the end.
Middle Class Economics
So who is the middle class? Let's explore more about what a middle class income is.
Although the chart below says that people who identify with the middle class has shrunk from 53% in 2008 to 44% today, the fact of the matter is that 99% of everyone surveyed in the chart still consider themselves middle class! Middle Class 44% + Lower Middle Class 40% + Upper Middle Class 15% = 99%. We are all the same shades of grey.
Nobody is going to say they are “rich” because nobody wants to get shot. Nobody will say they are “poor” either because researchers will get labeled as elitists and nobody will admit they are poor. Manipulation of data and semantics comes from these social scientists with their PhDs who are looking for nuggets of interesting information. So many are beholden to the financiers who support them. Others may be the puppets of unknown or very well known puppet masters.
The real mathematical definition of middle class is if you earn plus or minus 25% of what the median earns in your area of residence. If we take the nation as a whole, then a middle class household earns anywhere between roughly $40,000 and $67,000.
But as we all know, the cost of living is drastically different between places like dreary New York City to paradise San Francisco to frigid North Dakota. The good thing is that you can easily search online for what the median income earner makes in your respective town. The other good thing is that if you feel stuck in hell, you can easily get on a bus and go to economic heaven if you have the courage.
The Best Path To More Wealth
There's one thing I've noticed from the more than 10 million visitors who've come to Financial Samurai since inception is that most people erroneously focus on income growth and not net worth growth. The reality is that people who get rich are the ones who focus on building permanent wealth through asset accumulation.
The rich are the ones who make more money through the appreciation of their stocks, bonds, private investments, and real estate than from their income. This is called accumulating a financial nut that works hard for you so you don't have to!
Trying to learn about investing in various asset classes is not particularly easy – especially not compared to buying the latest pair of shoes or luxury automobile. But the most amazing thing that has happened over the past 20 years is the democratized of knowledge thanks to the internet.
So if you know of someone who is mortgaging their future on some fancy private school they can't afford, slap them upside the head. If you've found a site that helps you save money, make more money, and grow your net worth, let others know.
Focus on building wealth through various types of investments. Just make sure you spend time reading advice written by someone who has actually done what she or he is writing about. The easiest way to learn is to learn from other people's mistakes. You've just got to be willing to listen.
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Sam,
Your comment that 99% of survey respondents identify with the middle class is false. The note below the chart indicates that lower includes both lower class and lower middle class (the same idea for upper as well).
I was just reading about how 38 million Americans live paycheck to paycheck, and the surprise came when I read that 22.5 million of them are middle class. That means that many middle class people have a poor person’s mentality. They might be making good money, but I personally think it’s so scary to live paycheck to paycheck. Increasing your financial nut with investments that grow in time is definitely the way to go, I couldn’t sleep at night knowing that my bank accounts are empty. That peace of mind is what makes me feel middle class :)
A note from the editor: “But the most amazing thing that has happened over the past 20 years is the democratized of knowledge thanks to the internet.”
*democratization of knowledge
(Your blog is amazingly free of error usually – just helping out).
“I never knew Financial Samurai attracted more Liberal readers given a strong focus on making an income that Conservatives like to promote.”
And since when is being frugal and smart about finances a purely conservative trait?
No one says making money is bad. No one says being rich itself is bad. The real questions center around how you feel the current political situation is good not just for you personally but for the country and the system as a whole and that’s more likely to define you being considered a liberal or conservative then whether you make a decent salary and smart moves with money.
That said, I figure most people associate with middle class for two reasons. First most people have family and friends who are middle class, came from middle class, or actually are middle class since it’s big chunk of the populace. Therefore they can relate directly being middle class. Secondly, when most folks think about middle class they envision things like having a house, a car(s), a once a year vacation, and enough money to pay your bills monthly and save a bit. They tend to think of “rich” as megamansions, yachts, being driven in limo’s, etc. So consider two married professionals making $100-150K each so combined they’re making $200-300K, which most people making under $100K combined would think of as rich. They may tend to think of themselves as middle class because though nicer than many people they really only have a house, cars, take a vacation once a year (much like they’re parents likely did), save a bit and pay their bills monthly. Then add they are not likely to “feel” rich because they are likely saving for the kids college, saving for retirement, paying their bills, and seeing themselves struggling to commit to all their priorities. So if they aren’t “feeling” rich, they must not be rich. They know they aren’t poor, so the only conclusion is they must be somewhere in the middle class.
I wonder if class identification is more psychological than real. You are not poor or low class and you don’t identify with the upper class, therefore you are middle class. Even professionals see themselves higher than the working middle class folks. In the past, I have seen a variety of income brackets are general (national) at best. Just an opinion.
