What is the middle class?

[neo von retorch]

Q: What is the middle class?

A: An unnecessary subjective label.

Yes, it was asked and answered in the original post. "I thought we were..." "We felt we were..." It's a label we self-assign, and a catch-phrase used for persuasion.

What benefit do you get personally from defining middle class? How does it benefit us overall?

[JLee]

There is definitely a difference between a $200k income in HCOL area vs $200k in a LCOL area. $200k in a HCOL area does not get you very far, unless you are entirely aware of your purchases in a Mustachian kind of way. I'd say it's very easy to feel middle class on that income if your basic expenses (housing, food) are high. There are many, many people with this kind of income where I live who feel broke. I do not think they would think of themselves as 'upper class.'

It's the Mustachians who can see this income for what it is -- i.e., a ton of cash, and an opportunity not to be squandered.

My mom is in no way mustachian, lived/worked in a HCOL area and earned a little more than 1/2 of $200K a year.  Are you crazy?  Yes, you can spend money like it is water and feel poor at any income level but no $200K is not middle class, at least not in Silicon Valley.

I'd be curious to see a television series where they took the "middle class" earning $200k/yr and cut them down to $50k/yr and see how they felt then. :P

[RapmasterD]

There is definitely a difference between a $200k income in HCOL area vs $200k in a LCOL area. $200k in a HCOL area does not get you very far, unless you are entirely aware of your purchases in a Mustachian kind of way. I'd say it's very easy to feel middle class on that income if your basic expenses (housing, food) are high. There are many, many people with this kind of income where I live who feel broke. I do not think they would think of themselves as 'upper class.'

It's the Mustachians who can see this income for what it is -- i.e., a ton of cash, and an opportunity not to be squandered.

My mom is in no way mustachian, lived/worked in a HCOL area and earned a little more than 1/2 of $200K a year.  Are you crazy?  Yes, you can spend money like it is water and feel poor at any income level but no $200K is not middle class, at least not in Silicon Valley.

I'd be curious to see a television series where they took the "middle class" earning $200k/yr and cut them down to $50k/yr and see how they felt then. :P

I'd be more curious to spend my time on positive endeavors such as reading and learning how to become even more productive, further increasing my savings, and optimizing my investing strategies - enabling me to give more time and money to charitable causes.

[arebelspy]

I'd be more curious to spend my time on positive endeavors such as reading and learning how to become even more productive, further increasing my savings, and optimizing my investing strategies - enabling me to give more time and money to charitable causes.

Good point!  I also like to spend my time holding my pinky up while I sip tea.  Do you do that as well?

[Gerard]

Some neat stuff in here. Thanks to everyone who's contributing.

In my biz we try to define people's social class to let us say something interesting about whatever we're studying (in my case, language/dialect). We've tried all kinds of complex measures, assigning weighted values to education, income, size of home (and rented vs. owned), type of employment, neighbourhood, etc. For our purposes, in industrial and post-industrial societies, we get the best predictive power from the prestige of one's job, as defined by sociological studies. Income doesn't cut it -- underemployed conceptual artists and baristas talk fancier than high-earning dope dealers and tar sands workers.

But this is a forum about money, so we can afford to fuck with social perceptions of class all we want, by not living up (down?) to the class expectations put on us. (I have an image of Arebelspy overseeing his real estate empire while drinking Bob W's hooch with his pinky sticking out.)

[FoundPeace]

I love the discussion, and I have never thought about labeling social class based on something other than income before.... It is a great idea, but I don't think it would every be taken up by the same people who define the amount of money you need for retirement based on income.

My economics professor in college had everyone raise their hands to identify themselves as lower, upper, or middle class. There were only a few hands that went up that weren't for middle class (in a class of 900). As I came from a lower middle class/lower class family I thought this was frustrating (30-75k for a family of 5).

Personally, I think the labels just make everyone feel worse. People pick middle class because that way they don't think of themselves as being in need or they don't want to view themselves as having way more than anyone else. I think labeling by income could help people be more aware of how fortunate they are, or that there is a lot they can do to improve their condition. It would be nice if you could just tell someone making $200k that they could easily live on 1/8-1/4 of their money and they would believe you. But, this isn't the reality, so I say we ditch the labels or just call everyone middle-class; oh wait, that's what the politicians have already done (except for the top 1-2% and the bottom few percent, because they are easy targets).

[arebelspy]

But this is a forum about money, so we can afford to fuck with social perceptions of class all we want, by not living up (down?) to the class expectations put on us. (I have an image of Arebelspy overseeing his real estate empire while drinking Bob W's hooch with his pinky sticking out.)

For Bob W's stuff I hold my pinky up while holding the porcelain bowl after drinking it.

[FoundPeace]

But this is a forum about money, so we can afford to fuck with social perceptions of class all we want, by not living up (down?) to the class expectations put on us. (I have an image of Arebelspy overseeing his real estate empire while drinking Bob W's hooch with his pinky sticking out.)

For Bob W's stuff I hold my pinky up while holding the porcelain bowl after drinking it.

I knew it!

[RapmasterD]

I'd be more curious to spend my time on positive endeavors such as reading and learning how to become even more productive, further increasing my savings, and optimizing my investing strategies - enabling me to give more time and money to charitable causes.

Good point!  I also like to spend my time holding my pinky up while I sip tea.  Do you do that as well?

No, but I do spend minimal amounts of time glossing over snarky responses from self-important forum moderators.

[mm1970]

First, I don't think $200K/year can be considered middle class - this is in the top 10% of the population.
I would say that middle class should be between the 30th and 70th percentile of the population, give or take.
However, there is no strict definition on "middle class" and therefore constant arguments about this.
Another issue is that middle/upper class can be thought of both in terms of actual wealth (net worth) as well as income. This can really change what you consider each person to be.

