THE MIDDLE CLASS TRAP: PART 2
Who’s in the Middle Class, How Much Do They Make — and How Much is Left Over?
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See: “Part 1: Should We Feel Sorry for the Middle Class?”
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Are you a member of the middle class? Am I? An intelligent discussion of the travails of the middle class is not possible unless we define the term. Yet there is no consensus among economists or the general public regarding who makes up America’s middle class.
American Demographics magazine reported:
The majority of Americans define themselves as middle class, regardless of their actual income level. This perception is obviously off-base, but with no official definition, it’s hard to pin down how much Americans overestimate their middle-class status.
Similarly, the Washington Times reported:
There is no real definition of the middle class in the United States, assert economists and sociologists, who say “middle class” always has been more of a state of mind than an actual economic status. Even the U.S. Census Bureau has no official definition.
One organization defines the middle class as composed of those families who make $25,000 to $100,000 a year. That range is absurdly broad. Surely it is obvious that the $25,000/year family, e.g., two wage-earners working full-time for $6/hour, is in a different economic class than the $100,000 family.
HOW MUCH DO THEY MAKE?
The most sensible approach is to let simple mathematics define the “middle class.” Divide all households into groups based on household income, and the middle group is the middle class. Those who use this approach commonly divide the nation into quintiles (five equal groups), but that method creates a middle group that is much too small to satisfy our common perception of who is included in the great middle class.
Let’s see what we get by dividing U.S. households into three or four equal groups. Splitting U.S. Census Bureau 2005 income distribution data into quartiles, the “poor” and “lower class” consist of the 25% of households with income of $23,000 or less, and the “upper class” and “rich” are the 25% of households with $80,000 or more. That makes the middle class the middle 50%, half of the nation, having household incomes from $23,000 to $80,000. Now we’re getting somewhere. However, that gives us a middle class that is still too broadly defined; the lower end of it includes two-income families scraping by on minimum wage.
We achieve a more meaningful definition of middle class by dividing U.S. households into three equal groups, with the middle group — households in the $30,000 to $67,500 range — composing the middle class. That correlates well with the median household income, $46,326 in 2005, which is very close to the exact middle of the middle class as I have defined it.
So, alert the media, distribute the memo and bang the drums of the blogosphere: America’s “middle class” has now been concisely and coherently defined as composed of the middle third of households, based on total household income, which in 2005 consisted of those families making $30,000 to $67,500 a year.
IS THE MIDDLE CLASS WEALTHY?
Is that a lot of money? This series on the “Middle Class Trap” was prompted by a debate between two bloggers (See Part 1 of this series), in which Joe Carter of the Evangelical Outpost wrote:
Consider what it means to be in the “middle class.” Based on 2004 data, the median household income of people in their prime working years (ages 25-59) is $63,300. For married households it’s $70,000 and close to $80,000 for two-earner households.
With that definition in mind, Joe declared that the middle class has “an excess of wealth.” But I see no rationale for the way Joe cherry-picked his statistics. Why limit our discussion to those in the 25-59 age range? Why limit our focus to those who are married? Why limit it only to families in which two adults are able-bodied and employed?
Joe was writing in response to Dan Edelen’s blog post calling upon churches to speak out against injustices harming the middle class, and to become more intentional about “helping fellow congregants [in the middle class] who fall on hard times.” I’m guessing Dan was not excluding those who live alone, single moms raising children, households which include one or more adults who are unable to work, or the elderly. I see no reason why such people should be excluded from our consideration.
So, when Joe talks about households earning $70,000 to $80,000 a year, he is aiming thousands of dollars above America’s middle third. The top end of the middle third approaches that level, but the low end, $30,000 year, has less than half the income of Carter’s example.
HOW MUCH IS LEFT OVER?
Let’s talk about the economic situation of that family in the middle of the middle class, that median household earning $46,326/year.
Christians are taught to tithe their incomes, and if they do, the first $4,600 is already gone. However, as we know, most Christians don’t tithe. Perhaps this article will shed some light on why. For the sake of this discussion, I will not plug tithing into the formula.
First off the top, then, is TAXES. Families at that income level pay about 13.6% in federal taxes. Add in state income tax, sales tax, property tax, vehicle tax, etc., and we are being conservative to deduct 20% for taxes. The $46,326 household now has $37,061 left.