I just wanted to know about the definition of middle class and whether the definition given by you includes the upper middle class also. Thanks
For our blog we lifted the phrase “pretend to be poor” from a Proverb but it really means living below your means in order to gain real wealth. I agree it’s offensive to the truly poor to claim to be poor, and we’re pretty much all rich when you compare with global poverty (see globalrichlist.com). This doesn’t mean you shouldn’t try to build wealth but it sure puts it in perspective.
I like your blog. Well done.
Nice post.
I don’t label myself, and I generally dress like I slept behind a building in the Loin.
I also fart loudly in public, on purpose.
I voted for Obama and campaigned for him.
I didn’t like the speech. The community college thing is a canard. And increasing our budget by 7% is lunacy. I think he is incredibly cynical — reminds me of Karl Rove.
Bring on Hillary…SERIOUSLY.
Also, speaking of private investing, I want ‘in’ on the next Wealthfront round. Hook me up, Sammy! XXOO
Nice job Steve! Fart with pride! Just make sure nobody else is around, or you’re not in an elevator bank.
Obama didn’t seem cynical to me. Maybe we were watching a difference person? He seemed resolute and hopeful!
Cynical in that he knows with the current Congress those proposals have no chance of succeeding. He could have met Congress even 30% of the way in his remarks, but no. Cynical in that he is smart enough to know that his proposals won’t make a meaningful dent in the biggest issue facing the middle class — stagnant wages. Cynical in proposing a $300 billion tax over ten years when we made interest payments coming close to half that much on our national debt in the last year. Cynical in stating toward the beginning of his speech: “We can either do THIS [help the middle class with MY proposals]…or do THAT [ponder to elite and doughy fat cats only]”…as if there are no other options. To reiterate, I voted and campaigned for our President.
P.S. Income versus wealth. Thank you for that! Keep channeling Joshua Kennon and Thomas J. Stanley…and I mean that seriously and sincerely….good stuff!
I live in an area in Central California that has a big income gap. I think there a lot of lower middle class, but then there is a smaller than average middle class, with a lot of upper class wealth. It creates an interesting dynamic in the city and county politics. A huge amount of people got Medicaid coverage with the ACA, so I think that would lead more people to call themselves middle class.
I am surprised so many people were searching for that term. They should be searching for how to get out of debt, how to make more income, or how to retire early!
Good last point! I didn’t see the pick up in those terms, but I do have relevant posts if anybody is interested.
How To Retire Early And Never Have To Work Again
Pay Down Debt Or Invest? Implement FS-DAIR
Here’s an overly simplistic way to find out if you are rich, middle class, or poor. Ask:
Do you have money other than what’s in your wallet? If no, you’re probably considered poor. If yes, move on to ask, Do you feel more in control of your money or do you feel that other people or forces have control over the money you have? If you’re in control, you’re likely rich, if you feel others are in control, you’re somewhere in the middle class.
I like it MB. The feeling of “having control” is important!
I disagree; Anyone getting “hot dates” was never beaten up.
Sam,
I’m in agreement with you in regards to your definition of middle class income.
But the term “middle class” is rather fluid. The New York Times did in excellent series of articles (maybe 10 years ago?) called “Class Matters”.
The Times considers four fundamentals when defining class. These include a combination of: income, education, wealth, and occupation.
The thinking is that you could be for example a low income individual with a masters degree whom happens to have considerable wealth (maybe a mortgage free home?). This person would still be middle class or actually upper middle class. Depending on the amount of net worth, maybe even upper class.
Also, many occupations have fairly high status but don’t really pay as well as would be expected, versus the local cost of living. Yet just having a higher status occupation has an effect on the individuals social status.
Bottom line: Middle class is more of a social/cultural identity rather than just an annual income.
True. And given there’s more socioeconomic equality in America today, perhaps the angst with the widening wealth gap is not as dire?
https://www.financialsamurai.com/does-income-inequality-matter-if-there-is-social-equality/
I thought about the wealth inequality issue. It’s a problem….. Extreme wealth inequality causes corruption/conflicts of interest within the political class.
In short….. Extreme wealth can be used to purchase politicians/laws/regulators/etc. This may not be good for the country or the economy.
Most of our friends would consider us “rich” if we told them A.) what we made and B.) our wealth. I don’t tell anyone because of this. That being said, I consider our income to be upper middle class. We do very well for where we live.
I admittedly did not listen to the entire speech the other night because I can not hear anymore about the redistribution of our wealth/income. I have heard about the taxes that he is proposing on 529 plans and I am disappointed to hear that he wants to tax some of the middle class that he is trying to save. More taxes on 529 plans is not going to help matters.
It’s a surprised about the phaseout of the 529 plan. But the 529 plan is mostly a middle to upper middle class tool, and the gov’t sees the data. Eventually, the government will come for us all.
I took a look at some data regarding this. 80% of the people who use 529 plan make over 180,000. Not really middle class.