I would say that you can have a really high income ($200K/year) and still feel middle class because of several things:
1. You spend all your money on stuff, and there is always more stuff to buy
2. You live paycheck to paycheck, because of spending so much money
3. A lot of your money goes to debt repayment (credit cards, auto loans, etc') which is pretty much money down the drain.
4. You know people that have much nicer stuff, so by comparison, you don't think of yourself as high class
5. Similar to #4, you think of upper-class as truly wealthy people that you see on TV (movie stars, singers, CEOs of large companies) and don't realize they are the top 1% (or less) and instead think you need at least as much to be considered upper-class.

#6 you live in a HCOL area

[gluskap]

It's very frustrating when I hear that people think those who make above $200k should just count themselves as so fortunate as if these high paying jobs just dropped out of the sky.  They don't take into consideration the fact that it takes lots of education (usually graduate level or beyond with the attending student debt) and decades of hard work to usually get to these incomes.  I'm not saying that I'm not extremely thankful for the opportunities that I had but I think a lot of low income and middle class people have that same opportunity to better themselves and didn't take advantage of it to the same degree.  My parents were on welfare when they came to this country so I know what it's like to be poor.  When I think of the upper class or wealthy or rich I think of those that just inherited their money or grew up with all these luxuries and advantages.  So even though I know I make a good salary I still identify more with the "working" class because I feel that I work hard and put up with a lot of stress to earn the high income that I do.

[arebelspy]

I'd be more curious to spend my time on positive endeavors such as reading and learning how to become even more productive, further increasing my savings, and optimizing my investing strategies - enabling me to give more time and money to charitable causes.

Good point!  I also like to spend my time holding my pinky up while I sip tea.  Do you do that as well?

No, but I do spend minimal amounts of time glossing over snarky responses from self-important forum moderators.

When people report your posts as offensive, I can either censor you, or use some snark to lighten the tone.  I chose the latter this time, because I try to avoid the former.  If that makes me self-important, so be it.  :)

[ioseftavi]

I'd be more curious to spend my time on positive endeavors such as reading and learning how to become even more productive, further increasing my savings, and optimizing my investing strategies - enabling me to give more time and money to charitable causes.

spend my time on positive endeavors such as reading and learning how to become even more productive, further increasing my savings, and optimizing my investing strategies - enabling me to give more time and money to charitable causes.

enabling me to give more time and money to charitable causes.

Uhhhh, I don't think it's Arebelspy who's coming across as self-important here.

[JLee]

It's very frustrating when I hear that people think those who make above $200k should just count themselves as so fortunate as if these high paying jobs just dropped out of the sky.  They don't take into consideration the fact that it takes lots of education (usually graduate level or beyond with the attending student debt) and decades of hard work to usually get to these incomes.  I'm not saying that I'm not extremely thankful for the opportunities that I had but I think a lot of low income and middle class people have that same opportunity to better themselves and didn't take advantage of it to the same degree.  My parents were on welfare when they came to this country so I know what it's like to be poor.  When I think of the upper class or wealthy or rich I think of those that just inherited their money or grew up with all these luxuries and advantages.  So even though I know I make a good salary I still identify more with the "working" class because I feel that I work hard and put up with a lot of stress to earn the high income that I do.

I think most people realize that.  Oddly enough, nobody who's said "I pay so much in taxes with my $200k middle class income" has ever wanted to go make $50k instead. ;)  It bothers me seeing people complain about how much stuff costs when they make 4x what most people do.

[morning owl]

It's very frustrating when I hear that people think those who make above $200k should just count themselves as so fortunate as if these high paying jobs just dropped out of the sky.  They don't take into consideration the fact that it takes lots of education (usually graduate level or beyond with the attending student debt) and decades of hard work to usually get to these incomes.  I'm not saying that I'm not extremely thankful for the opportunities that I had but I think a lot of low income and middle class people have that same opportunity to better themselves and didn't take advantage of it to the same degree.  My parents were on welfare when they came to this country so I know what it's like to be poor.  When I think of the upper class or wealthy or rich I think of those that just inherited their money or grew up with all these luxuries and advantages.  So even though I know I make a good salary I still identify more with the "working" class because I feel that I work hard and put up with a lot of stress to earn the high income that I do.

If you're referring to my comments, I don't think I said that those with high incomes haven't worked hard. I certainly have in my lifetime, as has my husband. But I definitely appreciate this income for what it is -- a rarity. You speak as though everyone who works hard should earn >$200k a year? I agree, but that's not the world we live in, unfortunately.

[MoneyCat]

When I was growing up in poverty, people making six figure incomes told me that they were middle-class and I thought that was just silly.  They were obviously upper-class.  Now we make a six figure income and I still believe that makes us upper-class.  Today, we were seriously discussing buying a Chevrolet Volt for cash to replace my wife's dying VW Beetle.  That's fucking insane and we could do it today if we wanted to.  Most of the people who post in this forum are upper-class.  There's no point pretending that we aren't.

[JLee]

Even though I'm not retired, I have taken some fairly lengthy breaks from work during my short life.

During those periods, my earned income dropped to zero.

According to the income model of class, I am upper class while working, but lower class in the poor house while taking a break from work. It just doesn't make any sense.

Earned income has almost nothing to do with class, because it is fleeting. You only get the income if you work. You are trading your labour for money, just like any other worker.

I actually consider it fairly laughable to make any statements about class or wealth based on income, rather than assets.


Here is how I would loosely define a three class system for a liberal democracy such as USA or Canada:

low class: zero liquid assets; totally dependent on having a job or on parents or the government or other external source

middle class: a moderate amount of liquid assets, sufficient to cover a few years of expenses, but not enough to retire

upper class: sufficient assets to support their lifestyle forever

By those definitions, I was low class until about age 19, and I've been middle class since then. I hope to reach upper class before age 30.

