Ask the Readers: Are You Middle Class?
Well, this question was brought on by a convergence of two things: First, was the arrival of Andrew here at Queercents (a big welcome to him!) and second, I was trying to catch up on some reading… specifically The Economist magazine.
Someone had mentioned previous to Andrew’s debut that those of us who wrote for Queercents all seemed to be middle and upper class and that we needed more input from people like Andrew who were living more “on the edge” so to speak.
It just so happens I was reading the February 14th issue and the Special Report section is titled “Burgeoning Bourgeoisie: A special report on the new middle class in emerging markets.” You can read it at www.economist.com/specialreports if you’re interested.
One of the segments dealt with trying to define what middle class is. Of course, there are several different ways to define them. But the one that seemed to make the most sense to me is one developed by Diana Farrell, a member of the National Economic Council who worked for a consulting company called McKinsey that extensively studied the middle class. It’s called the “One Third Rule” which can be applied across the board pretty much to any country.
The rule is that middle class, as a group, roughly begins at the point where people have approximately one third of their income left for discretionary spending after covering the costs of basic food and shelter.
While the rule makes sense to me; it did shock me a bit. I would not have put the percentage that high (33%). If asked to make a judgment based on the same premise about food and shelter I would have probably said 20% for the discretionary amount… I guess I would have promulgated the “One Fifth Rule”.
So if you look at your own finances where do you fit in?
After you pay for basic food and shelter do you have one third or more of your pay left to buy goods and services and things that might improve your life like more education?
Or do you fall below the one third mark? And if you do, being American or from the “First World” with all the privilege it entails, do you actually feel deprived because you fall into that particular definition of “poverty”?
And being of the frugal sort that doesn’t like to spend its discretionary income unless you have to does it matter where you fall in the rule?
Photo credit: stock.xchng.
It’s an interesting concept, but I think people’s actual housing circumstances can skew the percentages dramatically enough to make it meaningless. When I was in college, I worked summers in an apple orchard; most of my coworkers were migrant workers. Rent to live in the bunkhouse was $25/week/person; groceries were $20/week/person. Since we earned about $150/week, clearly we were well past that 1/3 threshold after rent and food. And yet, it didn’t seem particularly middle-class when folks were sleeping in rooms with 10 other people; driving unregistered cars because something held together with chicken wire and bondo wouldn’t pass inspection; and hitchhiking 50 miles to the nearest Planned Parenthood for affordable birth control.
On the flip side, people who have much higher incomes may be paying enormous mortgages, with not quite enough discretionary income to cross that 1/3 threshold, and yet still have things (like health insurance and license plates and eyeglasses) that the migrant workers lacked.
It seems like the economists are looking for a cut-off to show where barely-scraping-by ends, but I wouldn’t define that as the starting point of middle-class, and I don’t see the 1/3 rule as particularly relevant to either, if it’s based solely on food and housing.
S: I will agree that the economists were looking for a cut off point. I will argue that basing it solely on food and housing is relevant.
Anything other than the two can be considered discretionary spending.
Your example of the migrants in the apple orchard is also valid about not seeming middle class when viewed from the perspective of how an American is raised but I am assuming most of the other workers you dealt with were immigrants here solely for work and to them, not only were they making more than middle class wages, in their home country they would be in fact considered wealthy. A $500 car held together with chicken wire an bondo would cost a family in many countries most of the families annual income.
As a point of interest when I was in Cozumel in December I asked the driver of the donkey cart I rode in about the wages there. He said he was very lucky making about $35 a day when the cruise ships were in port and that the average resident had to hustle hard to make an average $6 a day…thats barely $2200 a year.
I also remember when I was younger and working in a convienience store watching migrant workers (orange picking) proudly pay for a six-pack of beer at the end of the day and still have money left over…no bag please so they can show it off as they carried it out.
Back in Mexico they couldn’t afford even a single bottle on a days wage let alone get change. They considered themselves very well off.
As for those who have more mortgage than they can afford to pay. I’m sure the author meant Basic Housing…not a McMansion. If you ask those struggling with a huge mortgage if their middle class they probably will say Yes only because they have the house, big TV, and a couple of cars but that their broke all the time and can’t even afford to eat at Mickey D’s. I believe the phrase is “House Poor”.
