Many references to the “middle class” are based on a simplistic definition, such as the middle 50 percent of families by income or wealth. While this may be effective for discovering, for example, trends in wealth distribution over time, these definitions uncover little about the characteristics of individual middle-class families and about how these families fare over time. A recent report from the St. Louis Fed's Center for Household Financial Stability sought to provide a demographic definition of the middle class and found that the middle class may be under more financial pressure than has been otherwise reported.
Senior Economic Adviser William Emmons and Lead Policy Analyst Bryan Noeth, both with the center, noted, “Our version of the demographically defined middle class reveals that families that are neither rich nor poor may be under more downward economic and financial pressure than common but simplistic rank-based measures of income or wealth would suggest.”
Emmons and Noeth separated families into three groups, all headed by someone at least 40 years old:
The authors assigned black and Hispanic families with college degrees to the middle class and with high school degrees to the stragglers category due to the well-documented fact that black and Hispanic families typically have significantly lower income and wealth than their similarly educated white and Asian counterparts.
Using data from the Survey of Consumer Finances, Emmons and Noeth found that the median incomes of thrivers and stragglers were slightly higher in 2013 than in 1989, rising 2 percent and 8 percent, respectively. The middle class, however, experienced a decline in median income of 16 percent over the same period.
Regarding wealth, thrivers experienced an increase in median wealth of 22 percent over the period 1989-2013. The middle class and stragglers experienced large declines, with the median wealth of the middle class dropping 27 percent and of the stragglers dropping 54 percent over the same period.
Emmons and Noeth also examined the performance of each group relative to the population as a whole. They found that the median income of the middle class as they defined it grew 21 percent less than the overall median income from 1989 through 2013. The cumulative growth shortfall in wealth for the median demographically defined middle-class family was about 24 percent compared to overall median wealth.
The authors concluded by offering three potential major trends contributing to these results:
Emmons and Noeth wrote, “In effect, the bar has been rising to remain near the middle of the income and wealth distributions.”