Just about everyone I know is "low class," then. Very few people have sufficient liquid assets to live on for years.

[peppermint]

I see a lot of cognitive dissonance going on here. People don't like to be labeled as anything above middle class because they associate it with all these negative stereotypes about rich people. I think percentile is a reasonable way to judge your wealth.

[TheOldestYoungMan]

I saw a study a few years ago that compared the "wealthiest one percent" of that year to ten years prior.  Very few of the names on the list from the past were still on the list.

There's a problem when you focus on income when trying to determine this stuff.  Wealth doesn't work that well either.  There was a news story the other day about how, strictly speaking, the "poorest man alive" with a net worth of like minus billions of dollars, had an income in the hundreds of millions.  So what exactly are we talking about.  Maybe:  If you had to, today, exactly how many cheeseburgers could you get your hands on?  Cuz for some people it is zero.  For some it is many thousands.  For others, it is all the cheeseburgers, they could literally buy them all, even yours.

Consider a man in middle management in an expensive area with a wife who doesn't work and 3 kids.  He manages his money OK, but he bought in (as many of us have) to the idea that it is OK to borrow money to buy a house you can barely afford (in the expectation that future wage growth will relatively shrink that obligation) and it's OK to borrow money for a nice big "safe" family battlecruiser.

He makes 120k/yr after 15 years of working, his net worth is still negative, and everyone everywhere says he hasn't saved enough for retirement.

He thinks he's middle class, not because he has put any thought into it at all, but because he knows he isn't rich.

On Monday, he gets promoted to an executive position he had interviewed for but didn't expect to get.  His salary goes from $10k/month before taxes to 80k/month after taxes PLUS options and bonuses.  At that exact instant, is he booted out of the middle class?  Or does he get booted out a year later?

Fast forward to 3 years later.  As a humble man he didn't go nuts with that huge boon.  He and his wife decide to pay off all debts and still keep their kids grounded.  The car doesn't get upgraded, there's no helicopter to work.  But the new position meant he wasn't home 75% of the year.  His average workweek went from 50 hours a week to over 100 hours a week.  He has a massive pile of cash in the bank, missed every soccer game and band concert.  So he quits.  The person he was 3 years ago said he needed x amount to retire, and he's there.  In 10 years, his name won't show up on the list of the wealthiest 1%, cuz his income dropped to like nil.  But he sure as shit isn't poor.  Flying coach probably, buying toilet paper in bulk still.  He earned 40 years of middle class wages in 18 years.  He's actually just really really good at being middle class. 

If this happened to you, think about it honestly, what would you do?  I'd be gone.  There is literally no amount of money you could offer me once I had "enough" to get me to stay.  There are more people like this then you think.  The proof is in the roster.  People don't make seven figures for decades, on spec.  You do it, then you get out, on to other things.  I was not meant to be king, I'd rather have one more conversation with my grandfather than ever earn another dollar.  Leave all that to the sociopaths.

Most of us normal folks aren't rich.  Many of us can become pretty damn comfortable.  One way of looking at it, I suppose, would be to look at your lifetime earning potential, given reasonable assumptions.  If that lifetime amount has you living at cat-food levels, not middle class.  If it has you living comfortable your entire life, but dying without leaving your heirs a fortune, you were middle class.  If your children can quit their jobs once you die, you were upper middle class or upper class, but didn't pass on enough of the skills to make your children upper class.  If your children never had to work, then you're wealthy.

The MMM crowd, I think, tend towards the sort that have a concept of "enough" and the discipline to not seek more as additional security.  We'd rather invest time in our children instead of assuming they'll need our help financially.  We are somewhat optimistic, and the outside looking in might call that naive.  We are somewhat pessimistic, and the outside looking in might say we need to have more faith in ourselves.

I once wondered where all the wealthy people were.  Is there a separate highway system?  They aren't pulling meat out of the bargain bin with me at the grocery store are they?  Where's their grocery store?  In the US there are alot of super rich people, and alot of really really well off people.  The ones that inherited it from the guy who invented the spork or whatever, they may not have "income" that gets them on the list.  The reality is some of these people live next door to you, they go shopping or visit the whatever while you're at your job and out of their way.  The secret to being wealthy, older I get, I am convinced, the secret is not spending your money.  So the high earner big spender, they aren't necessarily wealthy, they aren't middle class either, they are definitely jackasses.  I think there's people out there who could look at us decent earner/super savers as jackassess too, if we forego the high earning to...do...whatever.

As one of my friends said when I described what I've been working towards "Don't go all John Galt on us.  We need you paying taxes."

I have things I want to do, but when I started down this road, I will freely admit, reducing the single largest expense I have in my life (taxes) is a huge motivator for me to manage to survive without any earned income.  There's nothing righteous about that, there's an element of selfishness there, but I just don't care anymore.  Your money or your life yo.

To the extent I ever think about it, I think of myself as being wealthy.  I've earned a total of just under $400k total in my life, which puts me, if not in the top 1% of people alive today, certainly near the top 1% of humans who have ever lived.  And it was easy, in retrospect.  I fully acknowledge that there is a bit of luck.  The cops didn't catch me doing that thing when I was young and stupid.  The teacher gave me a second chance that one time when I was lazy.  That stranger cared and helped when I needed it most.  There were opportunities.  But I am constantly amazed at just how amazing the world is right now, and how awesome my life is.  I have a real possibility of doing whatever I feel like with no fear of dying of starvation, before my life is even half over.  Regardless of what my net worth or income is at that point, I will be one of the richest people who ever lived.  Stick that in your class war and smoke it.

Money=Time.  Your money or your life.

