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October 09, 2009

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a middle class person in a developed country like America would be a very wealthy person in the country that i live in(its in east Africa). i can tell this by watching how middle cash Americans spend cash-there is a large similarity with the way the rich people spend cash here

Another indicator of middle class: the printed income tax tables. When your income isn't on the printed tables anymore (ie when you have to calculate your own tax), you are probably no longer middle class.

We all know/see a lot of people financially better off than us, and a lot worse, which I think automatically means we all feel middle class.

This article made me think about it and realize my subjective identification of "upper class" and "lower class" has always involved lifestyle (spending), where "wealthy" is more of a financial independence thing (net worth versus expenses) which I don't really tie to class (a retiree with $50K/year of investment income and $40K/year of expenses is wealthy in my mind, but not upper class). The family in the $120K home with the 5 year old camry next to me may very well be wealthy (millionaire next door), may make $200K/year for all I know, but definitely are not "upper class" in my mind b/c they don't live that lifestyle. Seems kind of silly way to define it when I think it through, but it is how I view it.

I have no doubt the extreme variability of my own income has removed income from that equation for me (I'd be "upper class" some years, much nearer to "lower class" others). Given my definition, I'd obviously prefer being wealthy over upper class.

I think the "middle class" or any class for that matter is a combination of things.It is a large part of income, but also wealth,lifestyle,occupation, personality,education,etc. For most people it is hard to come to terms were they fit in.I could make 10 million dollars a year and problably always consider myself middle class. As it is now My Wife and I make upper middle class to lower upper class money by definintion, but I feel very middle class. However, that is the way I like it. Money and lifestyle becomes a competition for alot of people with money/wealth. I only care how I am doing and not how I am doing compared to others.If I was upper class I might have to give up my Sunday Football and chicken wings with the guys and that is just not worth it.

Strick, the problem with your definition of upper class is that it could have very little to do with how much the people make or earn. Debt allows people to live far beyond the lifestyle that their income or net worth can really support.

There are many ways in which we define classes in the world. Some places will define a person's class by their occupation, despite the numbers. Some define class by what one owns (namely our society). The thing is, even when our government defines class based on earning, our social structure defines class more on appearances. So you could be $100,000 in debt, but have nice things and be considered upper class by most people, or you could be a billionaire who lives a modest lifestyle and be considered middle class. This is a very subjective topic.

When my brother was in college one of his professors asked the class who thought they were lower, middle and upper class. My brother was the only one to raise his hand in the lower class category. The professor thought it was funny that the only foreigner in the room would be the only on to consider themselves lower class. I think traditionally - way back - the lower classes worked for other people, the middle class had other people working for them or were their own boss, and the upper classes don't work. At that time my brother had a job working for someone else so - lower class :)

As others have remarked, the definitions of class varies tremendously from one country to another and it has also changed a lot since the end of WWII.
When I was growing up in England between 1934 (when I was born) and 1956 (when I emigrated to the USA) there were three easily definable classes.

Working class attributes
No education past high school, not homeowners, blue collar workers, farm workers, domestic workers, shop workers, policemen & firemen etc. A small percentage owned cars.

Middle class attributes
Many with university educations and many homeowners
Professional people such as Doctors, Dentists, Attorneys, Bankers, Engineers, Scientists, Business owners, Professors, Teachers, Nurses, Officers (Police, Fire, Military etc.), Politicians and other white collar workers. The majority owned cars.

Upper Class attributes
Attended elite private schools and the finest universities.
Owners of large properties, families with lots of old money attained during colonial times, high ranking officers, people with titles (Sir, Lord, Baron etc.). Generally the majority not only had cars but also had chauffers and a variety of workers attending to their large homes and extensive properties.

This all changed dramatically after the end of WWII. The returning veterans voted out the Conservative government of Winston Churchill and voted in the Socialist party. The Socialist party has stayed in office most of the time ever since and has brought about large changes in the social structure.
Universitites were built in all major towns & cities, the National Health Service was started, and changes were made that allowed far more people to become homeowners. The cost of the war was so high that the British Empire was disbanded and self government given to all of the previous colonies and Britain gradually ceased to be the great power it once was.

Today, after mass emigration from the former colonies the demographics have completely changed and the class structure is very close to that of the USA. The major difference being that the nobility of the upper class and the monarchy still exist.

In my own case, I was born into the working class, my father was a fireman, never owned a home, and I left England after completing a five year apprenticeship with a major aircraft company.
Today, due in large part to coming to the USA, getting an advanced degree and having a long, successful, and very rewarding career as an aerospace engineer, I feel I have moved up to middle class.

I don't believe the term "Upper Class" is appropriate in the American society. The next class up from where I am would be the super wealthy and I don't know any of them personally, I just read about them like most of us do.


