The Middle Class is Shrinking
How to Get Ahead of the Curve
The Pew Research Center published a study in 2022 comparing the difference between the U.S. middle class in 1970 and 2020. The study found that the percentage of people in the middle class (defined as those who make from two-thirds to double the median U.S. income) had decreased from 61% to 50% of the population. Lower income Americans rose from 25% to 29% of the population and upper income Americans rose from 14% to 21% of the population. Actual middle-class income depends on the size of the family. For a single individual, a middle-class income ranges from $30,000 - $90,000 per year. For a couple it starts at $42,430 up to $127,300; for a family of three, $60,000 - $180,000; and four $67,100 - $201,270.
The study found that middle class wage growth had not kept pace with upper income wage growth and that middle-class aggregate (i.e., collective) income had sharply declined. In 1970, adults in middle-class households accounted for 62% of aggregate income, a share that fell to 42% in 2020. Upper income households are more likely to have multiple income earners in the household and more likely to have a bachelor’s degree. Also, there is a nexus between education and marriage in that college-educated adults are more likely than young adults lacking a bachelor’s degree to have married by the age of 30.
Besides hitting the books and getting hitched, there are other methods that can lead to higher incomes. While “job hopping” used to be frowned upon, multiple studies show that employees who accept a new job with another company receive more money than their peers who remain with the same organization. Accepting different positions also increases your skill sets and broadens your professional network. In the U.S., the concept of loyalty is most beneficial to the employer, not the employee.
Entrepreneurship can be a way to move up the income ladder. Starting a side hustle can have many benefits from a tax perspective and it could lead to a new career. Also, learning a new skill may lead to a higher paying job. There are, for example, a plethora of Information Technology certifications that do not require a specific degree. Finally, having a good mentor can be a pathway to greater opportunities. Someone who has achieved success most likely can provide feedback on problem solving skills, how to improve communication, and may even recommend you for a higher paying position.
Changing your income status might involve a variety of factors, such as setting difficult (but attainable) personal goals, having a successful peer group, and keeping a long-term perspective on your life and career. Of course, having more money doesn’t automatically translate into being a happier person. Be intentional on choosing your life path and find what meets your emotional and financial needs for yourself and your family. In the words of Maya Angelou, “Success is liking yourself, liking what you do, and liking how you do it.”
Fun closing fact: What is the percentage of Americans who, when asked, define themselves as being middle-class? A whopping 89%.
**
My Personal Finance substack will be on hiatus for several weeks and it may not return at all. I am sincerely appreciative of everyone who has read any of these posts and I hope you have found them helpful and/or interesting. I would be most grateful for any feedback or comments you would like to provide.