What Defines Middle Class?
The short answer is: it depends on where you live. According to a recently updated income calculator, developed by the Pew Research Center, a nonpartisan fact tank that informs the public about issues, attitudes, and trends shaping the world, a before-tax salary of $37,106 for a three-person household is considered middle class in Jackson, Tennessee, the lowest threshold in the country. In contrast, in the San Jose-Sunnyvale-Santa Clara metro area of California, it takes $57,443 a year to attain middle class status, the highest in the US.
Pew’s determination of what constitutes middle class is based on income alone. Clearly there are other factors that might be relevant, such as net worth and other resources that may be at the family’s disposal.
Pew defines the middle class as a wide range that is two-thirds to double the median household income in the US. Those numbers are adjusted to account for location and household size. By this standard, about half of American adults live in middle class households.
Pew’s calculator, which is based on government data from 2016, says a household of three in the New York-Newark-Jersey City metro area that earns between $55,138 and $165,413, before taxes, is considered middle class.
The broad disparity between incomes by geographic region has the potential to affect investment decisions. Obviously, data relating to housing costs, for example, should definitely be assessed in the context of locations.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA