The collapse of the middle class?

[Independent]

Quote:

Originally Posted by Dudester Perhaps the way to define middle class might be as follows: Divide the population into (at least the following) 2 groups: 1) Those who depend on an income on a job-related income to survive. If they lose their job, they lose their income and fall into poverty. 2) Those who have sufficient assets to live off the dividends, interest, etc thrown off by these assets. In other words, they're rentiers. They might have a job also, but if they lose their job, no big deal. The middle class are those in group 1, in other words, most people. Notice that this definition does not depend on how much income a wage/salary earner makes. The important point is that they are wage/salary earners not asset holders. A peculiarity of this definition is that a successful early retiree is not middle class. I personally don't have a problem with this peculiarity of my definition.

I often think of a quote from Cliff Huxtable (yes, a fictitious character):

"When you're middle class, you work for your money.
When you're rich, your money works for you."

He was trying to explain to one of his kids why he thought he was middle class even though he was an MD married to a lawyer.

In practice, most of us here would adjust for age. Living modestly off a lifetime of saved assets at 70 isn't the same as living large from a big inheritance at 35.

[Dudester]

Quote:

Originally Posted by jdw_fire looks like people with no assets, retired on SS alone and arent working fall into group 2. hmmmm i think there is a big problem with your grouping.

You DID notice that I allowed for the possibility of additional groups, didn't you? Hmmmm i think there is a big problem with your reply.

[ziggy29]

Quote:

Originally Posted by Dudester Perhaps the way to define middle class might be as follows: Divide the population into (at least the following) 2 groups: 1) Those who depend on an income on a job-related income to survive. If they lose their job, they lose their income and fall into poverty. 2) Those who have sufficient assets to live off the dividends, interest, etc thrown off by these assets. In other words, they're rentiers. They might have a job also, but if they lose their job, no big deal.

I think around here that tends to be how we define "financial independence" -- whether or not you are likely to be able to make ends meet for life even without any earned income.

There's a significant third group, too -- those who do not have to work but can live off of income streams provided from past work -- i.e. SS and pensions. They may lack the assets of your group 2, but unlike group 1 they can stay out of poverty even without work.

I've never specifically heard a definition of "middle class" along the lines of whether or not someone needs to work. A definition which calls a retiree with few assets but a $50K income stream with pensions and SS as not "middle class" is, IMO, a bit peculiar.

[Katsmeow]

Back before DH retired and I ESR'd we had a high income and so many would say we weren't middle class. And, I get that. We sure made more than someone making $50k or $75k. The thing is that people tend to want to divide things into poor, middle class, and rich. The reason you have people who make more than $250k saying they are middle class is that they don't think they are rich.

First, the term rich has always implied to me having a high net worth. You can have a high income but if you don't have a high net worth then that doesn't seem rich.

Then, there are the people who really really do have high income. We had a really good income, but I knew people who routinely made over a $1 million a year and then we don't seem so rich. In comparison with others in my profession that I worked with my income wasn't exceptional (not bad just not extraordinarily high) and I knew plenty of people who made way more.

So I can get that we weren't exactly middle income. I would say we were high income. But does middle class require middle income? If the choice of terms is middle class or rich then I felt middle class. In practice, I tend to use the term upper middle class which seems to fit better for those who are higher income but not really high net worth.

Oh on the childhood thing 50 years ago:

I certainly felt middle class at the time although perhaps working class would have been more accurate. My dad was a foreman in a meat packing plant (did not graduate high school) and my mom was a clerk at the same place (high school graduate). They owned their own home, paying the mortgage off early. They were very frugal. They often thought of moving to a "better" house but could never get themselves to spend the money (my mom still lives in that house). They had one TV but then when I was about 10 they bought me a small BW TV of my own. They had 2 cars -- my mom was unusual for the 50s and 60s in that she worked rather than being a housewife. We would go on a 2 week long summer vacation, staying in motels along the way. We bought most of our clothes at inexpensive department stores although sometimes my mom had clothes made for me by a local seamstress (less expensive). They rarely ate out. I lived at home for college attending a state school then they sent me (and paid for) my attending a good law school (in state). None of my parents' generation had college educations. Most of their kids either went to college a couple of years or had a bachelor's degree. I was the only one to go beyond that.

[misty57]

Quote:

Originally Posted by Katsmeow Back before DH retired and I ESR'd we had a high income and so many would say we weren't middle class. And, I get that. We sure made more than someone making $50k or $75k. The thing is that people tend to want to divide things into poor, middle class, and rich. The reason you have people who make more than $250k saying they are middle class is that they don't think they are rich.

