Being middle class has been associated with being comfortable. You are not struggling to make ends meet but you are also not living a luxurious life, making sure that you are still within the comfortable budget that allows the occasional indulging.
The middle class is a description given to individuals and households who typically fall between the working class and the upper class within a socio-economic hierarchy. In Western cultures, persons in the middle class tend to have a higher proportion of college degrees than those in the working class, have more income available for consumption, and may own property. Those in the middle class often are employed as professionals, managers, and civil servants. - Investopedia.com
Recently, there is an increase in talks of a "disappearing middle class" in modern society, as income inequality has tended to "hollow out the middle" and largely benefit the top (e.g. the top 1%). We can definitely see the widening income gap between the classes as the rich become richer with the pandemic and environment due to the resources they have.
Is the middle class disappearing?
I came across this video recently from CNBC (in American context of middle class) and it talked about the challenges and difficulties that the middle class are facing which is different from the middle class that we know of. For example, a survey done in 2018 found that 1/3 of middle income adults do not have $400 to cover an unexpected expense.
In the video, it mentions that the middle class accounts for the majority of Americans, about 61% in the 1970s but have been shrinking since where it dropped to 51% in 2019.
Even with all these statistics though, it is really difficult to confirm if the middle class is disappearing due to a lack of definition and there will always be some sort of “middle” in after segregating the upper-tier and lower-tier.
“Squeezed”
Instead of using disappearing, the experts prefer to use the word squeezed. It is no longer as easy to own your own property and having to rent, to have to think twice before having a child due to high expenses, no good insurance coverage.
In the video, there were some reasons being raised on why the middle income is feeling squeezed.
- Stagnated income
It shown how from 1970 to 2018, the middle class share of aggregated income fell by 19% while the upper income saw their aggregated income rise by 19%. Another study also showed that middle income saw their growth half as fast compared to the top and bottom 20%. It was also shared that middle income earners were not able to parttake in the labour share of the overall income as the top 10%, 1% and mostly 0.1% took most of the gains in the economy.
- High cost of living and it keeps getting more expensive
As the income received has stagnated, the costs of living has increase dramatically over the years, from rent to prices of necessities. In the US, the average household income saw an increase of 16%, on the other hand, housing cost went up by 190% and college fees went up by 264% in the same time period. Even more so in city areas like New York and San Francisco where you will need an income of at least $300,000 annually.
The gap
The stagnation of pay-checks started in the 1970s, when productivity slowed and the top 1% grew together with the stock market but pay-checks remained the same. It then followed with globalisation of blue-collar jobs hence to a certain degree, there were policy decision made that did not filter to the masses. It is not easy added with the pandemic, Russia-Ukraine war and supply chain issues that are affecting not just US but the world, it is difficult for the government to make policies to help merge the gap.
Need for more income or to invest
It explains why more people are taking up more side hustles/gigs in order to increase their income and many times not as a hobby but as a way to earn more to keep up with the rising cost of living. The gig economy has also become popular since you can decide how long you like to work and can earn a variable amount depending on the number of jobs/tasks you take on. Rather than a fixed income with your hours fixed. This doesn’t solve the root problem but it is a way of getting more income.
We can also see that more ppl have become involved in investing where your money can grow although you might also lose money. Investing is a way to make your money grow rather than having it be idle in the bank. There has been a huge influx of people investing as brokerages become more accessible and individuals share on forums on their profits and losses. Hence making some FOMO but I would say that information is now so accessible online that anyone with internet access can learn on their own on how to invest and how they should invest. It is tough with the rising cost of living and crazy high property prices, even I am wondering if I will ever be able to purchase my own property. But best thing to do now is to work on your income streams, invest as you go and live in the present! Hoping this episode has been informative and see you in the next one.
References: https://www.investopedia.com/insights/americas-slowly-disappearing-middle-class/
https://www.youtube.com/watch?v=0sj-8pjt9Xk
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