Monday, March 22, 2021

Is $400k Middle Class? Income Quintiles: 2021 Update

Is $400k Middle Class?  Income Quintiles: 2021 Update

2021 is determined to deprive us of nice things, so some tired click bait has been making the rounds again: claiming that a $400k income somehow qualifies as middle class in some coastal cities.

I don't have to link to this junk, right? No, I don't. We won't. We don't have to give wealthy misanthropes the attention they thirst for.

Still, anytime that popular media goes off the rails with definitions of the middle class, it's a good time to center our understanding on what people actually earn in this country. As always, I'm using my favorite, easy to understand method: income quintiles.

When I first published an income quintile post in 2015, the most recent data from the Census Bureau was from 2013. Below are the most recent income quintile figures, from 2019, right before the start of the pandemic and ensuing recession which likely wreaked some havoc on a lot of household's income. [Source.

As a reminder, each quintile has a full 20% of all US households in it. Here is how the income quintiles broke down for 2019:

1st Quintile (“Lower Class”): $0 - $28,083 
2nd Quintile (“Lower Middle Class”): $28,084 - $53,502 
3rd Quintile (“Middle Class”): $53,503 - $86,487
4th Quintile (“Upper Middle Class”): $86,488 - $142,500
5th Quintile (“Upper Class”): $142,501 or more in household income
The lower limit of top 5% of all households was $270,002.


Is $400k Middle Class?  Income Quintiles: 2021 Update
Click for bigness. [Source]

Honestly, the figures for the middle quintile initially made me somewhat optimistic, as they're so much better than those from 2013 (when the Census Bureau estimated the same quintile earned only between $40,188 and $65,501). But this all is in the before-time: prior to COVID, and the horrific unemployment numbers we're still seeing.

But all these income figures are a far, far cry from $400,000. This income would place you in the top 5% of all households. (One estimate places this household income in the top 1.8%.)

The common counter when viewing aggregated data is that things are very dependent on where you live. Sure, a mid-six figure income might seem very high to you, a frugal deadbeat wasting away in flyover country. But jetsetters in coastal cities have high rent, and suffer outrageous costs for everything from gas to childcare to groceries. Come to the big city, and you'll see that half a million a year doesn't get you very far.

Still, I'm not interested in the fabricated budget of a hypothetical family that's having a hard time making it work on just $400,000. Income is more telling. Let's look at the median income for a zip code in the Bay Area: San Francisco, zip code 94117. This is an undoubtedly a high cost of living area, and is apparently where the painted ladies from the intro to Full House are located. So it's, you know, fancy.

Is $400k Middle Class?  Income Quintiles: 2021 Update
Click for bigness [source]

What is the median income in this zip code in San Francisco? $170,211. 

And for San Francisco as a whole? The family smack dab in the middle of the income spectrum is grossing $112,449. Good money, but not four hundred grand. Again, these are household median income stats: not for an individual. 

So even here in ultra expensive San Francisco, $400,000 would be well over triple what the median household earns in the city.


How about Manhattan? Zip code 10065, on the Upper East Side. What's the median household income here? 

Is $400k Middle Class?  Income Quintiles: 2021 Update
Click for bigness [source]

The median household in this part of Manhattan is earning a healthy $148,441. So, as with San Francisco, $400,000 would put you between two or three times the median household income.

So why is it that some wealthy people insist that such high salaries place them in some mythical middle class that exists only between their ears? 

Are they simply crafting disingenuous headlines to draw readers and news media to their blogs? Perhaps.

I think that's too easy a take. Let's assume these wealthy fools are not making ridiculous arguments just to get traffic, but honestly believe this is a "middle class" income. What would lead a rich person to such an error?

Somewhat ironically, I think their high cost of living locale may be to blame. Not the surrounding city or suburb that they live in, per-se. But the hyper-local: the neighbors on their street, their friends and coworkers. Their jerk boss at the end of the hall. The immediate community the high earners interact with: this is the basis of comparison that matters when you're considering how well you're doing. 