In addition, one has to consider the area of the country the earner(s) live in. A couple who makes $250K and lives in a LCOL is going to feel a lot richer than a couple who makes the same but lives in New York or San Francisco.

[Gone4Good]

Quote:

Originally Posted by GregLee Different in what way? It still looks like a recent upward trend, to me.

Yup, that "Corporate Profits as a % of GDP" shows exactly the same thing . . . a declining trend until the early 80's and then a persistent upward trend.

[Gone4Good]

Here, BTW, is a more updated Corporate Profit / GDP graph. This one I calculated using St. Louis Fed data and it looks an awful lot like what the previous graph of corporate profit margins shows.



And this from the Economist last week . . .

Quote:

BCA Research has some remarkable statistics in its research note on profit margins (no link available, I'm afraid). Since 1990, real domestic corporate profits in America have risen 200%, while real compensation for corporate employees has increased just 20% and real median family incomes are up just 2% (is this the American dream?). Since 2000, the relevant statistics are 80%, 8% and minus 5% respectively. Profit margins in the non-financial sector as measured by ebitd (earnings before interest, tax and depreciation) are as high as they have been at any moment in the last 50 years. . . . The conventional economic assumption is that compensation should keep pace with productivity. But the productivity gains have accrued to employers not employees.

[brewer12345]

G4G, your numbers jibe with what anyone who looks around can see. If you are a commodity labor seller without advanced degrees and/or specialized skills, you generally are struggling. If you have significant financial assets, times are good. If you are somewhere in between (maybe a college degree and modest net worth), you are on the knife edge. This was masked by easy credit and booming housing for a while, but those fig leaves have been torn off.

[ChiliPepr]

Quote:

Originally Posted by ziggy29 I've never specifically heard a definition of "middle class" along the lines of whether or not someone needs to work. A definition which calls a retiree with few assets but a $50K income stream with pensions and SS as not "middle class" is, IMO, a bit peculiar.

Would anyone consider a retiree with a yearly income stream from SS and pensions of $50K differently than a retiree without a pension but with a million dollars in the bank that combined with their SS to throw off a $50k yearly income stream?

[Gone4Good]

Quote:

Originally Posted by ChiliPepr Would anyone consider a retiree with a yearly income stream from SS and pensions of $50K differently than a retiree without a pension but with a million dollars in the bank that combined with their SS to throw off a $50k yearly income stream?

I'm a big fan of defining 'middle-class' as people who are actually in the middle. So at first blush, a $50K income puts you near the middle of the population and it shouldn't make much of a difference where that income comes from.

However, when considering whether something falls within the middle of a population, you have to define the population correctly. My gut tells me that most individuals don't have the resources (either assets or pensions) to retire on $50K per year. Most probably don't have a hope of doing so in the future. So someone who can, most likely falls outside the median of the population.

There is a big difference, in my mind, between living on $50K without needing to work, and living on a salary of the same amount. In the former you are probably rich, and in the latter you are definitely middle-class.

[BLS53]

A person earning $50K a year at a job, has a take home pay of about $3K per month. They are likely paying rent or a mortgage.

A retiree gets $30K a year from SS and a pension. Their only deduction is FITW on the pension, leaving their net monthly income at around $2300 a month. They own a home with no mortgage.

How are these individuals any different as far as discretionary income goes?

[traineeinvestor]

IMHO, being "middle class" isn't about absolute levels of income. It's about standard of living - specifically the ability to have a lifestyle which, at a materialistic level, is more than "just getting by" and less than "don't have to ask how much it costs". If you (i) can afford decent housing, decent food, reliable transportation, (ii) have access to health care and (iii) can incurr at least some luxury/discretionary spending and (iv) without relying on unearned handouts or borrowing money you have little chance of repaying, then you are middle class. If you can't do this, or can't do it without handouts, you are poor.

Historically of course, being middle class was something else enitirely.

[GregLee]

I've just read over the Wikipedia article on "American Middle Class", and I think it's pretty good. Here's an especially nice paragraph:

Quote:

Weberian definition Some modern theories of political economy consider a large middle class to be a beneficial, stabilizing influence on society, because it has neither the possibly explosive revolutionary tendencies of the lower class, nor the absolutist tendencies of an entrenched upper class. Most sociological definitions of middle class follow Max Weber. Here the middle class is defined as consisting of professionals or business owners who share a culture of domesticity and sub-urbanity and a level of relative security against social crisis, in the form of socially desired skill or wealth. Thus the theory on the middle class by Max Weber can be cited as one that supports the notion of the middle class being composed of a quasi-elite of professionals and managers, who are largely immune to economic downturns and trends such as out-sourcing which affect the statistical middle class. American middle class - Wikipedia, the free encyclopedia

The last sentence appears to say that if you can be replaced through out-sourcing, you're working class, not middle.