Interesting thing is that privately Kristy knows she is upper class, but thinks this change in the tax code is going to effect middle class families. Probably because the incentive to identify as “Middle Class” is so strong people do it without even knowing it.
1. The 529 account will still grow tax free it is only when you decide to withdraw do the families now get hit with taxes
2. The new taxes are being redistributed as a new credit for middle income families for school. Something that will actually be used.
Initially it sounds like savings for the middle class by a different vehicle.
Tax credit vs Non Tax saving accounts that the middle class doesn’t use.
I am basing my income on what Obama has considered “middle class” in the past, hence the reason I said “upper middle class”. I grew up poor so maybe I am trying to relate more to the middle class, who knows.
Not only that, but there are tons of grandparents who put money into 529 plans for their grandkids and the phase out will affect that too. So even if one is truly middle class and the grandparents contribute that is truly unfortunate for the kids going to school.
Based on household income I consider us to be upper middle class. However, I would never say that to anyone that we know, except one of my good friends. Her and I are able to discuss hitting retirement milestones, income, etc. I do not want everyone else to see us any differently than they already do. I think that everyone views us as middle class and I prefer to keep it that way, since I view them the same way. In addition, I feel like we can’t discuss our savings rate because most of the people we know likely are not saving much.
As for Obama’s speech, I didn’t listen to much of it. I have not liked him since he was running for office years ago and I still don’t like him. I do not feel like he is looking at the best interests of our country and he is pandering to the people who will vote Democrat. Moreover, I am not fond of the redistribution of wealth/income.
I’m OK with redistribution of income for the RIGHT things… like helping people get health care b/c genetics don’t discriminate between rich or poor.
But I don’t like redistribution of income towards wars that kill people.
In what ways do you think Obama is not looking out for the country?
I think the best thing for the people in our country would be education….education about finances and how to better your life and get ahead. Education about how to live within your means and pay your own way for college. I don’t mind “handouts” such as welfare, food stamps, etc., but I do not believe in universal healthcare, the ACA, bigger government or paying for others to go to college. There are ways to go to college without it being free if you are so inclined to do so and if you want to work for it. I do not think that life is fair, nor should it be.
But the people that need “handouts” (as you put it) probably wouldn’t need it if they had affordable healthcare and free college educations!
You are far more positive than I am. Some of the people needing handouts are always going to need them, no matter how much you give them.
People do like to think of themselves as middle class, all the way up in through the income brackets. I think it’s mainly because people use how they “feel” when they think about their status rather than an objective standard. We tend to surround ourselves with people like us (background, education, income) so we’ve probably got a couple of friends who we think are “rich” or at least doing better than us, a lot like us, and few below, so we feel in the middle. We also let lifestyle creep continue, so it never feels like we get ahead. But I think it’s clear to say if your in the top 10%, and particularly the top 1%, by definition your not in the middle.
I like that the idea of looking at your own city more specifically for a more localized idea of where you fall, but even here on Financial Samurai you’ve posted top 10% is cutoff at $100k, 5% at $160k, and 1% at $380k. If we’re being objective, top 5% makes me rich, and I’m sure a very large percentage of your readership falls in there as well. Maybe we need an additional category, like “wealthy” to describe the 0.01% who’s net worth is asset driven rather than salary, and leave rich to those still working.
Yes, good points. There is a HUGE difference between the top 0.01% and the top 1%. I think society confuses the two. The top 1% tend to still be working folks who must work for their income. The top 0.01% have equity and assets like no other.
So I say, if you can’t make it to the top 0.1%, then better to be part of the 99%! Being classified as a one-percenter isn’t a good idea.
Hi FS,
Nice spike in traffic! More than I get in a month, in an hour!
In the UK there is a certain pride behind being working class, or at least from a working class background. Not being born with a silver spoon in your mouth and all that
I’d say I’m middle class… dad with a degree, a degree myself and a professional job in finance….about as middle class as it gets? Still my financial nut is growing all the time. Soon I can become FI muahahahah :)
Mr Z
John Lennon said it best: “A working class hero is something to be.” Though I don’t think he ever was one.
Right you are! A good quote, but yeah, he certainly was never one
Hi Mr. Zombie,
Curious though about that working class pride since the British ADORE the royal family so much, who are worth bagillions as the largest landowners of your country. I like them too. Maybe GB is just a much more nice, accepting country of all classes?
Sam
Some adore them. Some think they are a lazy waste of space!
I don’t mind them so much. And Prince Harry is a lunatic.
It’s hard to compare having never worked anywhere else (I grew up in the middle east and that was certainly “classist”).
The heroes here are sometimes the working class who started with nothing but kicked ass. Like Richard Branson and Alan Sugar…
I’m trying hard to remember what a psychology teacher said about social class.
Something about if you had to earn your money, you weren’t considered wealthy.
