In many capitalist economies, the middle class label is a financial definition largely based on the lifestyle that you can afford. A nice house in the suburbs, two cars, good schools for the kids and a few weeks of vacation somewhere warm and sunny are the traditional rewards for achieving middle class status.

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In recent years, however, the decline of the middle class has been the stuff of headline news. So who is the middle class, and how much money do you need to earn to make it to the middle? Interestingly, the experts can't agree on a standard, although most people in the United States believe that they fall into this category. Regardless of how you measure the middle, however, it's simply not possible for everyone to be there. In this article, we'll examine what "middle class" really means, examine why the number of members in this class may be shrinking and give you some tips to help you hold your spot.

The Mathematics of the Middle
Statistics from the Census Bureau use data on U.S. households to put some parameters around the subject. (To read more on lifestyle choices and income, see Life Planning - More Than Just Money.)



U.S. Household Mean/Upper Limit Earnings (2008)
Quintile Mean (average) Upper Limit
Lowest $11,655 $20,712
Second $29,517 $39,000
Third $50,132 $62,725
Fourth $79,760 $100,240
Fifth $171,057 Unlimited

A Question of Numbers
After looking at the numbers, some experts rank the middle as those earning between about $20,000 and $100,000 per year. Others count only those fitting into the third quintile, earning between $39,001 and $62,725. Of course, a family in Arkadelphia, Arkansas earning $39,001 and a family in Beverly Hills, California earning the same amount would be living very different lifestyles - even at the six-figure salary level, nobody in Beverly Hills would consider themselves rich.

A Look at the Top and the Bottom
At the highest end of the income scale, $180,000, was the lower limit of the top 5%. The median earnings for households in the top 5% was $294,709. We can assume half of all those top-5% households earned more.

At the lower end of the scale, data from the United States Department of Health and Human Service Poverty Guidelines is used to define poverty. The statistics are based on income and the number of persons in the household. The lowest quintile ranking from the Census Bureau survey is roughly equivalent with the U.S. government's definition of poverty for a family of three.



2008 Poverty Statistics
Persons in Household 48 States and D.C Alaska Hawaii
1 $10,400 $13,000 $11,960
2 $14,000 $17,500 $16,100
3 $17,600 $22,000 $20,240
4 $21,200 $26,500 $24,380


The Disappearing Middle
By most measures, the middle class is in decline. The U.S. Census Bureau's report on income, poverty and health insurance coverage released in September 2009 reported that real median income fell by 3.6% between 2007 and 2008 to $50,303. The lowest quintiles experienced earnings declines, the third quintile was flat, and only the top quintile showed a slight gain. The top 5% enjoyed the largest gain. The official poverty rate came in at 13.2%, accounting for some 39.8 million people in 2008.

Not so long ago, most families in the middle could get there and stay there on the earnings of a single breadwinner. Today, many two-income families are a paycheck away from losing their middle-class status and, in some cases, their homes because they are living beyond their means. (For additional insight into marriage and finances, see The Benefits Of Having A Spouse, Revealing The Hidden Costs Of Weddings, Marriage, Divorce And The Dotted Line and Kids Or Cash: The Modern Marriage Dilemma.)

A study released by the Brookings Institute think tank in June 2006 highlighted the decline of middle class neighborhoods and the increase in upper-class real estate. According to the study, the share of middle-class neighborhoods in the 100 largest metropolitan areas declined from 58% in 1970 to 41% in 2000. Large new homes with good school districts sprang up across the country and consumers took on massive debt through the use of adjustable-rate mortgages in order to get a piece of ground in the right zip code. (For related reading, see ARMed And Dangerous.)

Big cities moved in the same direction as the suburbs, as upscale properties replaced affordable housing. The Brookings study notes that New York City lost 205,000 affordable homes between 2002 and 2005. The homes were lost to what Mayor Michael Bloomberg called "luxury product" living.

The trends of relying on two incomes and spending more than the household earned weren't limited to the United States. Globally, an increasing number of families relied on the use of two incomes and some serious leverage to achieve their middle class dreams.

Fast forward to 2010, and the aftermath of the global credit crisis had firmly underscored the folly of these practices. When housing prices collapsed and unemployment soared, the middle class shrunk further. In the United Kingdom, the Consumer Credit Counseling Service (CCCS) reported a 257% increase in clientèle among those earning in excess of £30,000 (about $57,000 U.S. dollars) per year. The individuals in question lived in homes valued in excess of £500,000 and supported their lifestyles through the use of an average of 13 different sources of credit. Between October, 2008 and May, 2009, the CCCS reported a 12% decline in the average income of couples requesting assistance. The situation was so grim in the second quarter of 2009 that 30% of those seeking help were told that their only recourse was to find a way to earn more money. In 2008, only 4% found themselves in that position.

Rising mortgage default rates in the U.S. tell a similar story. The housing crisis and lack of jobs in the city of Detroit, Michigan were so severe that city planners spent the first half of 2010 looking at proposals for how to shut down entire neighborhoods and convert them to green space. The well-paying manufacturing jobs once offered by the automakers and their suppliers were no longer plentiful enough to support would-be homeowners and the city services that support healthy neighborhoods.

Tips for Making It to the Middle (and Staying There)
Although there are varying arguments about the definition of middle class, nobody disputes that highly-educated, white-collar professionals generally have a spot in the ranking. A college education was, and still is, often considered to be the fastest way for young people to enter the ranks of the middle class. Thanks to globalization and advertising, it's an objective shared by college students from California to China - and most places in between. (To continue reading on this subject, see Invest In Yourself With A College Education and Competing Priorities: Too Many Choices, Too Few Dollars.)

Once you've got the education, you need to master your finances. Rather than race out to put the latest smartphone on your credit card or put a new luxury automobile in your garage, take some tips from the financially frugal and minimize the amount of debt that you take on. Limit the use of credit cards and, if your household brings in two incomes, spend them wisely and don't forget to save for a rainy day. (For information on the troubles of debt management, read Seven Common Financial Mistakes.)


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