[Michael792]

I grew up thinking I was middle class. My dad made about $40,000 a year and raised five kids quite well on that. Of course, it took my parents 30 years to get out of debt, but they have perfect credit and are quite frugal, though they do manage to spend all their money.

[morning owl]

I actually consider it fairly laughable to make any statements about class or wealth based on income, rather than assets.

Income clearly plays a hand in this though. The higher the income, the easier it becomes to stockpile income-producing assets. The potential is there, and increases according to income -- the question then is, does one take advantage of this potential, or not.

[Bracken_Joy]

As one of my friends said when I described what I've been working towards "Don't go all John Galt on us.  We need you paying taxes."

.... Stick that in your class war and smoke it.

Money=Time.  Your money or your life.

This was well presented and gave me a lot to think about. Thank you for that.

[zataks]

A few things come to mind in reading these responses.  One of which is the prolific use of "rich" to refer to someone who is a higher earner.  High earnings does not equal rich.  As I saw on this board recently, the acronym HENRYs--high earner(s) not rich yet--is a good way to describe myself, and I think many on this board.  High earner tells me I'm above middle class in that regard (upper-middle or upper) but don't have the assets to consider myself wealthy or rich or, more importantly, FI.  Accumulation stage, dudes.

Also, I can't remember who wrote the opinion piece/editorial/letter I saw a handful of months ago but it was someone who is some sort of wealth adviser IIRC.  In the piece he said, (quote may not be exact, going off memory) "there is no middle class.  There is the working class and there is the investor class."

That really resonated with me and has helped fuel my drive towards FIRE.  Because fuck the necessity of work to get by.  At this point, I love seeing my stash grow and knowing I'm on my way to a place infinitely distant from my squalid childhood.

[morning owl]

I like the HENRYs acronym. I think I was the one who said high income = wealth. The main thing I wanted to get across with this is that there is the potential for wealth, i.e. for living entirely off of income-producing assets. That potential is not to be discounted, and I believe it's the core of MMM's message. High incomes offer potential for wealth that many high earners don't realize, and/or take for granted. My point about the HCOL was that people don't try to lower their expenses when they have high incomes (generalizing here, but I see this happening a lot.) So they end up feeling "middle class" even when earning over $200k per year because they have very little left over at the end of the month to put into investment accounts. They are in a paycheque to paycheque cycle, chained to the golden handcuffs.

As long as people with high incomes can acknowledge the *potential* of these incomes, then that's great! In other words, there is a big difference between someone earning $200k per year who has very little in investable assets vs. someone earning minimum wage with very little money in the bank. As soon as the high earner wakes up and stops being financially illiterate, then they can make the choice to be wealthy. The low earner does not have this choice, or rather, the choice would require much more time and effort. You can't lump both situation into "low class" like Cathy was suggesting.

[mozar]

Great points here. I wanted to add that MMM was never creating a blog to "help the middle class" his stance was that he moved to the USA from Canada and thought whoa! What is this crazy consumerist society I moved into? It doesn't have to be this way!

Also people in the USA sometimes move up and down the ladder. Most people who are poor don't stay there, people who consider themselves middle class sometimes end up living in poverty for awhile, and generationaly people will move up and down.

My background on my mothers side: My grandfather immigrated from Germany and met his wife in the USA. My grandmother is first generation and her mother was from Poland. They met in highschool in New Jersey (grandmother was 12, grandfather 18). My grandfather got into Columbia University and went for one year before he was deployed in WWII. They started very poor but my grandfather kept getting promotions because of his one year of college.
He did very well and bought a house in long island and had 4 children. When my mother (the youngest) was 9 my grandfather lost his job and they sold everything and moved to Virginia for a job opportunity. They continued to do well. My mother was raised middle class, her siblings were raised poor. My mother decided to rebel against her parents and marry a black man she met in highschool (she is white and black people were bused to her school).

They were married for 11 years and had me. After my parents got divorced when I was 6 I was raised technically in poverty. But I wasn't raised with the mindset of poverty. My mother was never worried about money, money was never tight. We always lived in very poor areas so I didn't ask for more. My father paid an immense amount in child support. I have become surprisingly succesful because I don't get stressed about money and I've been able to wait for good opportunities. I consider myself upper class. I make in the top 10% of incomes for women in the country. For my HCOL I am middle class.

[TheNewNormal2015]

Lots of great replies on this thread

I agree that looking at income to stratify and define middle class is incomplete: it should be determined by a combination of income (or potential to quickly earn income if RE and working below capacity- a retired CEO can quickly earn a large salary if he chooses to earn a wage again), wealth, location and personal circumstance (a sole breadwinner and SAH parent with many children needs a lot higher income than a DINK couple)

I completely disagree with those who have posted that living in a HCOL area doesn't matter and that if one makes $200k then he is "rich".  I think the amount of income (earning power, ignoring wealth) necessary to put one solidly in the upper third of society in any given area determines what the cutoff is for "middle class", and that amount is multiples of the median wage in a place like NYC or SF, whereas it may only be 25% higher in places that would not be deemed HCOL.

I thought this article made some interesting points:

http://www.bloombergview.com/articles/2015-02-03/where-rich-feels-less-fortunate

While the median wage of a HCOL area like NYC, as described in the article, might be $75k, that includes a majority of people who have lived in the area for decades and already own their residence, presumably acquiring a big paper gain on their property along the way as residential real estate values have skyrocketed the past 20-30 years, and reducing the amount of salary needed to make the top 1/3 cutoff.  Someone moving to that area for the first time (millennial or someone older who migrated from a lower COL area) would find it much more difficult to get by with even a modest lifestyle because they didn't benefit from the rapid appreciation of home prices - it is not an apples to apples comparison.