It always amazes me how we can consider ourselves in the "middle" when we're in the top 5% or 10%. If you're in the top 20% then you're certainly not "middle" no matter how you feel. I think that attitude may be due to not realizing just how good you have it. Or due to people over spending and then thinking: "hey I've got no $, so I must not be rich".

Middle Class for most- I have a college degree and I am living paycheck to paycheck

By definition if there is a 'Middle' group there has to be a 'Lower' group and a 'Higher' group, eg. Lower class, Middle class, and Higher Class.

However in a democratic society like the USA nobody wants to be told or think they are lower class and likewise most people that said or consider themselves to be high class would be considered snobbish and pretentious.

I have my own definition of Low, Middle, and High when it comes to class and it has little or nothing at all to do with money but a lot to do with education, interests, behavior, manners, and lifestyle.

I think part of the difficulty is class has historical connotations that go far beyond money. As others have alluded to, there is education, social circle, interests, lifestyle choices etc.

For instance, the opera might be considered an upper class type of activity. Having connections to rich people or to powerful politicians is generally an upper class type of social circle.

In all of the things that are generally associated with upper class activity is the underlying connection to money. So clearly money is a part of it and when we talk class while we think of all those other things, we almost always have an underlying idea of what that means from a money stand point as well.

And since most of us put ourselves in the middle class you hear references to a three way break down of the middle class as well (lower middle, middle, and upper middle class).

From a money standpoint I think of lower class as having very little ability to do anything beyond subsistence. Living pay check to pay check is many times a choice of spending money. People living pay check to pay check still have cars, flat screen TVs, cell phones, cable TV, internet subscriptions, etc. That doesn't make them lower class. That just makes them spent.

To me lower class is someone who is not in need of food or shelter (thats abject poverty), but someone who can afford very few if any of the pleasures of life. Probably a single person around 15-20K and married with kids around 25-40K or so.

Middle class would allow you to sample some or most of the enjoyments of life but not any time you want and not to excessive expense. Probably single people up to about 100K and married with kids up to about 150K or so. There are some big differences in the amount and enjoyments you can sample in this range and thus the break down from lower middle to middle to upper middle class.

Upper class would have enough money to be able to spend somewhat lavishly up to quite lavishly. Here I think of Doctors, Lawyers, etc. People making up to about 500K or maybe a little more.

Once you start pushing up towards 1 million per year then it seems to me you are starting to push into the very wealthy categories and there are certainly different areas of that as well. But if you can make 1 million per year repeatedly, there are very few things which are unavailable to you because of finances.

I realize this distribution doesn't follow a normalized curve. I don't see class as something where you draw lines at standard deviation marks from the mean on a chart. The lines come at places where there are differences in the lifestyles that are made available to you. As I see class, in America we are blessed that the middle class can be so large as to include people from well below median income all the way up to the top few percent of earners.

I agree with Apex that America is blessed to have such a huge middle class, and prior to this recession the numbers were growing fast. Along with being a bona fide member of the middle class comes a respect for the laws that our representatives create and by which we are governed.

My definition of lower class individuals would definitely include habitual law breakers and here I'm afraid the ugly topic of racism becomes relevant. Even though many lawbreakers obtain huge amounts of money through their illicit endeavours I don't believe anyone would argue that they aren't the lowest of the low when it comes to class. Back in the late 70's the management association of the company I worked for arranged a couple of tours of San Quentin prison, it was quite a surprise when I saw that the overwhelming percentage of the inmates belonged to a single race. Unfortunately the underlying social problems of lack of education, lack of skills, high unemployment, absentee fathers, and low income don't just produce poverty, in many cases they also produce crime which further exacerbates the social problems and consumes a considerable portion of state and federal budgets which could be much better spent if it weren't for their criminal activity.

Education and job creation are the keys to expanding the middle class even further and improving the quality of life throughout the country.

Why do they always use income rankings to determine this stuff? Why not net worth? Isn't that a better measure of who is and isn't wealthy?

The best measure of wealth is the income it generates. If it isn't generating income, it is only a speculation. So income does measure wealth, and very, very, few have enough wealth to generate much of any income, and next to none more than they earn through work.

Lord: You need both a very good income and a high net worth to get the best out of life.

Very successful young professionals tend to have a very high income and quite a bit of debt, but haven't worked long enough to build up a high net worth. They also have the high expenses of raising and educating their children.

Successful retired professionals, on the other hand, will have a very high net worth in the form of real estate, IRAs, stocks and bonds etc., much lower expenses, and if they invested wisely will have a far higher unearned income than when they worked.

Retirees tend to already own most of the "stuff" they need and have little or no debt. As they get older they do far less of the things they used to do when they were much younger and only have themselves to worry about.

