Are You Still Middle Class?

You May Not Be [The Daily Reckoning] December 02, 2023 [WEBSITE]( | [UNSUBSCRIBE]( Are You Still Middle Class? The Hawaiian Islands Editor’s note: We assume that the majority of our readers identify as “middle class.” But as Charles Hugh Smith shows you today, the costs of maintaining a middle-class lifestyle have risen dramatically. Are you still middle class? [Charles Hugh Smith] CHARLES HUGH SMITH Dear Reader, Defining the middle class is a perpetually popular parlor game because it's well-known that the foundation of widespread prosperity is a broad-based middle class and a sturdy ladder of social mobility that enables those below the middle class to work their way up to middle-class security. The topic is also a perennial favorite because the middle class is losing ground. By basic measures of income, it's slipped from 60% of the populace to 50%. A strong case can be made that assessed by characteristics of middle-class security and prosperity rather than income, the middle class has effectively shrunk to 10% of households as only the top 30% of households earn enough to afford what was within reach of the top 60% in decades past. By definition, the top 20% cannot be "middle class." The top 20% is comprised of the upper-middle class, the wealthy and the super-wealthy (the 80–95% bracket, top 5% and top 1%). Attempting to define the middle class by income alone is futile due to regional differences in costs and purchasing power. A $100,000 annual household income that will barely pay rent and necessities in a major metro city can stretch considerably further in smaller cities far from high-cost zones. Regardless of income, households that are living paycheck to paycheck don't qualify as middle class if we qualify "middle class" by the following characteristics… What It Takes to Be Middle Class In “Why the Middle Class Is Doomed” (April 2012) I listed five "threshold" characteristics of membership in the middle class: 1. Meaningful health care insurance (i.e. not phantom coverage that only kicks in after thousands of dollars are paid in cash). 2. Significant equity (25–50%) in a home or other real estate. 3. Income/expenses that enable the household to save at least 6% of its net income. 4. Significant retirement funds: 401(k)s, IRAs, etc. 5. The ability to service all debt and expenses over the medium term if one of the primary household wage earners loses their job. I then added a taken-for-granted sixth: 6. Reliable vehicles for each wage earner that are fully covered by insurance. Author Chris Sullins suggested adding these additional thresholds: 7. If a household requires government assistance (SNAP, Medicaid, rent subsidies, etc.) to maintain the family lifestyle, their middle class status is in doubt. 8. A percentage of non-financial hard assets such as family heirlooms, precious metals, business equity, rental income property, land, 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. [The Biblical Reckoning has arrived Genesis 47:15]( [Click here for more...]( In his 2011 book Currency Wars… Jim Rickards issued a warning that came from the book of Genesis… One that could spell an economic reckoning of biblical proportions. Now it looks like that prediction is starting to come true. And you may not have long to prepare. That’s why Jim published a major update to that warning… To tell you exactly what he recommends you do next. [Click Here To View It Now]( Wait, There’s More Correspondent Mark G. suggested two more features: 11. Continual accumulation of human and social capital (adding new skills, expanding social networks and 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' 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. Middle Class No Longer So how much does it cost to meet these qualifying standards? Two generations ago, public school teachers, health care workers, skilled craft workers and others with median-level incomes could meet all of these qualifications, for the purchasing power of their earnings was extremely high compared with now. A median wage bought a lot of shelter, vehicle, health care, college education, etc. According to the U.S. Census Bureau, real median household income was $74,580 in 2022. (Source: Income in the United States: 2022). This is the "middle income" that presumably qualifies as "middle class," but it would take extreme frugality and sacrifices to stretch $75,000 to cover the qualifications listed above, even in low-cost regions. As a general guideline, $75,000 would only stretch to meet these qualifications if 1) the family home was owned free and clear, i.e. no mortgage, either via inheritance or extreme efforts such as building your own home with cash savings… 2) no student loan debt, either by gaining desirable skills outside college or completing college on scholarships, with family financial aid, etc., and no vehicle loan, i.e. a reliable used car/truck that is owned free and clear. These may strike younger readers as impossible fantasies, but as I've often noted, 40 years ago I worked my way through a four-year university program with part-time jobs and built a house from scratch with only savings, income from temp construction jobs and a $5,000 bank loan ($17,000 in today's dollars) which we paid off in two years. Even with extreme frugality, this debt-free lifestyle is no longer within reach of the non-wealthy, as costs for college, land, permits and building materials have skyrocketed, along with the costs of health care, insurance, vehicles, childcare, etc. [Revealed! Will this AI Opportunity be Bigger Than The PC?]