[Davin]

When I think of middle class I define it as those that earn an annual gross salary that is within two standard deviations of the median. Lifestyle can be deceiving though. The millionaire-next-door types tend to live a middle class lifestyle while earning much more, and there are many in the middle class who live beyond their means through debt. People in both of these categories tend to think of themselves as middle class.

[mm1970]

I grew up in a five-kid one-income household. We went through a period of governmental assistance, had no TV, game consoles, had clothing repaired instead of replaced, etc.  I cannot fathom a 200k income being considered "middle class" anywhere.

Sounds a lot like my upbringing in rural western PA.

Then I moved to coastal Southern California where a run-down starter home costs $700k.

[morning owl]

TheNewNormal2015, thanks for the article. It's interesting.

Here's the premise that the article, and I think your comment above, are based on:

It's still true that affluent people are purchasing quite a lot with their money, such as proximity to high-paying jobs. But it's also worth remembering that they have to allocate quite a lot of their high incomes to buying something that their lower-income neighbors already have -- and that this is one big reason why they don't feel that much richer than those neighbors.

Here's where I disagree. Nobody is forcing the affluent to purchase these homes. This is similar to what we are facing here in Canada, and perhaps where my bias is coming from. The average Canadian home costs over $400k currently. This includes condos, as well as middle-of-nowhere shacks. The two most expensive cities of Canada have average detached home prices of ~ a million dollars. We have over over 70% home ownership. Yet the average Canadian salary is $48,000/year. Median is somewhere around $75k.

What is wrong with renting? (Rent costs are generally far cheaper than buying, even in HCOL areas.) Why do we need to purchase expensive homes? What is wrong with living below one's means and not living like the "afluent?" If the median income in, say, Vancouver, is about $70k, how can the majority of people afford to buy million dollar + houses? THIS is where the disconnect is happening. There is most definitely a way to get by on less in this country, but many of those with high incomes have become house poor because they've bought in to this ridiculous housing market because this is simply what 'affluent' Canadians are supposed to do. Yet they spend freely because they believe their houses are worth millions, and will fund their retirements. Or they take out HELOCs to fund their spending habits. They are surrounded by indulgences -- restaurants, fancy cellphones and electronics, high end this and that. People buy into it all without thinking about saving for their futures. And very few of the people I know have pensions. Their money flies through their fingers, because even though they are house poor, they see their homes as an ATM, and their mortgages as a forced savings program.

If people with high incomes were to prioritize real, as in liquid, investments, then it's unnecessary to enslave oneself to a mortgage. True wealth is in income-producing assets, not unstable house ownership during a housing bubble.

I LOLed when I heard MMM say in one of his podcasts that he moved to the US and was shocked at how crazy people's spending habits are, after having grown up in sensible, frugal Canada. I wondered, what part of Canada is he from? Because there is definitely a sense of mass overconsumption in big cities where incomes are high. And the ridiculous spending on housing especially needs to be questioned. People have lost their marbles on housing here -- nobody is able to save anything anymore. [/rant]

[Exflyboy]

I would forget all the class based on income debate.

A better question is.. What percentage of households have managed to save say more than $1,000,000 liquid net worth?

[Reepekg]

perhaps a little clearer picture of how money flows through a household:

Underclass/Poverty (Dependent on aid for survival)
Working Class (Dependent on labor for income -covers a wide range of incomes/wealth)
Investment Class (Dependent on investments for income-covers a wide range of incomes/wealth)

+1
People value humility too much to label themselves upper class. My parents identified themselves as middle class even though they're probably around 85th percentile. I've come to grips with my high income (relative to the median American) by owning the fact that I am increasingly investor class instead of working class.

[JLee]

I grew up in a five-kid one-income household. We went through a period of governmental assistance, had no TV, game consoles, had clothing repaired instead of replaced, etc.  I cannot fathom a 200k income being considered "middle class" anywhere.

Sounds a lot like my upbringing in rural western PA.

Then I moved to coastal Southern California where a run-down starter home costs $700k.

In what city will $700k get you a small run-down house? That's nuts.  I have a hard time calling a 3/4mil house "middle" class, but I'm coming from the other end of the spectrum so perhaps my opinion is twisted a bit.

[TheNewNormal2015]

TheNewNormal2015, thanks for the article. It's interesting.

Here's the premise that the article, and I think your comment above, are based on:

It's still true that affluent people are purchasing quite a lot with their money, such as proximity to high-paying jobs. But it's also worth remembering that they have to allocate quite a lot of their high incomes to buying something that their lower-income neighbors already have -- and that this is one big reason why they don't feel that much richer than those neighbors.

Here's where I disagree. Nobody is forcing the affluent to purchase these homes. This is similar to what we are facing here in Canada, and perhaps where my bias is coming from. The average Canadian home costs over $400k currently. This includes condos, as well as middle-of-nowhere shacks. The two most expensive cities of Canada have average detached home prices of ~ a million dollars. We have over over 70% home ownership. Yet the average Canadian salary is $48,000/year. Median is somewhere around $75k.

What is wrong with renting? (Rent costs are generally far cheaper than buying, even in HCOL areas.) Why do we need to purchase expensive homes? What is wrong with living below one's means and not living like the "afluent?" If the median income in, say, Vancouver, is about $70k, how can the majority of people afford to buy million dollar + houses? THIS is where the disconnect is happening. There is most definitely a way to get by on less in this country, but many of those with high incomes have become house poor because they've bought in to this ridiculous housing market because this is simply what 'affluent' Canadians are supposed to do. Yet they spend freely because they believe their houses are worth millions, and will fund their retirements. Or they take out HELOCs to fund their spending habits. They are surrounded by indulgences -- restaurants, fancy cellphones and electronics, high end this and that. People buy into it all without thinking about saving for their futures. And very few of the people I know have pensions. Their money flies through their fingers, because even though they are house poor, they see their homes as an ATM, and their mortgages as a forced savings program.

