Monday, June 3, 2019

Middle Class? How about Middle Quintile? (2019 update)

It’s been four years since I wrote a post on household income quintiles, in a vain attempt to reframe the way we think about the middle class. I’ve never liked the way that the term ‘middle class’ was simultaneously poorly defined and yet somehow still critical to the way we talked about finances, the economy, and politics.

Nearly everyone considers themselves middle class.  A household earning $30k can define themselves as middle class, even though a family of three at that income level would qualify for some federal subsidies, being within 150% of the poverty line. But most millionaires also consider themselves middle class as well, absurd as that is.

Either the middle class has a definition that is so broad that it includes both the wealthy and those skirting the poverty line, or it’s a term so poorly defined that anyone can claim membership just based on how they feel.

Rather than adhering to the feel good, everyone’s middle class narrative (one I suspect is perpetuated so that we don’t have to actually deal with the systemic problems of stagnant wages, the rising cost of living, income inequality, or wealth inequality) I prefer to think of these classes in terms of income quintiles.

When I first published in income quintile post, the most recent data from the Census Bureau was from 2013. Below are the income quintile figures from back then. [Source.] As a reminder, each quintile has a full 20% of all US households in it.

2013 Income Quintiles (adjusted to 2017 dollars):
  • 1st Quintile (“Lower Class”): $0-$22,134
  • 2nd Quintile (“Lower Middle Class”): $22,135 - $42,358
  • 3rd Quintile (“Middle Class”): $42,358 - $69,039
  • 4th Quintile (“Upper Middle Class”): $69,040 - $111,631
  • 5th Quintile (“Upper Class”): $111,632 or more in household income
    • (Lower limit of top 5% of all households was $206,587)
And here is how those income quintiles broke down 2017:
  • 1st Quintile (“Lower Class”): $0-$24,638
  • 2nd Quintile (“Lower Middle Class”): $24,639 - $47,110
  • 3rd Quintile (“Middle Class”): $47,111 - $77,552
  • 4th Quintile (“Upper Middle Class”): $77,553 - $126,855
  • 5th Quintile (“Upper Class”): $126,856 or more in household income
    • (Lower limit of top 5% of all households was $237,034)
The chart below shows the changes in the upper limits of each of the lowest four qunitiles, and the lower limit of the top 5%. (There is no upper limit on the top quintile.)

The headline here seems to be that all groups saw some income gains over those four years, which is great. However, this broad income growth was uneven:
  • 1st Quintile (“Lower Class”): upper limit increased by $2,504, or 11.3% over four years
  • 2nd Quintile (“Lower Middle Class”): upper limit increased by $4,752, or 11.2%  over four years
  • 3rd Quintile (“Middle Class”): upper limit increased by $8,513, or 12.3% over four years
  • 4th Quintile (“Upper Middle Class”): upper limit increased by $15,244, or 13.6% over four years
  • 5th Quintile (“Upper Class”): lower limit increased by $15,244, or 13.6% over four years (*ther is no upper limit for the Upper Class quintile)
  • Lower limit of top 5% increased by $30,447, or 14.7%
But while there were broad income gains across households during these years, what we see is that far larger gains in higher income quintiles like the Upper Middle Class than the Lower or Lower Middle Class, both in total dollars gained and in the percentage increase over four years.

While the lower class saw a $2,504 increase (11.3%) in the upper limit of that quintile, the Upper Middle Class saw a $15,244 (13.6%) over that period. The lower limit of the top 5% increased a whopping $30,477 (14.7%) over that period.

As per usual, largest gains are being seen at the top. Even as incomes are rising, income inequality between classes is growing. 

Just take a look at the total income distribution between all five quintiles. (That is, if you took all the income earned in 2017, and showed how much of that figure each class had.)

The top fifth of households received over half of all the income. That's ridiculous.

Let’s take another look at the income quintiles for 2017 again, this time with an eye toward inequality:
  • 1st Quintile (“Lower Class”): $0-$24,638
  • 2nd Quintile (“Lower Middle Class”): $24,639 - $47,110
  • 3rd Quintile (“Middle Class”): $47,111 - $77,552
  • 4th Quintile (“Upper Middle Class”): $77,553 - $126,855
  • 5th Quintile (“Upper Class”): $126,856 or more in household income
    • (Lower limit of top 5% of all households was $237,034)
Looking at these figures, a full fifth of US households earned less than $24,638 a year. Forty percent of all US households earned less than $47,110. At the same time, the lower limit of the top 5% was $237,034: every single household in the top five percent made more than that in a year. And the top 20% of households took home over half of all the earned income in the country.

I’m not here to shame anyone for what their family earned. Inequality is a systemic issue and whatever your family earned is just one data point: it’s anecdotal at best.

But if reducing income inequality is a goal we’d like to address, we’d ideally see the opposite trends over time: larger income increases for households in the lower two quintiles, and smaller income increases for the top quintiles, so we can begin to close the gap.

