Are you in the middle class?

The middle class isn’t fixed. It’s a moving target that appears to be getting smaller and smaller.

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Commerce, Toronto, Ontario, CanadaI get a lot of letters every month. Most are from people who are trying to get out of debt, but more and more are from people who want to have some sense of how they’re doing. Of late, people have been asking me what constitutes “middle class?” I’m not surprised at the confusion around this term because the reality is the middle class is huge and the disparity from top to bottom might take your breath away.

[02/24/2014: Middle-class dreams a myth: Government report]

Economists don’t really agree on what constitutes a middle class income. We know the upper class is the top 20% of income earners and the lower class are the bottom 20%. Everyone else falls in the middle. Since the median income for Canadian families (in 2010) was just less than $70,000, then making somewhere between $60,000 and $85,000 will plop you in the middle quintile of Canadian families.
The middle class isn’t a constant though, which is why there’s so much confusion. Back in the early ‘70s, about 60% of all the income earned in Canada went to the middle of the pack. By 2006, that had dropped 7%, which is why we have the term “shrinking middle class.” Yes, it really is shrinking.

The other big change is that it now takes two people busting their butts to keep a family in the middle class. Back in the ‘70s, more people sat in the middle class in a single income family. Back then the ratio was 30:70 for double incomes versus single incomes. Today, the numbers are reversed because it takes two workers in a family to pay the mortgage, buy the food, and keep things on an even keep.

Wondering what it takes to go from middle class to upper class? If your family earns between $85K and $125K you’re almost there: you’re in the upper middle class. To make the leap you’ve got to be earning more than $125K a year.

If you reach the upper tier things look good for the long term. From 1979 to 2008, those earning the top 1% in family income saw their share of total income jump to 18% from just 8%. Yup, Richie Rich grabbed 10% more of the money. Is there any wonder there are movements afoot and dissatisfaction brewing?

One truth holds whether you make under $40,000 or more than $125,000 a year: how you use your money to achieve your goals is what really counts. There are a lot of fat cats driving around in snappy cars who are sitting on a keg-full of debt. And it’s only a matter of time before that keg blows. It’ll be interesting to see how the middle class shakes out then.

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