If people with high incomes were to prioritize real, as in liquid, investments, then it's unnecessary to enslave oneself to a mortgage. True wealth is in income-producing assets, not unstable house ownership during a housing bubble.

I LOLed when I heard MMM say in one of his podcasts that he moved to the US and was shocked at how crazy people's spending habits are, after having grown up in sensible, frugal Canada. I wondered, what part of Canada is he from? Because there is definitely a sense of mass overconsumption in big cities where incomes are high. And the ridiculous spending on housing especially needs to be questioned. People have lost their marbles on housing here -- nobody is able to save anything anymore. [/rant]

The cost of renting vs buying are pretty closely tied together in most HCOL areas due to an efficient real estate market, i.e. it isn't cheaper to rent in the long run.  In most cases if you stay put for 5-10 years you are much better off buying.

[Gin1984]

TheNewNormal2015, thanks for the article. It's interesting.

Here's the premise that the article, and I think your comment above, are based on:

It's still true that affluent people are purchasing quite a lot with their money, such as proximity to high-paying jobs. But it's also worth remembering that they have to allocate quite a lot of their high incomes to buying something that their lower-income neighbors already have -- and that this is one big reason why they don't feel that much richer than those neighbors.

Here's where I disagree. Nobody is forcing the affluent to purchase these homes. This is similar to what we are facing here in Canada, and perhaps where my bias is coming from. The average Canadian home costs over $400k currently. This includes condos, as well as middle-of-nowhere shacks. The two most expensive cities of Canada have average detached home prices of ~ a million dollars. We have over over 70% home ownership. Yet the average Canadian salary is $48,000/year. Median is somewhere around $75k.

What is wrong with renting? (Rent costs are generally far cheaper than buying, even in HCOL areas.) Why do we need to purchase expensive homes? What is wrong with living below one's means and not living like the "afluent?" If the median income in, say, Vancouver, is about $70k, how can the majority of people afford to buy million dollar + houses? THIS is where the disconnect is happening. There is most definitely a way to get by on less in this country, but many of those with high incomes have become house poor because they've bought in to this ridiculous housing market because this is simply what 'affluent' Canadians are supposed to do. Yet they spend freely because they believe their houses are worth millions, and will fund their retirements. Or they take out HELOCs to fund their spending habits. They are surrounded by indulgences -- restaurants, fancy cellphones and electronics, high end this and that. People buy into it all without thinking about saving for their futures. And very few of the people I know have pensions. Their money flies through their fingers, because even though they are house poor, they see their homes as an ATM, and their mortgages as a forced savings program.

If people with high incomes were to prioritize real, as in liquid, investments, then it's unnecessary to enslave oneself to a mortgage. True wealth is in income-producing assets, not unstable house ownership during a housing bubble.

I LOLed when I heard MMM say in one of his podcasts that he moved to the US and was shocked at how crazy people's spending habits are, after having grown up in sensible, frugal Canada. I wondered, what part of Canada is he from? Because there is definitely a sense of mass overconsumption in big cities where incomes are high. And the ridiculous spending on housing especially needs to be questioned. People have lost their marbles on housing here -- nobody is able to save anything anymore. [/rant]

The cost of renting vs buying are pretty closely tied together in most HCOL areas due to an efficient real estate market, i.e. it isn't cheaper to rent in the long run.  In most cases if you stay put for 5-10 years you are much better off buying.

My mom rented in San Jose, Ca for most of my life, in pretty decent neighborhoods and that was not true there. 

[iris lily]

Somewhat tied to this topic, I had a very puzzling conversation with my friend. She insisted that someone a mutual friend of ours who had a grandfather worth a couple million in farmland ," came from money."

To me and to DH, this is funny because we all know millionaire farmers who are cash poor.

Hers is a city point of view. She is from new York city.

In Iowa we all know multimillionaires who have not all that much income.

So this discussion is rather it like that. Define the terms and then we can move forward.

[morning owl]

TheNewNormal2015, thanks for the article. It's interesting.

Here's the premise that the article, and I think your comment above, are based on:

It's still true that affluent people are purchasing quite a lot with their money, such as proximity to high-paying jobs. But it's also worth remembering that they have to allocate quite a lot of their high incomes to buying something that their lower-income neighbors already have -- and that this is one big reason why they don't feel that much richer than those neighbors.

Here's where I disagree. Nobody is forcing the affluent to purchase these homes. This is similar to what we are facing here in Canada, and perhaps where my bias is coming from. The average Canadian home costs over $400k currently. This includes condos, as well as middle-of-nowhere shacks. The two most expensive cities of Canada have average detached home prices of ~ a million dollars. We have over over 70% home ownership. Yet the average Canadian salary is $48,000/year. Median is somewhere around $75k.

What is wrong with renting? (Rent costs are generally far cheaper than buying, even in HCOL areas.) Why do we need to purchase expensive homes? What is wrong with living below one's means and not living like the "afluent?" If the median income in, say, Vancouver, is about $70k, how can the majority of people afford to buy million dollar + houses? THIS is where the disconnect is happening. There is most definitely a way to get by on less in this country, but many of those with high incomes have become house poor because they've bought in to this ridiculous housing market because this is simply what 'affluent' Canadians are supposed to do. Yet they spend freely because they believe their houses are worth millions, and will fund their retirements. Or they take out HELOCs to fund their spending habits. They are surrounded by indulgences -- restaurants, fancy cellphones and electronics, high end this and that. People buy into it all without thinking about saving for their futures. And very few of the people I know have pensions. Their money flies through their fingers, because even though they are house poor, they see their homes as an ATM, and their mortgages as a forced savings program.