Next comes HOUSING. We certainly don’t want our middle class family living in too much luxury. How about a two-bedroom apartment? The average rent for a two-bedroom apartment is $791/mo. So let’s figure $800/mo for rent or mortgage. Let’s add another $400/mo to maintain that home: electric, gas, water, trash, phone, supplies, lawn care, insurance, and an occasional piece of furniture. That leave’s our middle class family with $22,661.
Next is FOOD. The average household spends $5,781/year on food. Yeah, but how much of that are they wasting in expensive restaurants? Well, Americans spend 42% ($2,434) of their food budget eating out. Let’s estimate that that family could save $1,000/year if it never ate in a restaurant again. Never. That puts the food budget at $4,781/year. $92 a week. If you think that is excessive for a typical family, you haven’t done the shopping lately. Our middle class family now has $17,880 left.
Next, let’s talk about TRANSPORTATION. Of course, that middle class family doesn’t really need two or three cars on the driveway. What do they think, that they’re rich? So let’s give them just one car – one car to get two wage-earners to work and the kids to school each day. CNNMoney has already done the math for us. If you buy a $15,000 car on credit, you will spend another $22,000 over a 5-year period on the additional expenses of financing, insurance, maintenance, repairs, and fuel. That comes to about $617/mo, or $7,400/year. That middle class family now has $10,480 left.
Let’s plug one more major factor into our calculations: HEALTH CARE. The worker who is lucky enough to have employer-provided health care benefits is contributing an average $3,200 to his health plan this year. As I said, that worker is lucky; 40% of Americans do not get a health care benefit from their employer. To them, that $3,200 contribution sounds too good to be true. My wife and I, for example, who are both in good health, pay $630/mo ($7,560/year) for our health insurance, and that’s with a $2500 deductible. If we meet our deductible, that adds up to a $10,000 annual hit.
But let’s go with the $3,200 figure, plus deductibles, co-pays, over-the-counters and other out-of-pocket expenditures. It is conservative, I think, to figure $4,500/year for health care. (The U.S. Bureau of Labor Statistics report cited above says the average U.S. household spends $2,574/year on healthcare costs, but that average includes the millions of Americans who pay no health insurance premiums because they are uninsured.) Our middle class family now has $5,980 left.
| MEDIAN HOUSEHOLD INCOME $46,326 (2005) |
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| A middle class family living in a two-bedroom apartment, that never eats in a restaurant, owns just one car, and has an employer- provided health benefit pays the following: |
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| Taxes | $9,265 |
| Housing | $14,400 |
| Food | $4,781 |
| Transportation | $7,400 |
| Health care | $4,500 |
| Everything else | $5,980 |
$5,980 for everything else. Clothes, dental, optical, life insurance, savings, education. And what happens when a less fortunate relative — an adult child or grandchild or sibling who is in that lower third – needs a helping hand? The middle class household looks for some way to help. And what happens when life throws any kind of major obstacle in one’s path: losing a job, serious illness, divorce, natural disaster, a legal problem? What does the middle class do to survive then?
WHAT IS THE CHURCH’S RESPONSE?
In Dan Edelen’s post, Dan asked: What is the church’s response to the middle class squeeze? I’ll tell you what the church has to say on this subject. The No. 1 response by far of the church to the economic crunch the middle class faces is: “Don’t forget the church’s 10 percent!” According to many pastors and many churches, if the middle class family described above doesn’t give $4,633 of its remaining $5,980 to the church, they are second-class Christians and deserve whatever financial problems they experience.
Sadly, too many pastors and churches also go at it from the other direction, promising their struggling middle class members that if they tithe their income to the church, God will bless them by making them wealthier than they ever dreamed possible. It is a commentary that such churches are growing by leaps and bounds today, as they play upon the desperate straits many middle class families are in, while many other churches remain disinterested in middle class conditions.
Meanwhile, Joe Carter says that the middle class has “an excess of wealth” and that the middle class’s “economic problems are caused because we serve mammon rather than God.” I think Joe is way off base. I have been reading Joe’s writings for a long time now, and I have never considered him insensitive or mean-spirited. In this case, I think Joe is just misinformed, or perhaps he just hasn’t thought this through. I think many middle class families love God and love their families, and have no desire for materialistic excess — they are just struggling to survive.
Politically speaking, if all Joe Carter’s Republican Party has to say to middle class citizens is “stop whining” and, as Joe put it, stop being “such reckless stewards of God’s resources,” they should not be surprised as more and more middle class citizens begin to look more favorably on the Democratic alternative, as Dan says that they did in last week’s elections.