Making half a million seems great when everyone you know is making a fraction of that. But if a good chunk of the people around you are making more than that, say, high six or even seven figures, then the four hundred grand feels different. When you know people who are making less, while seeing that others are making more, well, look at that. You're right in the middle, aren't you? You're not struggling to make ends meet like Jim across the street, but you're not doing so well as that jagoff Brad, either.

We're all subject to these sort of comparisons, no matter how much or little we earn. We see the houses our friends and family rent or buy, the cars they drive, the clothes they wear, the vacations, the schools and universities that are available to their children. And we use these things as proxies to see how well everyone else is doing, because one of the last remaining taboos in our society is sharing your salary. It's uncouth. So we're left to use consumer purchases as a proxy, or, if we're unlucky, we read the nerdy blogs of people screaming income quintiles into the wind.

So what ultimately determines your socioeconomic class? While some like to think of it in absolute terms (the ability to buy a home, a car, and a vacation every year, stuff like that), I think that misses the point, and allows for patently absurd arguments like $400k affording a middle class life. Instead of hanging class onto definitions bound by consumer purchases, I think a socioeconomic class is best represented by money: how much your household earns, and how much it has.

But so long as we keep salaries secret, our socioeconomic identities will continue to get bound up in our consumer purchases. Did we take a vacation this year? Should we upgrade the car? Maybe the wardrobe could use a refresh. As always, trying to buy ourselves some class.




*Photo is from soomness at Flickr Creative Commons.

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43 comments:

  1. Our country has a really weird relationship with wealth. I appreciate you taking the time to unpack this guy's bizarre take on what constitutes "typical" income, in his (very biased) opinion.

    I've been trying to find good data for Net Worth, which is an even more complex measure than income for many reasons--especially if you delve into what portion of NW is NOT vehicles or the current residence for real estate. Any thoughts on that piece of the puzzle?

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    1. Thanks so much for the comment & share, Diana. I agree: that guy has a very skewed take on what is typical.

      I wrote a post on Wealth Quintiles last year that might be what you're looking for. But the data's a bit old: maybe I can give an update there, too. The Census Bureau stopped updating this specific data back in 2015 but maybe that's changed, or someone else might have data. Time to dig for some info. :)

      https://www.donebyforty.com/2020/02/middle-class-wealth-2020-update.html

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    2. The survey of Consumer Finances is always a great place to look at Net Worth data. https://www.federalreserve.gov/econres/scfindex.htm

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    3. Thank you so much, Hannah! That's rad and will dig into that. Maybe for next week!

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  2. I played this game once with that website-- the highest average income I found was Atherton, CA. But there's no reason someone has to live in Atherton instead of one of the other little SF suburbs in the area. There isn't even public transportation to that enclave so it's actually harder to get to work than it would be from one of the surrounding places serviced by trains.

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    1. https://nicoleandmaggie.wordpress.com/2018/05/18/ask-the-grumpies-an-invitation-to-rant-about-who-think-300k-year-or-more-is-middle-class/

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    2. That's interesting about Atherton: I wouldn't have guessed that it would have the highest median income.

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  3. This is just silly. I will say that SF proper in particular is a bit weird in that (I think) the schools are a lottery system, and some people end up paying private despite the high prices. It is really not a family friendly place. BUT, 400k is not middle class. Come on.

    I do agree with your point that comparatively, it is pretty hard to feel truly wealthy if you run in certain circles in the bay area. that doesn't mean you aren't wealthy, though.

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    1. Hey there, Stacking Pennies.

      Agree that the Bay Area is certainly such a high cost of living place that it's an outlier, and the kind of money that is 'average' there is way different than most of the US. But like you said, it's silly to think a $400k annual salary fits any sensible definition of middle class.

      And yeah, the relative comparisons might be the thing. There's always someone doing better than you.

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  4. 10 stars for incorporating the word "jagoff" into the post. that part of the vernacular is underutilized. i sometimes call them chronic masturbators or "one armed bandits." give me 400k and i'll shoe those fools how to have a world record olympic level good time.

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    1. Love the one armed bandit line, Freddy. :) My yinzer roots won't let me forget that you can be anything you want in life, just don't be a jagoff.