If people with high incomes were to prioritize real, as in liquid, investments, then it's unnecessary to enslave oneself to a mortgage. True wealth is in income-producing assets, not unstable house ownership during a housing bubble.

I LOLed when I heard MMM say in one of his podcasts that he moved to the US and was shocked at how crazy people's spending habits are, after having grown up in sensible, frugal Canada. I wondered, what part of Canada is he from? Because there is definitely a sense of mass overconsumption in big cities where incomes are high. And the ridiculous spending on housing especially needs to be questioned. People have lost their marbles on housing here -- nobody is able to save anything anymore. [/rant]

The cost of renting vs buying are pretty closely tied together in most HCOL areas due to an efficient real estate market, i.e. it isn't cheaper to rent in the long run.  In most cases if you stay put for 5-10 years you are much better off buying.

Yea, not true in Canada.

Just for funzies, here is an example of a 1.8 million dollar house in Vancouver, after a quick search, so this is not an unusual example...

http://www.realtor.ca/propertyDetails.aspx?PropertyId=15169792

Like I said -- ridiculous. (The house hasn't been built yet, but still... It is insane...)

Or how about this one, for $1.3m?

http://www.realtor.ca/propertyDetails.aspx?PropertyId=14826812

And here's what you get for a million bucks --

http://www.realtor.ca/propertyDetails.aspx?PropertyId=15143054

[Left]

I never viewed "class" in terms of monetary amounts. Class to me is the amount of time someone spends trying to get money.
IE: poor people spend majority of their time working. The middle class spends roughly half the day (8-14 hours) on work. The upper class work few hours and have more time to spend on their own hobbies/goals.

So to me, someone FI and spending $20k/year is upper class and someone working but only "living" paycheck to paycheck on $200k/year is middle class. I'd call the oil field workers/doctors that work 80+ hours/week and make $100k+/year "lower" class since even if they are making so much money, they are essentially putting in the equivalent of 2 or 3 full time jobs. Heck, I could make $100k/year if I "worked" two full time jobs but I don't.

Which is why I'd consider Steve Jobs more "middle" class while Bill Gates is "upper" class, regardless that both of them are extremely wealthy. Jobs was still "working" while Gates wasn't. Sure Jobs didn't "need" too, but he "choose" to, unless he considered Apple his "hobby" then I would consider him as upper class.

so by my logic, one day I plan to be "upper" class once I FI. If I keep working, fine, I'll still be working but that won't mean I'm not "upper" class because I know in my heart that if I had to quit, I wouldn't "lose" anything

what's the point in trying to attach a dollar sign to this, I know government needs to but why are people doing the same? Does it make people feel better that they are "middle" class if they are still paying off a debt? Does being called "upper" class have a bad connotation to it? If someone calls me upper class, I'd feel proud that my actions have set me apart in a "good" way. If they asked me for money because they think I had "enough", then they can ask me at any amount and I'd still be pissed at them. I mean we treat MMM kind of like a role model here, wouldn't that be because he is "upper" class in our eyes?

[Rural]

Somewhat tied to this topic, I had a very puzzling conversation with my friend. She insisted that someone a mutual friend of ours who had a grandfather worth a couple million in farmland ," came from money."

To me and to DH, this is funny because we all know millionaire farmers who are cash poor.

Hers is a city point of view. She is from new York city.

In Iowa we all know multimillionaires who have not all that much income.

So this discussion is rather it like that. Define the terms and then we can move forward.

+1


Scrape up the cash to pay the taxes on the family farm, then figure out how you're going to clothe yourself. See this all the time. Try not to eat the seed corn. Not that farmers can save seed anymore.

[Tabaxus]

Somewhat tied to this topic, I had a very puzzling conversation with my friend. She insisted that someone a mutual friend of ours who had a grandfather worth a couple million in farmland ," came from money."

To me and to DH, this is funny because we all know millionaire farmers who are cash poor.

Hers is a city point of view. She is from new York city.

In Iowa we all know multimillionaires who have not all that much income.

So this discussion is rather it like that. Define the terms and then we can move forward.

+1


Scrape up the cash to pay the taxes on the family farm, then figure out how you're going to clothe yourself. See this all the time. Try not to eat the seed corn. Not that farmers can save seed anymore.

Sorry, but if you actually can monetize that multi-million piece of land, you're rich. Your own choice if you decide to keep the land out of sentimentality.  I have relatively distant family (great-uncles, basically) who complain unendingly about how hard it is to pay the bills on the farm.  I imagine that is actually true.  So sell the freaking farm.

[Exhale]

I grew up living in two different classes:

1) Poor - based on my parents' income
2) Middle-Upper class - based on being exposed to lots of social, cultural and educational assets (things that my more wealthy peers often didn't experience even though they lived in families with more money).

For me, it was clearly #2 that has allowed me to reach a higher economic class than my parents. I say this because it was the social/cultural capital and (most importantly) the self confidence that I belonged anywhere I wished to go that allowed me to pass, adapt and succeed.

In other words, my experience has been that "class" is both economic and socio-cultural - sometimes they correlate, sometimes they don't.

[TheNewNormal2015]

Personal anecdotes aside, rents and purchase prices move together over time.  Are there affordable housing options (rent-controlled, govt subsidized, etc) in many HCOL areas?  Sure, but they are the tiny exception and not the norm.

Over a full market cycle the buy vs rent proposition evens out - for those areas where that doesn't seem to be the case report back once the next recession occurs and house prices stagnate or slip.  Oh and interest rates might eventually go up some day as well, so I am guessing when that eventually happens asset prices (including homes) may come back to reality.

[iris lily]

Sorry, but if you actually can monetize that multi-million piece of land, you're rich. Your own choice if you decide to keep the land out of sentimentality.  I have relatively distant family (great-uncles, basically) who complain unendingly about how hard it is to pay the bills on the farm.  I imagine that is actually true.  So sell the freaking farm.