Speaking among us Christians, I think that at the very least our response as individuals and as churches to the financial problems of America’s middle class should start with compassion. Not condemnation, not judgment – but a little compassion. As I read through the several dozen comments that have been made this week on Joe’s and Dan’s blogs, I am startled and heart-broken at how cold-hearted Christians can be about the real problems being experienced by real people.
In the next installment of this series, I will review, discuss and respond to those dozens of comments on Joe’s and Dan’s blogs, as well as the comments made here at TerraX.
All the figures are bogus unless one takes into account the disparities in cost of living based on where one lives.
My wife and I made into six figures while working and living in Silicon Valley. But then, so did almost everyone. You couldn’t live there otherwise. The crushing tax and housing costs ate people alive and left little behind. Calculating all taxes, we paid as much taxes one year as the median US income! Our meager two-bedroom apartment cost us $2000 a month by the time we left in 2000.
When you live in an area where small houses thirty years old cost more than a half million dollars, a $100,000 household income is nothing. In Wisconsin, that would be a great household income, but in the South San Francisco Bay area, $100,000 didn’t go far.
We have to equate apples with apples if we’re going to discuss this subject.
I guess our single-income, five-member family is about as close to the median American family in terms of income as you can get. Somehow we start with close to the amount of money in your example, tithe, pay taxes, feed our family, keep two cars on the road, pay for our health insurance plus deductibles, eat out once or twice a month, clothe our fast-growing bunchkins, and still have 15% of our income left over for savings, home improvements, visits to in-laws on the far side of the Atlantic, etc. How do we do it? It’s a little thing called a budget. At the end of every year we know to within $300 where every penny went. And we know at the beginning of the year where every penny is going to go. It takes discipline. And here’s another cool thing about it: we don’t feel deprived. We enjoy rewarding, fulfilling lives. We sure don’t feel like we are missing out by not having cable or satellite TV, our two cars with combined mileage of 390,000 miles work just fine, thank you. And we don’t live in the back woods of some small rural state–the median home price in our metro area is $250K.
Sorry, but when you try to make me feel deprived by telling me that my family just can’t make it on my median income and that tithing is out of the question in that situation, I say that my God is bigger than that. Maybe in our case God is causing our jug of flour and cruise of oil to never go empty, but we just consider our income level to be a huge blessing from God–and one that allows us to support ministries and give to those in need.
“Cheesehead”: You have a wonderful story, and I thank you for sharing it. You are right that God is bigger than any problem we face, and we all need more people like you to remind us of that. From your description of your circumstances (e.g., two cars with 390,000 miles), I think you would agree that you do NOT have “an excess of wealth” and that you are not a spoiled materialist. You are one of the middle class families I described who loves God, is not pining away for luxuries you can’t afford, and has to be very careful (accounting for every penny) in order to make ends meet. I have no desire to “make you feel deprived,” and obviously you are not. You are richly blessed, with the kind of blessing that no amount of money can buy. Praise the Lord — and thanks again for sharing your testimony.
While I hear what Cheesehead is saying and I’m happy that he/she has got it all working, the wheels still come off for plenty of people who keep great budgets and manage money well.
Many things can totally disrupt the best budget. A job loss, for instance. Now that we live in a time when companies cut jobs first before considering other cost savings measures, it’s easy to watch savings vanish trying to recover a lost job. Studies have shown that employers are offering less money for many jobs than they used to. I know of one man who had fifteen years experience in a field and was making $70,000 a year in that role, yet was offered jobs in the $25,000-$30,000 range for the same role when his company downsized. No budget can overcome that.
I worked in Silicon Valley from 1996-2000. The Wall Street Journal noted recently that engineer jobs making $85,000 during that time are now paying $69,000 a year. Six years later and $16,000 less. And trust me, you need a six figure income to live in Silicon Valley.
Part of the problem facing the Church is an island mentality that says, “Well, we’re fine, so everyone else must be.” Not true at all. Some fields are doing okay, while others suffer. If you just happened to pick the wrong field as an 18-yr old, you’re in trouble when you get to be 40, your field goes through turmoil, and no one wants to hire you in another field. I’m seeing more and more of this.
I put out a survey to readers of my blog and asked how many are better off now than they were five years ago. Almost without exception, those over 35 said they were worse off. That’s alarming.
