What does it take to be middle class nowadays? A recent paper, The Distribution of Household Income and the Middle Class, used Census data to discuss what sort of income it takes to qualify as middle class, but reached no firm conclusion: people tend to self-report that they belong to the middle class based on income, but income is not the only the metric--indeed, it can be argued that 12 other factors are more telling measures of middle class membership than income.
In Why the Middle Class Is Doomed (April 17, 2012) I listed five "threshold" characteristics of membership in the middle class:
1. Meaningful healthcare insuranceI then added a taken-for-granted sixth:
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 income
4. Significant retirement funds: 401Ks, IRAs, etc.
5. The ability to service all debt and expenses over the medium-term if one of the primary household wage-earners lose their job
6. Reliable vehicles for each wage-earnerAuthor Chris Sullins suggested adding these additional thresholds:
7. If a household requires government assistance to maintain the family lifestyle, their Middle Class status is in doubt.Correspondent Mark G. recently suggested two more:
8. A percentage of non-paper, non-real estate hard assets such as family heirlooms, precious metals, tools, 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.
11. Continual accumulation of human and social capital (new skills, networks of collaborators, 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's 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.