[Fireup2020]

Quote:

Originally Posted by GregLee I've just read over the Wikipedia article on "American Middle Class", and I think it's pretty good. Here's an especially nice paragraph.."Thus the theory on the middle class by Max Weber can be cited as one that supports the notion of the middle class being composed of a quasi-elite of professionals and managers, who are largely immune to economic downturns and trends such as out-sourcing which affect the statistical middle class. ".

This version of Middle Class is definitely collapsing!

Quote:

Originally Posted by Independent I often think of a quote from Cliff Huxtable (yes, a fictitious character): "When you're middle class, you work for your money. When you're rich, your money works for you." He was trying to explain to one of his kids why he thought he was middle class even though he was an MD married to a lawyer.

Love it!! Great philosophy!

[kombat]

Quote:

Originally Posted by Independent Living modestly off a lifetime of saved assets at 70 isn't the same as living large from a big inheritance at 35.

I disagree. Someone living off the interest from several million bucks is "rich," regardless of their age.

[Independent]

Quote:

Originally Posted by kombat I disagree. Someone living off the interest from several million bucks is "rich," regardless of their age.

This topic is thick with personal definitions. To me "several" is three or more. Median SS benefits for a couple are $30k or so. (4% of $3 million) + $30k = $150k annually.

To me "modest" is somewhere around the middle. Median income for a working age family of four is $75k. It might take $50k after retirement to maintain that lifestyle.

So I'd agree that a retirement fund of several million will provide for something above a "modest" lifestyle.

[haha]

We discuss this and present our "ideas" as if there were an answer. Answers are floated as being a fact of experience, or society. But they are not, they are only a personal attitude based on who knows what.

Sometimes I try to understand what is the point of this kind of discussion, then I realize that there is no point, other than it somehow provides rewards or at least reduces anxiety in those who participate.

Ha

[Surewhitey]

Quote:

Originally Posted by Independent This topic is thick with personal definitions. To me "several" is three or more. Median SS benefits for a couple are $30k or so. (4% of $3 million) + $30k = $150k annually. To me "modest" is somewhere around the middle. Median income for a working age family of four is $75k. It might take $50k after retirement to maintain that lifestyle. So I'd agree that a retirement fund of several million will provide for something above a "modest" lifestyle.

I am working to be self-sufficient (say $50k annually to start). So many say a certain salary is middle class. I say it is, at minimum, salary adjusted to experience, true living expenses & region. I've lived in LA, TX & CA. We made $80k, $150k, & $225k. In all markets, we made reasonable amounts to be middle class. The $225k in CA just isn't that much money compared to $80k in LA.

We had a $60k home in LA & no prop tax. We had a $145k home in TX & $4k in prop tax. We rent for $2,200 / mo in CA and that's a steal for a home here. If we owned, we would be paying like $500k for a small, average home & $8k in prop taxes.

So based on that info, I'd still call us middle class. The fact that we save more is a function of not buying a home, Iphones & BMW's here & focusing on our future ER. This is more important to us than "looking like middle class"...

When we get to $1 million or so, we're talking about calling it quits and living a simple lifestyle in a place like N. AR, TX or Mexico (or a combo of all over time).

Disclosure, I did upgrade to a 4G Android for $29 + 2 yr contract...I'm getting close to the Jones'...

[brett]

I think it is as much about what you keep as it is about what your earn.

Our income level (one income family) increased significantly in the 13 years leading up to our early retirement at age 59. We did not greatly alter our spending habits or our lifestyle habits. None of this replacing the car every three or four years to keep up with the Jone's. Not sure if we did this intentionally or if it was just our style of living. In event, we went to retire we found out that we in a very good position financially and can now travel anytime we want and anywhere we want.

I worry about my children, I do not think that they will end up at the same place as we did from a financial perspective.

[Surewhitey]

Quote:

Originally Posted by haha We discuss this and present our "ideas" as if there were an answer. Answers are floated as being a fact of experience, or society. But they are not, they are only a personal attitude based on who knows what. Sometimes I try to understand what is the point of this kind of discussion, then I realize that there is no point, other than it somehow provides rewards or at least reduces anxiety in those who participate. Ha

In our case, it is about demonizing people who have gone from throwing newspapers as a kid to sacking groceries to working in a lumber yard to manufacturing printing, marrying up & doing well by delaying reward for doing hard work...oh, and taxes.

I do not "know" much, I just know after paying $100k in taxes last year, it feels like we are unappreciated by the populace who probably doesn't pay much and thinks they know who can afford to pay more.

I live here, so I have to abide by the laws / taxes and do not have any "deductions", so I get hit harder than those who do.