      Agree with you on the four hundred thousand. We never got near half of that amount. Would love to spend a year or three in that middle class lifestyle.

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  5. "crafting disingenuous headlines to draw readers and news media to their blogs" - in the case of the "tennis coach" who originated the nonsense number, yes of course that was his entire aim.

    I don't know what excuse other people with a lick of sense can claim to explain their buying into this absurdity, though.

    Living in the Bay Area, sure, $400k can FEEL like it's not enough if you're busy trying to keep up with people who make 2-3x that amount. At our daycare, we looked like the poor ones because, for example, we were routinely invited to fancy ass birthday parties at venues that charged $400-600 for party packages and that was well outside what we considered reasonable. Or everyone in JB's class lived in the more expensive neighborhoods, whether renting or owning, and we could and would not stretch ourselves that way.

    Sure we see the disparity. But even making less than all those folks, we could not ever even think of calling ourselves anything but well off. We know we're very lucky to make what we do even if we do choose to live a lifestyle where we economize, mostly.

    Oh but yes, Atherton is VERY expensive. I think perhaps followed by Hillsborough and then maybe Los Gatos?

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    1. Hey there, Revanche!

      $400-$600 per guest? Oh my. Yeah, I could not be attending a kid's birthday party at that rate either. Maybe that's what the $400k is needed for.

      Like you said, there's a big difference between noticing a disparity between you and others who are making a lot more, and thinking your $400k salary is somehow average.

      Yeah, tennis coach was definitely just trying to reel folks in.

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    2. Oh sorry, I meant, the package costs for the host started at around that price before food and drink. Every time we attended one of those parties, JB would ask if they could have their party there. Uh, not at that price, we can't. :(

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    3. Even if for the entire party, that is a LOT.

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  6. I think the problem in our society is that those who make $150K+ or more are spending SO MUCH OF THEIR MONEY. So while they clearly are NOT middle class, they feel like it because they are barely "scraping by" with their oversized home and expensive cars.

    I have lived in the upper-middle class my entire life (except for perhaps 10 years between college and when I started earning six figures). But it never felt like it, because money was always a problem (growing up).

    The bottom line is that Americans spending habits are so out of whack and everyone who makes money things they deserve to spend it all (which they certainly can), but the high income doesn't equate to wealth and that is where I think we run into issues. It is one thing to make a lot of money, it is a whole different thing to save/invest it and become wealthy.

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    1. Income and wealth are certainly not the same, without a doubt!

      This was a weird post for me to write because I'm usually on the side of the argument claiming that many/most Americans don't earn enough to pursue things like financial independence or early retirement. But this ridiculous claim of $400k being middle class was so absurd that I had to recenter.

      Saw your post about sleep and, with a newborn on the way, I'm definitely going to need to remind myself of its value. :)

      Thanks for stopping by and commenting.

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    2. While I agree most cannot achieve financial independence or early retirement, ALL can better their situation by learning better money management. So, the lessons to be learned from FIRE (even from these "poor rick little me" click-bait articles) apply to those of us who are not software engineers, or two-income earners. Thanks for the quintiles, by the way. Solidly middle class.

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    3. Thanks and yes, I agree, there is definitely something in FIRE to help people improve, even as it exists as an unattainable goal for a lot of the country.

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  7. SavvyFinancialLatinaMarch 23, 2021 at 11:00 AM

    It's a little hard to imagine earning $400K. I think that's C level executive compensation in a corporation (I think...) for a single person. Maybe I'm just off?

    I have to admit that even though our salaries have increased nicely, sometimes it feels like it's not enough. We definitely don't live in mansion. We live in an 1800 foot house in a middle class neighborhood in Dallas, TX suburb. But we are well off. We live within our means.

    I have started to think that the golden age baby boomers had the ability to buy big houses, pools, cars, vacation homes, for a relatively affordable amount. They might not think it, but if you look at it, cost of living was affordable. This is a totally different economic discussion that nobody talks about. I can't help but think about how much cheap immigrant labor was used to spur the TX economy. Completely another tangent.