This is regardless of your net worth? Anyone?
The truly wealthy upper class inherited their money and, social status.
Something like 25-30% of the super wealthy inherited their wealth, so that still leaves 70-75% of the rest of us less fortunate folks to hustle to make our fortune.
Most people like to think of themselves as middle class even though a lot of them would not be considered middle class if strictly taking income/wealth into consideration.
They like to consider themselves middle class because they don’t want to be put into the group that they consider “takers” even though they are in actuality talking about themselves or someone close to them.
“Takers”…. ah, a word that some of the “haves” love to use. I don’t know anybody who is happy to just take. But I do know a lot of people who just want a CHANCE, an equal chance to succeed.
Funny thing is most of those “haves” barely “have” anything.
For instance when people talk about taxing the “rich” and someone will use the rebuttal that the top 25% already pay the majority of the taxes.
Well how convenient that it takes a household of $89,000 which isn’t very much to be considered one of the good guys ie “Middle Class” ie not a “taker”.
It’s kind of an oddity that we all see ourselves as middle class. There must be some pride or security in that social standing: doing well, but not too well. Fitting in. Being average…or maybe just slightly better.
Americans are wealthy on a global scale. The pew poll you cite references self identified “social class” and, to me, that implies several qualitative variables which may or may not be related to income/net worth. How much do self-perceptions determine the reality? Does the perception of others play a role? What if you make $90k/yr and are spending 95% percent of it, wouldn’t you likely feel very middle class at that point? What if you make $300k/yr but live a $60k/yr lifestyle; are you effectively middle class with a high income?
These confusions play well for politicians seeking popular appeal. Can you strictly determine income strata statistically, sure. But it’s just not that simple in the minds of most people.
All I know is that Mitt Romney’s campaign manager must have been born yesterday. It doesn’t matter if he gets 100% of the top 10% income earners. That’s still only 10%. I’d much rather have 50% of the bottom 90%.
Makes me so bullish on the world that there are people who have huge responsibility jobs who can get paid who don’t know what they are doing. Imagine if you did? Let the good times role my middle class brother!
FS, you are onto something but am not sure you give proper credit to the Romney campaign (in 2012, that is). Your math bears out the 47% of American households that don’t pay Federal Income Taxes, and Romney didn’t feel he could ‘do anything for’. Meanwhile, free phones and free healthcare and 99 weeks of unemployment and promises of free Junior College have great appeal to that 50% of the bottom 90%. Hmmm.
btw, this post was remarkably colorful, and you really painted pictures with words (like Alex, I loved the ‘bad curry’ metaphor). This one grabbed me…“stabbed walking home in the middle of the night by the bartender who is sick and tired of you talking about your amazing conquests, one of which could have been her ex-boyfriend.” Now that is a “vicious female ballbuster who hates men!”
Whoo hoo! Braggarts beware!
If Republican presidential campaign managers can’t get simple math right on who to woo, they will never win again.
“Hope allows us to keep going when life starts breaking our toes and pokes our eyes out while we’re already feeling nauseous after eating some bad chicken curry.”
Ha, apparently your metaphors get pretty weird at 6am.
Gets weirder at 5am when I like to update and revise my post for grammatical and punctuation errors I miss.
“But when we’re soaking in our beds with curry sweat, we keep hope alive that one day we’ll feel like a million bucks again.”
Congratulations on the publicity! After a quick google search on ‘define middle class’ FS is number 3 after Wikipedia and U.S News.. Some pretty good company I’d say!
I wonder if we will get some new perspectives in the comments on some of your older articles, that’s always fun to read through!
(Oh yeah, that means you beat merriam webster on a definition! Kinda funny)
Now you just need to capitalize on keeping the readership.
Good Luck!
Dang, can’t believe Wikipedia and US News & World Report is ahead of FS! Check the writers of those articles and get back to me with their credentials :)
New comments and perspectives are good. I hope there will be some with this post. The RSS e-mail blast does go out until around 4am PST tomorrow.
I think it’s all relative, and I think you are whatever other people call you, not what you call yourself, for all of the reasons you cite. Some poor folks in truly challenged parts of the world would likely call most / all people in the U.S. (and certainly all of the readers here) rich. One of my favorite entrepreneurs, Felix Dennis, would have called most of us – even perhaps you Sam – “comfortably poor” at best.
Re: Obama’s speech – I thought I’d better top up my 529 plans for my kids while I still have the chance, and hope the grandfathering of tax-free growth includes contributions made this month :-) Then my contributions will be done forever, which makes it a poor source of the needed tax revenue for his other plans.
Comfortably poor, I love it and will embrace it. May the comfortably poor rise up and struggle to achieve great success!
Don’t worry about tax increases or phaseouts. We’ve got gridlock for two more years. One big waste of time.