If we want to address inequality, how might we approach the problem?

One of the most direct ways to increase the household incomes for the bottom two quintiles is to increase the federal minimum wage to $15.00 an hour. This is a common sense proposal with myriad, widespread benefits, as explained by Robert Reich in this 2014 video:

Beyond just raising the minimum wage, an expansion of the EITC (a program with broad bipartisan support as it gives incentives to low wage workers to earn more income) would further assist families earning below the median wage. These policies would pull lower earning families them up towards the true middle class.

Finally, systemic changes to income inequality might require rethinking the corporate structure and culture altogether, along the lines of Elizabeth Warren’s Accountable Capitalism Act. Rather than maximization of shareholder profit being the governing principle of all corporations (a viewpoint that disproportionately helps the wealthy, who own most of the stock), this sort of legislation would force companies to consider their workers (and their wages), since no fewer than 40% of the corporation's board would be elected by the company’s workers under this proposal.

In the personal finance community, we talk a lot about FIRE being more accessible to people who want it. But we know that, due to the realities of how many people are earning so little, financial independence and early retirement are simply out of reach for large swaths of our population. 

To the degree that we want this goal of early retirement to be accessible to more people, we’re going to need to be more honest about what people are actually earning in our country. When we look at the wages people are really bringing home, can we really tell them they have enough to get ahead and achieve these big, ambitious financial goals? 

Can they even make ends meet?

Should we really be telling them that they’re "middle class"?

*Photo is from the MN AFL-CIO at Flickr Creative Commons.
*All household income data is from the US Census Bureau Historical Income Tables.


  1. Damn, I didn't know we are upper class (especially if I count passive income.) FIRE is out of reach if you can't pay the bills. The first priority should be making more income. Focus on the offense in the first half. I just listed to "The Real Minimum Wage" episode on the Planet Money podcast. Pretty good.

    1. These quintiles were surprising to us, too, Joe. We're in the upper class/upper quintile, too.

      I think that most people pursuing FIRE are in the top two quintiles (that's what our survey from our readers with the original posts showed). Which makes it hard for us to say things like "everyone can do this". We're clearly outliers re: income, so we might not be in the best position to say what the average Joe can do.

      I loved that episode on the real minimum wage. States & cities are certainly addressing the minimum wage in a way the federal government seems unable/unwilling to do.

  2. Yep, I'm upper middle class. Such a weird concept, but one I have to keep reminding myself of when I start to define myself as "middle class." Because that's not fair to the people who actually earn middle-class wages. It's just so hard to see yourself as anything other than middle class that, as you noted, even some millionaires consider themselves middle class. It's definitely something we need to define better so that we can take a hard look at the real issues surrounding wages in this country.

    1. I hear you, Abby. We definitely want to be middle class, too. It's way better of a class to belong to from, well, a sense of belonging. No one wants to admit their privilege or brag about how they make double the average income. But in our case, it's the truth: we're fucking rich and we earn more than at least 80% of the nation.

      It's something I need to remind myself of when I think about how easy it's going to be for other people to save for retirement, pay off debts, etc. etc.

  3. This kills me - I don't *feel* like I'm "upper class" but apparently we are. This is really eye-opening from a pure numbers breakdown. Thanks for putting this all together!

    1. Yeah, it was pretty shocking for me when I saw the figures for the first time, BB. I guess it just goes to show that it's hard to know where you really stand in comparison to others re: income without seeing numbers. Just another argument for more data, & more transparency.

  4. I like your blog because you are realistic. Plain and simple, a lot of Americans just don't make enough money. We can't expect people who don't have enough money for day to day living expenses, to have money to save towards retirement. Also folks working in those lower paying jobs likely don't have 401ks with employer matching, or access to other tax savings accounts like dependent care FSAs.

    It's frankly insulting to tell someone who genuinely doesn't make enough money that they should simply save more and invest more. With what? If they're already frugal (out of necessity) and there isn't enough money, then there isn't enough money.

    Based on your quintiles, my husband and I fall into the lower end of the upper middle class category. We don't feel particularly well off though because we're still in the midst of paying off fairly large amounts of student loan debt, trying to save for a down payment, and paying for full-time daycare for a toddler. But once we've got the student loans paid off and once the toddler is in school, we'll be doing really well and I recognize that puts us in a better position than many in our peer group. (We are 27 and 30).

    1. Thanks so much for that kind comment, K.

      I'm glad to hear that things will get much better once you pay off the student loans and no longer have to pay for full time daycare. Things really changed for us once we paid off my five figures student loans: we suddenly had a lot of wiggle room.

      And I really appreciate how you notice that the advice we give to people, to just somehow invest more when we're not paying people enough, is kind of absurd. Increasing wages, in a material way for people in the lower quintiles, has to be part of any solution.