( [Click here for more...]( Imagine being able to go back in time to the 1980s... Seeing the promise of a new tech called the PC, an early investor puts $500 into Microsoft's IPO in 1986. Today, that $500 would be worth over $1.6 MILLION. Well, history could be about to repeat itself, and it's all thanks to artificial intelligence, or AI. And you have the chance to invest on the ground floor. Click here now to see the 3 tiny AI stocks best positioned to profit over the coming years. [Click Here To Learn More]( You Need $150,000 I submit that for most households in higher-cost regions, these qualifications can only be met with an annual household income of $150,000 or more, which according to the Census Bureau is the cutoff level for the top 20% (top quintile) of American households. According to the Census Bureau, the top 20% earn 52% of all income, and the top 5% earn 23.5% of all income. The top 10% of households have an income of $216,000 or higher, and the top 5% have incomes of $295,000 or higher. The top 1% bracket is $867,000 and up. (TableA-4a, Income in the United States: 2022). In lower-cost regions, it may be possible for frugal households in the 70–80% income bracket to qualify. According to the Census Bureau, this bracket earns between $118,700–153,000. This 10% might qualify as middle class. Households earning less would likely qualify only if they inherited significant wealth from their families or received substantial financial aid from their families, such as college paid for in full, a down payment for a home purchase, etc. In summary: If we set minimum standards for qualifying as middle class by what was within reach of typical American households two generations ago, relatively few households qualify as middle class. Unsustainable Middle class means more than being able to charge a lavish cruise or foreign vacation on a credit card or buying a new truck with a huge loan. It once meant owning assets, not owing debt on assets. The percentage of wealth owned by the 50–90% bracket — what we might consider middle class — has declined sharply as wealth has concentrated in the top 10%. By way of example, the top 10% own 90% of stocks. Wages are the bedrock of middle-class income and wealth accumulation, and here we see wages’ share of the national income has been in a free fall for 45 years. It has recently ticked up, but it is not yet clear if this is just another temporary blip or an overdue clawback of income that has predominantly flowed to capital. Can an economy in which 10% of the households qualify as middle class claim to offer widespread opportunities for secure prosperity? No, it cannot. "Middle class" isn't just income or consumption; it demands a toehold of ownership of real assets that offer security, not a lifetime of debt servitude. As security becomes increasingly precarious and unaffordable, self-reliance offers an alternative to a lifetime of debt servitude. Like what you’ve read? [Go here for more.]( Regards, Charles Hugh Smith for The Daily Reckoning [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) Editor’s note: In case you didn’t hear… Our vice president of publishing just authorized [the biggest change in our company’s history.]( (If you’re out of the loop, watch [this video announcement]( for a detailed explanation.) This was NOT an easy decision. But given the current state of the U.S. economy… This was 100% necessary. And we’re not going to sugarcoat it… This will likely have a massive impact on all our subscribers — even you. If you hear our VP out for five minutes, we think you will agree… We could NOT keep operating like this. [Go here now for details.]( Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) [Charles Hugh Smith] [Charles Hugh Smith]( is an American writer and blogger, and serves as the chief writer for the blog "Of Two Minds". Started in 2005, this site has been listed No. 7 in CNBC's top alternative financial sites, and his commentary is featured on a number of sites including Zerohedge.com, The American Conservative, and Peak Prosperity. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your The Daily Reckoning e-mail subscription and associated external offers sent from The Daily Reckoning, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. 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