Understanding the financial difference between upper-class, middle-class, and poverty in America today.
A lot has been said about the shrinking middle class, and the data confirms it. According to Pew Research Center, the percentage of those in each income class as of 2016 are as follows: Lower - 29%, Middle - $52%, Upper - 19%. The overall trend since 1971 has seen the lower class grow from 25% to 29%, the middle class shrink from 61% to 52%, and the upper class grow from 14% to 19%. The middle class reached its lowest share in 2015 at just under 50%, but has grown slightly since then.
Pew defines the middle-class as those earning double to two-thirds of the median household income.
Aside from stagnant wage growth, a few demographic changes have contributed to the reduction of the middle class. The median age has increased, with residents over age 65 growing from 35 million in 2000 to 49.2 million in 2016 (12.4% of the population vs. 15.2% respectively). Retirees tend to live off savings and generate little income. The country is also much more diverse than it was in the 1970s and on average, immigrants earn less money.
The Top 1% of Americans
A lot has also been said about the top 1%, where the trends are even more exaggerated. How much money does it take to make it into the 1%? In 2015, you had to make a yearly income of $421,926, which is more than double the 2016 median upper-class income of $187,872.
Which class does that leave you in? According to the U.S. Census Bureau, the median household income is reported to be $61,372 per year. Pew defines the middle class as those earning two-thirds of the median household income to double the median household income.
However, location matters. $61,372 goes farther in Scranton, PA then it does in Washington, DC. A family of four will also have a much different experience than a DINK couple (Dual Income No Kids). People tend to live and socialize with those of similar income, so it is harder for individuals to gauge where they are in relation to the median household. For this purpose, the Pew Research Center provides an income calculator that factors in class status by state, metro area, and number of members in the household. It also provides a further breakdown by education level, age, race, and marital status.
Where Do You See Yourself Tomorrow?
If you are interested in creating wealth and would like to work with an investment professional, please consider our financial planning and investment management services. We are a fiduciary located in Des Moines, IA serving clients across the U.S. You can email us at invest@taberasset.com or call us at 515-557-1860.