Friday, September 30, 2016

Everyone thinks they are middle class


The false perceptions many Americans hold


We have a deeply held belief in America that if you work hard enough, anything is achievable.  This is something built into the core of our nation.  If you go back to the Great Depression, while other countries were overturning systems and shifting deeply held ideology, Americans held steady and went out and voted.  The system remained with tweaks.  Today, the idea of the middle class that emerged after World War II is still held very deeply.  Yet there is a clear definition for middle class if we simply look at data.  But people think they are middle class if they make $22k or $200k.  The median household income in the U.S. is $56,000.  That is the middle.  Let us look at the figures here.
Middle class perceptions
The media has a distorted perception of what the middle class is.  There have been politicians saying that $200k is middle class.  That is absolutely not the case.  And the media also makes it a point to rarely talk about income because they have started to wise up.  Many people don’t make that much.  Bring that to their attention and they may not buy all the products you are pitching.
Take a look at the income distribution in the U.S.:
middle-class
Does the above chart align with your perceptions?  No one likes to think that they are “poor” or below average.  I think there is a psychological defense mechanism here.  People want to think of themselves as above average, whatever that may mean.  This applies to income as well.
The middle class was a majority not too long ago:
middle-class
In 1971 70% of Americans were middle class.  A clear majority.  Today the middle class is now a minority.  It is interesting that within one generation we have pushed the middle class into minority status yet most people still think they are middle class when the data clearly states otherwise.
This misperception is probably at the root of a lot of the political anger this year.  If everyone is middle class and you are struggling, surely it is the system to blame.  Forget about the cronyism on Wall Street and the deep capture of big money in D.C. – the answer is simple.  The politicians are wrong and there is a simply solution to be had.  There is no easy solution unfortunately and that is why anger is the currency of the day.
We recently talked about the mind numbing amounts of debt the U.S. is carrying.  This money will never be paid back.  This is absolutely clear and inflation is a slow destroyer on your purchasing power.  Little by little you fall back until you realize the middle class is no longer a majority.
I think part of the reason for this misguided perception is that debt accessibility has given many Americans the trappings of middle class living with the albatross of debt. You are basically mortgaging your future for instant gratification.  Yet this covers up the fact that you are not really stable but simply in debt up to your eyeballs.
You also get high income earners thinking they are middle class.  People that make $200k or more per year will talk about taxes and other issues yet they are in the top 5 percent or households.  That is not middle class but clearly in the upper class.
This perception on the tax front does make sense since those that make $250,000 or more a year pay half of all income taxes:
ft_15-03-23_taxesind
But this is simply income tax.  You still have state tax, Social Security, Medicare, sales, and property taxes that everyone pays.  And when you pay that much for a poor performing government, people start to get angry.  But somehow, most still think they are middle class.