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):

• 1^st Quintile (“Lower Class”): $0-$22,134
• 2^nd Quintile (“Lower Middle Class”): $22,135 - $42,358
• 3^rd Quintile (“Middle Class”): $42,358 - $69,039
• 4^th Quintile (“Upper Middle Class”): $69,040 - $111,631
• 5^th 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:

• 1^st Quintile (“Lower Class”): $0-$24,638
• 2^nd Quintile (“Lower Middle Class”): $24,639 - $47,110
• 3^rd Quintile (“Middle Class”): $47,111 - $77,552
• 4^th Quintile (“Upper Middle Class”): $77,553 - $126,855
• 5^th 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:

• 1^st Quintile (“Lower Class”): upper limit increased by $2,504, or 11.3% over four years
• 2^nd Quintile (“Lower Middle Class”): upper limit increased by $4,752, or 11.2%  over four years
• 3^rd Quintile (“Middle Class”): upper limit increased by $8,513, or 12.3% over four years
• 4^th Quintile (“Upper Middle Class”): upper limit increased by $15,244, or 13.6% over four years
• 5^th 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:

• 1^st Quintile (“Lower Class”): $0-$24,638
• 2^nd Quintile (“Lower Middle Class”): $24,639 - $47,110
• 3^rd Quintile (“Middle Class”): $47,111 - $77,552
• 4^th Quintile (“Upper Middle Class”): $77,553 - $126,855
• 5^th 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.