Economic indicators are starting to show another slowdown in our economy. If that slowdown resembles the last recession, plenty of pain is coming our way. Is the Church ready to handle it? Or will we continue to ignore the problem, reacting only when it gets severe, and then not to the extent that what should as the Body of Christ?
Thanks for the kind words. DLE, I guess what I’m saying is that someone making the median national income and living in an area where the cost of living is also at the median for the nation is really quite well off. Of course someone making the median income but living in a zip code in the 98th percentile of cost of living is going to be squeezed. Even so they will be far better off than the vast majority of people now living or who have ever lived. So if a great income in someone’s 30s does not keep coming to them until they retire, it forces some hard choices. One of those choices may be to move to an area where the income they can make better matches the expenses they will face to live. I like settling into a place for a lifetime better than most people, but God may be using circumstances like that to lead His people into a better place. Abram of course wasn’t downsized or given a pay cut to get him to move to a new place, but God had something better for him in a place other than where he was all the same. Sorry to make this post so rambling–maybe lack of concision is one of the reasons I am only at the median for income.
The church in the United States is rarely and barely acknowledging much less contributing to the care of the poor or the immigrant (or to the non-immigrant who then becomes an immigrant because there were was no relief at home), so to expect the church in the United States to be “ready” to aid the middle class members that suffer an economic dislocation, or to be prepared for an economic earthquake, seems to me to be unrealistic. In the 1980s, when Penn Square Bank collapsed in Oklahoma City and the federal government bailed out Continental Illinois and Seattle First, but allowed Oklahoma to sink and then drown, many people in the middle class suffered. The churches in Oklahoma felt the pain, so they thought, too, because they were unable to build or buy more property. The churches were often unable to do debt financing. Some churches could raise money for brick and motar but no program existed to prevent foreclosures or other calamities among the middle class. The Oklahoma Depression persisted through the 1980s and well past 1995. The current news is that 2007 will see a recession in Oklahoma. No church has learned from the past, so if there is a recession, there will be no safety net beyond governmental programs. Nevertheless, most Christians will do better than everyone else and some will even prosper. Even so, the church in the United States has a long way to go to be responsible under its calling.
Rod: I lived through what you are talking about. In 1998, I became the pastor of a Houston-area church which we ultimately had to close in 2001. In the early 1980s the church had been thriving and had built a beautiful church building, but then the oil bust and bank closings you referred to hit this part of the country. Many church members lost their jobs, others were forced to move away, and the congregation that remained struggled for years to make a mortgage payment they could no longer afford. When I came in 1998, they had not had a pastor for several years because they could not afford to keep the doors open and pay a preacher too. I raised outside support for my income and went to the church with the hope to help the congregation get back on their feet, but we ultimately decided to make the hard decision the congregation should have made years earlier: to close the church.
Many churches today go deep into debt to keep up with the Joneses’ church down the street. In an economic downturn, the church can be hit as hard or harder than its members. That’s why I agree with DLE’s original plea: that Christians and congregations should become much more proactive about helping each other and preparing for hard financial times. You don’t have to be a prophet to echo DLE’s prediction that hard times are coming. Eventually the hard times always roll around again.
Last week, Los Angeles voted in an ordinace that requires hotels to pay a “living wage.” About 3,500 more private hotel employees than before will be covered by the new ordinance. The city government is now acting as labor union for private citizens employed by private businesses. Is that the great society you are envisioning?
The L.A. ordinance is basically a form of minimum wage law. Without getting into the specifics of that particular ordinance, are you saying that you object to the government setting minimum wages?
I’ll weigh in on this one. Under normal circumstances the minimum wage laws do not greatly affect low wage earners. People with marketable skills will generally make enough more than minimum wage that most increases in minimum wage do not have an immediate impact on their wages. People who are only marginally employable will be squeezed out of the labor market by increases in minimum wage. The net effect on the poor overall is slight; it’s pretty much a push. However, higher earning union members and others with formulaically determined wages benefit by a rise in minimum wage–at least until core inflation adjusts to account for the rise.
OTOH, a labor market like Los Angeles, which is flooded with people who are here illegally suffers from a race to the bottom for low wages. Private employers in this situation can and do shift much of the burden of compensating their employees onto the public purse through the disproportionate reliance of illegal aliens on public services and infrastructure.
In an economy in which illegal aliens were not a significant factor minimum wage laws are a marginal drag on the economy. They make young and unskilled people marginally less employable and are mildly inflationary. Nothing I can get too excited about either way, but given my druthers I’d sooner see them off the books.
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