Well, I don't disagree with you entirely. It's more about what my friend thinks of as "came from money."

The farmer kids we know didn't have the latest consumer products, although many of them did  have parent-financed cars for sheer family convenience. If my friend actually knew these rural kids she would never think that they had any money because in her mind, conspicuous consumption is "having money."  She can't reconcile having wealth and not spending it.

Defining terms when we all talk about this stuff is interesting.

[Gin1984]

Personal anecdotes aside, rents and purchase prices move together over time.  Are there affordable housing options (rent-controlled, govt subsidized, etc) in many HCOL areas?  Sure, but they are the tiny exception and not the norm.

Over a full market cycle the buy vs rent proposition evens out - for those areas where that doesn't seem to be the case report back once the next recession occurs and house prices stagnate or slip.  Oh and interest rates might eventually go up some day as well, so I am guessing when that eventually happens asset prices (including homes) may come back to reality.

Except, in my mom's case, her rentals where none of those and for most of my lifetime (5-26) renting was cheaper for her than buying in San Jose, a pretty HCOLA.  That is part of what makes buying not always a good idea in these areas. 

[h2ogal]

Income is only a PART of the what defines your "Class".  Class is also a social and cultural definition.  We make over $200K combined income, and we are definitely "Middle Class".  If, for a time, we had NO income, or by a major mishap our assets were lost or stolen, we would still be "Middle Class" people.

Middle class is also defined by how you get your income.  Did you go out and earn it every day by working?  Or did you inherit assets that provided some or all of it? 

Did you go to public schools and state university?  Or elite private schools and Ivy League college?

Were your parents and grandparents workers or business/land owners or business/government leaders?

[roadtofreedom]

It is a really interesting thread.

The key fact is how much you need to live confortable? It is more important the amount that you need than the amount that earn.

I have  several friends with different circumstances:

1st - This couple earn above 6.000 USD after taxes per month. They live a frugal life and they have paid off the mortgage. I really think that they are enjoying their lives and their kids. They are working on cutting expenses to reach a FIREd goal.

2nd - This guy earn above 8.000 USD after taxes per month. He is single and is paying +4.000 USD per month in a mortgage. He has a luxury car (Infinity SUV) and a lot of expenses on stuff.

Who is richer?, who need less?

Consumerism is slavery.

[resy]

I'd be more curious to spend my time on positive endeavors such as reading and learning how to become even more productive, further increasing my savings, and optimizing my investing strategies - enabling me to give more time and money to charitable causes.

Good point!  I also like to spend my time holding my pinky up while I sip tea.  Do you do that as well?

No, but I do spend minimal amounts of time glossing over snarky responses from self-important forum moderators.

When people report your posts as offensive, I can either censor you, or use some snark to lighten the tone.  I chose the latter this time, because I try to avoid the former.  If that makes me self-important, so be it.  :)

whaaaat (?!) I didnt read what rapnasterd said as offensive, dont understand what there would be to report? snobish? sure but I've seen much worse on the forums that doesnt get reported/snarked at/censured.
And for what it's worth, he was not the only one that wondered if such remark would have been censured if it hadnt come from the moderator himself.

[arebelspy]

Thanks for the input.  RMD and I took care of it over PMs.

[enpower]

Top Class- Mansion, yaught, sports car
Low Class- Homeless, crazy cat lady
Middle Class- Everyone in between. A lawyer earning 500k a year can be middle class in my mind if he lives in the suburbs in a basic house with a Toyota and hobbies include watching kids sports.

The reason I think why the MMM community is mainly upper class is because the lower class people that actually would benefit from living more frugally don't have the time/money to loiter the internet. Most of the people on this website are so sick and tired of their $200k job that they are looking for a simpler life with less pressure and stress. Most people on this forum want to quit their jobs and retire early. I'm a bit different, I earn 50k, still share a rented house with other 20 somethings and am just generally frugal. I like saving money and talking about money.

[Murse]

Top Class- Mansion, yaught, sports car
Low Class- Homeless, crazy cat lady
Middle Class- Everyone in between. A lawyer earning 500k a year can be middle class in my mind if he lives in the suburbs in a basic house with a Toyota and hobbies include watching kids sports.

The reason I think why the MMM community is mainly upper class is because the lower class people that actually would benefit from living more frugally don't have the time/money to loiter the internet. Most of the people on this website are so sick and tired of their $200k job that they are looking for a simpler life with less pressure and stress. Most people on this forum want to quit their jobs and retire early. I'm a bit different, I earn 50k, still share a rented house with other 20 somethings and am just generally frugal. I like saving money and talking about money.

In order to be considered in the "top class" in your model does one have to have all three, what if they only own a sports car? What if the sports car is 100% financed? What if all 3 are financed?

[enpower]

Top Class- Mansion, yaught, sports car
Low Class- Homeless, crazy cat lady
Middle Class- Everyone in between. A lawyer earning 500k a year can be middle class in my mind if he lives in the suburbs in a basic house with a Toyota and hobbies include watching kids sports.

The reason I think why the MMM community is mainly upper class is because the lower class people that actually would benefit from living more frugally don't have the time/money to loiter the internet. Most of the people on this website are so sick and tired of their $200k job that they are looking for a simpler life with less pressure and stress. Most people on this forum want to quit their jobs and retire early. I'm a bit different, I earn 50k, still share a rented house with other 20 somethings and am just generally frugal. I like saving money and talking about money.

In order to be considered in the "top class" in your model does one have to have all three, what if they only own a sports car? What if the sports car is 100% financed? What if all 3 are financed?

Got to have all three.

No doubt. All three. Gold teeth help too.