(Formerly published June 4, 2024 to LinkedIn.)

We need to reframe how we think about the middle class. In fact, we need to remember the middle class more often than we do. The middle class (shrinking and disappearing) serves as a catalyst for economic growth and anchors of social stability. It is also the class best known as positioned to reach the American Ideal…homeownership, auto(s), vacations, credit cards, etc… I am convinced that their ideal is less and less attainable and we need to stop this trend (shrinkage) before the trend becomes the norm and irreversible.

Interestingly, the U.S. government does not clearly define the middle class. According to the Social Security Administration (last updated in 2017) “there is no official government definition of the middle class, [yet] the three middle quintiles of the income distribution ($28,000 to $109,000 for married couples and $11,000 to $41,000 for single persons) are a commonly used definition.” If we turn to the Pew Research Center (2022), “‘middle-income’ adults in 2021 are those with an annual household income that was two-thirds to double the national median income in 2020, about $52,000 to $156,000 annually in 2020 dollars for a household of three.” If we follow Pew’s calculations and turn to 2024 data provided by World Population Review, today’s U.S. middle class (household of three) has incomes from $50,085 to $149,510 annually or a rough median of $74,755.

The middle class is also decreasing in size. The share of adults in the middle class has decreased from “61% in 1971 to 50% in 2021” (Pew Research Center, 2022). Their shared income (counted as investment income and earnings) has also decreased from one-half of the country’s income from 1967-1987 to 45% in 2019 (Rand Corporation, 2021). For the first time in more than 50 years, the majority of Americans are not in the middle class. This is alarming.

While income is the generally accepted determiner of the middle-class label, we must remember that gross income is not the same thing as disposable income, nor are all households the same. It is easy to overlook these realities, but we should not. In 2024, an individual with a household of three in Missouri or New Jersey earning $70,000 annually (qualifying as in the middle class) will take home roughly $55,000 after taxes. That same person in Texas will take home roughly $57,400 and in California nearly $54,703.

Notably, the purchasing power behind take-home pay varies greatly. For instance, in 2023 Missouri had the sixth lowest cost of living in the US, New Jersey had the 40th, Texas the 19th, and California the 48th. If our worker were to purchase a home in Saint Louis, Missouri, the average 2024 home price is $420,800; in Fort Worth, Texas, the average home prices is $309,191; in Trenton, New Jersey, the average home price is $313,547; and in Sacramento, CA (if you can find a fixer-up and have more money to put towards the house), the average home price is $485,628. Average prices of homes in all four cities are higher than one year ago. Additionally, cost-of-living per city is different from cost-of-living per state, although home prices play a significant role in both.

Home prices have soared in the last 40 years. In 1980 the median home sales price was $47,200 compared to today’s median sales price of $358,734. That is a 500% increase in cost. The same worker’s wages have, on average, not kept up. Unfortunately, “home buyers in mid-2023 need[-ed]  almost twice as much income to buy a home as home buyers in 2020 did” (Forbes, 2024).

The buying power of $70,000 in the 1980s equates roughly to the buying power of $265,330 today. Unfortunately, our $70,000 a year worker is faced with buying a home in 2024 priced at more than five times that individual’s income. When we do the math, $70,000 of income in 1980, adjusted to $18,470, could purchase a home at a median price of $47,200, which was 2.5 times the individual’s annual income. There is a tremendous difference between 500% and 250% of annual income.

Understanding the middle class is definitely a complex undertaking, but it is worth the effort. To learn more we can turn to the Rand Corporation’s (2021) “Who Is the Middle Class?” report or Smart Asset’s (2024) “What it Takes to Be Middle Class in America study. Variations in who is classified in as in the middle class, as well as who believes they are in the middle class are presented. Changes in middle-class statuses and economic opportunities are discussed. The realities of continuing financial struggles, present and future, as well as real worries are also detailed.

As we seek to understand the 2024 realities facing our $70,000 a year middle-class worker, we cannot forget that our worker’s middle-class “membership” is also mitigated (beyond home price) by access to and cost of employment and retirement benefits, health care, educational attainment, and long-term investments.

I think it is safe to say that the middle class is generally viewed as hard working people who dream of job security and pursuing homeownership. They hope to take occasional vacations, have access to healthcare and continuing education, and have enough retirement funds to meet their needs. In today’s economic climate, this 50% of our population that receives 45% of all annual income is stressed. Following the impacts of COVID and current rising costs, these people face an increasingly discouraging future, the dreams of home ownership growing dimmer. In fact, in the U.S. home ownership is at 66%, which is 3.2% lower than in 2004 and “below the 25-year average rate of 66.4%” (NAHB Eye on Housing, 2024).

Middle-class earners around the United States are worried. As I travel across the country and talk to a mix of people of varying incomes, education, etc., a common worry is how to keep paying the bills, how to afford a home, how to afford healthcare now and in the future, how to prepare for or preserve retirement investments, etc. The worry increases as these same people look for safety nets provided by the US government to help them “make it,” and outside opportunities in the economic landscape to help them bridge or boost purchasing needs. There are not many attractive options available to them.

Our middle-class understanding needs reframed and refocused. Watch for “Reframing Our Middle-Class Understanding: Part 2.”

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The views expressed in this article are those of the author.