In our own case our investment income now amounts to well over 3 times our gross salary upon retirement, and keeps growing every year because we spend very little of it. We also each get social security checks, each get pensions, and because of medicare our healthcare costs are very low.

The real kicker is that money compounds with time, and the longer you live, generally the larger your estate becomes.

Personally I think the current generation that is either retired or close to it will be the last generation able to transfer a lot of wealth to their heirs. Pensions have all but disappeared, social security is running out of money and medicare will be broke in 8 years unless swift action is taken, good jobs have disappeared overseas, and the housing market is still falling. Already I see our three children unable to afford to do most of the things that we did when we were their age. I retired at age 58 and can vouch for the fact that retirement can be a wonderful time in your life if you have prepared well.

Interesting post! Based on some of the definitions here one would think by looks and living conditions alone Warren Buffett would be lower to middle class. However factor in his political connections (buying chunks of Goldman Sachs and others with convertible stock) then surely he is in the upper of the upper class.

-Mike

A high income is an extremely valuable asset. The affluent young may not have tangible assets, but they are very wealthy in intangible ones. Intangible assets often decline as tangible assets increase.

A couple of comments to add to the discussion:

1. Surveys use income rather than net-worth because the data is much easier to gather. Income levels can be measured through national tax agencies. Net worth, not so much.

2. When talking about "middle class" globally, it's important to take purchasing power parity (PPP) into consideration. $20 in the US buys you a hell of a lot less than it does in India, China or Angola.

Lord --

"The best measure of wealth is the income it generates. If it isn't generating income, it is only a speculation."

1. I believe the income they are referring to above is the income people earn via jobs, not through wealth generating income.

2. I don't agree with your statement above. For instance, there are many wealthy individuals who do not want their wealth (investments for instance) to generate an income -- they want capital appreciation. Extra income for many of these people simply means extra taxes that they would rather avoid.

FMF:
Many of the very wealthiest indivuduals that already have more wealth than anyone can ever spend put quite a bit into charitable foundations that will outlive them and do a lot of good for whatever causes are dear to their heart. Whenever I watch one of my favorite PBS shows such as Nova, Nature, American Experiences, they are funded in large part by some of these foundations.

Very successful people such as Bill Gates, Warren Buffet, Ted Turner, Howard Hughes, William Hewlett, Dave Packard, and (dare I say) William Clinton are doing what they can to make the world a better place becuause of their success. Other notable philanthropists were Leland Stanford, Henry Ford, Andrew Carnegie, George Soros, Gordon Moore, and John Rockefeller. Andrew Carnegie once said, "He who dies rich, dies disgraced".

I tend to equate "upper class" with super rich: people who don't need to work for living, who can afford Park Avenue and Central Park West apartments, diamonds, Rhode Island mansions, etc. Even if my income and net worth put me in top 5%, I still cannot think of myself as "rich". Maybe because I can't afford a Central West apartment or a dinner in Four Seasons :-) And, Apex - I do like opera, but I loved it even when I was poor student. I've never thought it makes me part of "upper class".

"For instance, the opera might be considered an upper class type of activity. "

Only in America and it's more of a perception than a reality. In Europe, all classes take their kids to opera theaters. In Italy, it used to be that lower classes that buy cheapest standing room seats are those who are most knowledgeable about music and most demanding. These are the people who used to throw tomatoes on stage...

In reality, aside from the opening night or other similar type of special events, one doesn't need to be rich to go to opera. People who buy $15 and $20 standing room tickets aren't rich. People who buy student discount tickets to the Met aren't rich. People who buy "rush tickets" - orchestra tickets that are sold before a performance for $20 thanks to a donation by two Met board members aren't rich. I'd imagine people who go to Met HD broadcasts to movie theaters all over the US aren't rich either. It is a bit off topic, but I am always amazed how so many Americans are so touched by any opera singer that appears on popular talent shows like AGT, yet refuse to go to opera where there are far better singers singing without amplification and acting.

So I guess "upper classes" buy rush tickets to the Met for $20 whereas lower class buy tickets to sports event or rock concert for $1000+...

I am sure the income they are referring to is realized income from whatever source, it is just there is so little from sources other than work that they are negligible. I agree many wealthy have no need to realize potential income, but until it is realized it is a speculation. They have no idea how much it will be worth just as they thought their homes and stocks were worth much more a few years ago than they have turned out. They may hope and expect it to be more, but there are few guarantees. Most of the 'wealth' in the automakers disappeared overnight. Once it is realized it can be spent, but unrealized it cannot, it is only potential. A great deal of 'wealth' appears and disappears over time without ever being realized. Wealth that is realized has a degree of permanence that paper never has.

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