    Sometimes I think that the general population is still basing off their expectations of life on the baby boomer life. I think this really drives the "we're not well off, we're poor." Then you add the layer of comparison.

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    1. Hey there, SFL. I think $400k is definitely in the C-suite range for an an individual and, without a doubt, still in the top 2% of all household income nationwide. It's top tier income, nowhere near the middle.

      Generational differences are a huge factor and one thing I didn't consider in the post. Boomers had a very, very different set of costs & incomes to work with. And, yes, exploitation of cheap labor is (and always has been) a big part of the American economy. It's heartbreaking how little attention that receives.

      You're right that boomers have basically dominated all aspects of popular culture for the past 50 years or so. I'm hopeful that millennials will change things for the better, now that they're the largest generation. I'll just be over here on the sidelines, Gen Xing around and not caring enough. :)

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    2. If you are optimistic about Millenials, you are delusional. Their focus on censorship, inability to respect differences of opinions, and zealotry and communistic tendencies are manifesting themselves in the transformation of the US into the USSA

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    3. Thanks for that respectful view of an opposing opinion.

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    4. I never said I disrespected your opinion, I merely pointed out that based on the fact pattern and recent events and deteriorating climate of freedom in the US, you are delusional. Simply an observation.

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    5. If you look up, you might see the irony.

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    6. https://www.jpost.com/opinion/the-rise-of-totalitarianism-in-america-639579

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    7. https://www.investors.com/politics/editorials/millennials-patriotic-survey/

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    8. https://www.mindingthecampus.org/2017/01/02/why-millennials-are-so-fragile/

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    9. https://taibbi.substack.com/p/is-traditional-liberalism-vanishing
      https://greenwald.substack.com/p/congress-in-a-five-hour-hearing-demands
      https://www.cato.org/human-freedom-index/2020

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    10. https://infoproc.blogspot.com/2021/03/the-contribution-of-cognitive-and.html

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    11. https://www.worldtribune.com/warnings-from-the-former-ussr-soft-totalitarianism-coming-to-the-u-s/

      https://www.youtube.com/watch?v=NK0ls5hV_5Y

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    12. My dude, just pointing out that it's ridiculous to critique millennials for not being respectful of a different opinion, when, in the same breath, you call someone delusional for disagreeing with you.

      Please go bother someone else now.

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  8. Comparison can definitely skew your view of things. My friends and I don't talk numbers, but I know they make good money, probably not too far off from what I make.

    Still, I have to remind myself that I am not middle class, even all by myself. It's a weird feeling -- especially when you've been utterly broke before, then pretty broke and paying off debt, then making decent money but married to a spender so still struggling to save what you want. And I think it's also hard to remember because, while I don't live uber-frugally by many PF blog standards, I'm pretty frugal compared to the average person. So I hardly go crazy with spending. But I try to remind myself every so often that I'm in a far more fortunate position than a lot of people in this country, even in normal times. And to donate more money already haha

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    1. Hi there, Abby!

      I don't talk numbers with many of my friends, but a few. And of course if they read the blog, they can see with intimate detail all the money we've ever earned...so there's that. :)

      I feel like you and I might be in somewhat similar earning & spending tiers. Doing really well but not super, duper frugal by PF standards. I think if we wanted to, we could certainly appear middle class (while kind of stealth wealthing, too).

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  9. Great points all around. It seems like people get sucked into the "fake rich" lifestyle, and feel broke even though they make more than everyone else. So, when they read an article that says they aren't even making enough to be middle class, it reaffirms a bias. They're victims of the system, and don't have to face the reality that their spending is making them feel poor, not the feds.

    Great article

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    1. Hi there, Jay!

      I agree that perception plays a big role in this: there's always someone earning more than you, so it's easy to feel like you're always in the middle.

      But feelings aren't a great way to determine how close to the true middle you are.

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  10. Several things: when people say $400K in a HCOL area is middle class, I am assuming they mean upper-middle class. They are comfortable but not rich. A dual-income couple each earning $200K, is pretty standard.