I’m English, so middle class is much less about money and income than it is about attitude and behaviour. But, I reckon I have about a third of my income for discretionary spending (just about). I guess it’s more about whether you can afford to sustain a middle class lifestyle, for which you probably need that sort of money.
Roland: Interesting topic and article in The Economist. The experts say that housing costs should no more than 35 percent of monthly income:
Now with the economic downturn, I suspect this is why so many people in California are having a hard time paying their mortgages these days.
Are we talking pre-tax or post-tax dollars, here?
If 1/3 goes to Uncle Sam (and the states), and 1/3 for housing and food, that leaves us 1/3 for “luxuries” like gas, insurance, heat, and a retirement (maybe, perhaps, someday…). At least FrugalZen’s migrant workers had the visceral pleasure of a good cold beer after an honest day’s work.
Helen: I thought of that myself. However the article makes no mention of whether its pre or post-tax dollars.
I’m assuming it’s post-tax as banks (when they USED to be run properly) would not give a mortgage with a payment of more than 1/3 of your Take Home, or post-tax, pay.
Credit Cards were that way to a point as well…at my years ago employer (1980-83) you had to have net take home of $1000 a month for a single person or $1500 a couple in order to qualify for a card with a bare-bones $500 credit line irrespective of your credit rating..which still had to be good.
How times have changed..ROFLMAO…now they only have a single Yes/No question:
“Is the Customer Breathing?”
If Yes give them a card…If No Waive the Requirement.
~ Roland
Actually, Roland, my migrant coworkers were all native-born Americans. Most had dropped out or flunked out of school by 10th grade, and some had underlying mental-health or substance-abuse issues. So migrant work in America wasn’t a career move to better themselves; it was actually far below how most of them had been raised, but at least it beat living on the streets. (And when harvest season ended, many of them ended up back on the streets or living in their cars for the winter. I’d say anyone who expects to be homeless regularly isn’t middle-class, even if they are temporarily employed and housed.)
The immigrant workers in your description certainly would feel wealthy compared to their relatives struggling back home. But the article wasn’t looking for a way to measure people’s feelings about themselves or how they feel relative to the society around them (even though that’s how we usually think of class). It seemed to be looking for a yardstick to gauge which countries have populations with sufficient disposable income that their overall economies are shifting from survival-based to more of a consumer culture. I will agree with you and the article that food and shelter are necessities, but at the very least I think money spent on taxes, basic education (up through early teens), and basic health care (immunizations, antibiotics, and family planning) should also be factored in the necessities category, rather than be seen as disposable income and a hallmark of a consumerist middle-class. Guess it goes back to my point that there should be some category in between barely-scraping-by and middle-class; your immigrant with his six-pack might fall in that category.
And Nina, yes, I was thinking of people who bought even modest homes at the height of the housing bubble, not folks in McMansions, who might be paying a hefty enough percentage toward shelter to fail the 1/3 rule, and yet still be considered middle class.
I think that the above discussions show why a rough rule like the 1/3 one is too broad to be useful on its own – it needs a bit more constraint in its definitions. ‘Basic’ food and shelter can often be attained for a very low monetary cost, as S noted above. (McKinsey would probably adjust your ‘total wages’ to include the subsidy that you got for housing, though.) Similarly, lifestyle creep can have people on the hook for quite a lot in terms of mortgages, but spending $2000/month for a mortgage, plus heating, prop. tax, etc., is far from ‘basic’ when you lay it out against the option of renting a nonluxury apartment (and commuting a little, if you’re in NYC or the like). Basic or not, though, it can drastically cut someone’s discretionary spending.
I think that there are a number of middle classes in the US, and probably elsewhere. There’s the cultural middle class, where background, family connections and location factor in heavily. There’s the emotional state of feeling middle class – even if you can pay your bills, having a significant cash flow problem because of being house poor and upside down on your mortgage can leave you feeling trapped and ‘poor’ because you *can’t* go out to eat at McD’s. Then there’s the situation of people who are very well off when compared to their community in general, but they’re the ‘poorest’ of their friends in terms of discretionary income – they may feel middle class, but it’s only because they’re comparing themselves to very welathy folks.