Vice President Joe Biden shaking hands. Source: Joe Biden via Facebook.
For as long as I can remember, the president of the United States and lawmakers have focused their campaigns around one factor: strengthening the middle-class working American, with which this country is built.
As Vice President Joe Biden commented in Jan. 2009, shortly after taking office, "A strong middle class equals a strong America." He also went on to refer to the middle class as the "backbone of this country," and suggested that "the strength of our economy can be measured directly by the strength of our middle class."
However, if Biden's words, now more than six years old, hold true, then the American economy may not be as strong as the GDP growth figures for the past couple of quarters would suggest.
If perception is reality, then the middle class is in big trouble
According to a recently released survey from Gallup that surveyed more than 500 Americans across the country and asked them to identify with a socioeconomic class, the percentage of Americans who identify with the middle class and upper-middle class is falling.
Gallup offered respondents five possible socioeconomic class selections:
- Upper class
- Upper-middle class
- Middle class
- Working class
- Lower class
Just 1% of respondents identified themselves as "upper class," a figure that's consistently ranged between 1% and 2% since Gallup first began this somewhat regular poll in 2000. An additional 13% of respondents identified themselves as "upper-middle class," 38% proclaimed themselves to be "middle class," 33% identified as "working class," and 15% best described themselves as "lower class."
What's particularly worrisome about these responses is that the combined upper-middle and middle class affirmations totaled just 51%. This is down from a high of 63% in 2008, and is up just 1% from 50% when this survey was last conducted in 2012. That's concerning, because the jobs market and stock market have both vastly improved since 2012.
Source: International Labour Organization via Flickr.
When broken into demographics such as age, income, education level, and political party affiliation the number of respondents including themselves as a combination of upper-middle class or middle class was down across the board. The drop was particularly noticeable for those respondents who didn't have a college degree. Those with less than a high school diploma saw a 13% drop in claiming upper-middle or middle class socioeconomic status to just 29% since 2008 when aggregating the 2012 and 2015 survey responses. Those with some college credit but no degree also witnessed a steep drop-off of 15% to 45%.
The survey also demonstrated that certain millennials, generation X, and baby boomers have been hit hard in the wake of the Great Recession. Persons aged 30 to 49 saw a 15% drop in claiming upper-middle or middle class status since 2008, while those aged 50 to 64 had a 16% tumble.
As part of its conclusions, Gallup believes that the drop-off since the recession and the lack of snapback in middle-class responses implies that we've reached a "new normal" where middle class status is perceived to be out of reach for some of the self-identified working and lower class respondents.
What's really wrong with the middle class?
You might be wondering what's behind the worsening of Americans' perception of their socioeconomic status. In other words, what's really wrong with the middle class? The answer would appear to be a number of issues.
For starters, wage growth is anemic. Now I'm not talking about more nominal dollars in the pockets of workers, because data from the Bureau of Labor Statistics shows that average hourly earnings in the private nonfarm labor sector hit $24.86 in March 2015, up from $24.34 an hour in the prior-year period.
Source: AARP via Facebook.
Instead, I'm talking about real wages, or what your take-home pay looks like after inflation is factored in, which has hardly budged in five decades. In constant 2014 dollars, courtesy of BLS data and data aggregation by the Pew Research Center, average real hourly earnings have risen by just 7.8% between 1964 and 2014 in spite of a 727% increase in nominal wages. Wage growth remains anemic because employer healthcare costs as a percentage of an employees' annual wage is increasing. In other words, workers aren't seeing real wage growth because employers are spending more covering their health insurance.
Source: Flickr user Ashley Basil.
Another big problem for middle class, or should I say self-identified working and lower class persons who are working toward joining the middle and upper-middle class, is the education barrier. Businesses more and more require some level of college education or a bachelor's degree in order to be hired or have any opportunity for advancement within a company. The cost of an education, though, is skyrocketing in the postsecondary setting, causing millions to be bogged down by hefty student loan debt. This debt crushes the opportunity many have of saving significant amounts of money for, and investing in, their future.
Record low interest rates and market distrust are also a problem. A March survey from Capital One ShareBuilder showed that a whopping 93% of millennials are either distrusting of Wall Street or lack the confidence to invest. State Street demonstrated similar risk-averse data in a survey of its own, where millennials admitted that 40% of their investment portfolios are currently in cash, despite record low interest being earned on that cash. This is a problem when time is the greatest ally of young investors and they aren't using it to their advantage.
Can this perception be changed?
While I'm no psychologist, and I certainly can't guarantee that self-identified working and lower class individuals can climb into the middle and upper-middle class, the key to turning this perception around rests on user proactivity.
Source: FINRA Investor Education Foundation via Facebook.
All self-identified classes need to work toward better financial literacy, which surveys from the Financial Industry Regulation Authority suggest are lacking across broad swaths of the population. The idea here is that better understanding of basic financial concepts should lead to improved money management skills.
Also, everyone, regardless of whether they're a millionaire or working for minimum wage, and 60 years old or 16 years of age, should understand the basics of their cash flow. If people don't understand how much they're bringing in via wages versus spending on bills and discretionary purchases, then the ability to optimally save for retirement and emergencies becomes that much harder.
Specialization is also an important point for adolescents and young adults to remember. When selecting a college degree, keep in mind what business sectors are projected to be hiring over the long-term, as those will be job opportunities where you'll likely have significant opportunity at wage growth and economic advancement.
Really, the ball is in your court. The question is whether or not you'll make the next move?