    Second, SF and Manhattan have a wide-ranging population; many of have been there forever and bring the averages downward. Between grandfathered property taxes (prop 13) and lower housing prices, and or rent control, there are a lot of long-term residents who don't make much money. This forces newcomers, mostly professionals who move for high-paying jobs, to try and get their toehold in the market at much higher home prices (and mortgages) or rents. It matters generationally -- someone who's making $400K in their 60s who didn't have crazy school loans and who was able to buy a house in the 80s/90s at a fraction is very much different than someone who is in their 30s trying to raise a family and buy/rent a decent-sized home.

    As an SF native who's family owns multiple properties bought in the 70s, the tax bills are a fraction of what it is. Meaning like 4K for a $3M house, paid off versus, $35K in taxes if bought today. There are TONS of people who are in that situation, or paying $1200 rents for 3BR properties in SF due to rent control. These are people I know that grew up in SF, and many of them are still around, bringing down these quintiles being quoted.

    Lastly, class is relative to one's standing in their community. By global standards, Americans would all be "wealthy," if you are going by nominal quintiles which is why people use purchasing-power-parity to compare across countries. The original markers of middle class were homeownership, college, and not worrying constantly about finances or retirement-this is not specific to the boomers and can be attainable in other areas of the US for less $$. I assure you if you are a millennial couple with one child making only $145K (after tax, likely 110K) in SFO or Manhattan you will be struggling unless you inherited a rent-controlled apt or property from your family. There will be no savings for investment, no retirement nest egg being built.

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    1. Thanks for the comment.

      I get what you're saying about CA real estate. My parents met in San Francisco in the 1970s and owned properties there before moving out of state. Still, the dynamics you're describing aren't really all that unique to the area: most cities have long term residents who wouldn't be able to purchase at current prices.

      The middle class is ill defined and nearly anyone can (and nearly everyone does) claim membership in it based on whatever criteria they want. That's why I use income data. If someone wants to claim being middle class, they ought to be somewhere near the median income.

      And that's why someone making many times the median income in their immediate neighborhood is not middle class, especially by the relative standing in the community criteria you mentioned, IMO.

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  11. Your post made me think!! And in spirit I love it.

    The thing that niggles at me is the semantic use of “middle class” is not really the same as the quintile-implied median income. Middle class is a feeling (is life relatively smooth sailing?, can I afford food and shelter and safety? can I care for my children? can I sometimes have special things?)

    Now, times have changed what we want from that middle class feeling. For example, I’m a woman, and unlike my mom’s generation, I want the feeling of being able to pursue the work I enjoy without sacrificing caring for my children - immediately that has implications of what is needed to achieve that ( I need to afford good childcare and schools etc, need to spend a bit more to commute and live in a place thats closer to work, and dress well etc etc) - these translate to some dollar equivalent.

    When you hear people say funny things about what dollar equivalent constitutes middle class, they’re perhaps not talking about the median number of dollars that technically means they sit in the middle of a country or area, but the number of dollars it would take to provide the feeling of security and optimism for their desired life.

    And having made a range of dollar incomes from 30k to $800k per year, personally it took 160k for me to get the sexy middle class feeling!!

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    1. Hi there, Shruti.

      I do think there's a lot of validity in trying to tie a middle class lifestyle to certain purchases (child care, education, home ownership, etc.)

      And I agree that, for most people, the concept of a middle class is defined somewhat by emotions: do we feel secure, do we feel like we have enough, etc.

      I push back on that approach with these posts though, because by that standard (i.e. -what amount of money is required for certain feelings), then a $400k income CAN be middle class. $1M income can be middle class. It's completely subjective and individualistic: it's whatever any person wants it to be.

      I feel like this individual-feeling approach is divorced from the function of a middle class from a policy perspective: to address the class of people who actually are in the middle financially, either from income or wealth perpectives.

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  12. "our socioeconomic identities will continue to get bound up in our consumer purchases" - This defines everything that is wrong with our society, period.

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  13. I make about 160k a year (married, 2kids) and I save som much towards my FIRE goals that I live miserably and don't feel like middle class at all. Struggling much to stay below 30k spending level.

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