You probably consider yourself middle class. While some may technically fall above or below the middle-class line, most Americans believe they do.
For example, some people who earn a significant income may be considered middle class where they live, but this may not be the case if they move to another state.
So where do you fall? Let’s take a look at a few definitions of middle class to find out, and how you can improve your personal finances if necessary.
How do some experts define the middle class?
The Pew Research Center defines middle class as anyone whose annual household income is equal to two-thirds of the national average income.
The national median household income was $74,580 last year, according to the U.S. Census Bureau. So if your annual household income is between $49,720 and $149,160, you may be in the middle class. To find out for sure, Pew has a handy app calculator You can use it to enter your income, state, metropolitan area, and how many people are in your household. It also adjusts for the cost of living in your area.
Pew says 50 percent of Americans are middle class; this rate was 61 percent in 1971.
However, it is worth noting that not everyone chooses this definition of middle class. For example, the Brookings Institution says there can be three definitions of middle class, depending on how much money someone has, their credentials, and even their culture. Here are three Middle class definitions from Brookings:
- Advance: This definition may change over time based on income level, but the general idea is that income and wealth determine whether a person is in the middle class. Economists probably prefer this set of rules.
- ID information: According to Brookings, this definition of middle class is built around educational attainment, qualifications, and one’s occupational status. Sociologists may prefer this set of standards.
- Culture: Middle class in this category is defined by one’s attitudes, mindset, or self-definition. The Brookings Institution says philosophers and anthropologists may prefer this definition.
Of course, each of these definitions has overlapping features. But when you consider all three (and the Pew definition), it’s easy to see why defining the middle class can be difficult.
But even if they disagree on the definition of middle class, there’s one thing most people agree on: The middle class is crucial to our economy.
Why is the middle class important?
Since half of Americans are in the middle class, it’s pretty obvious that a healthy middle class would be a good thing for the economy. But there are a few more detailed reasons why a strong middle class is important: Center for American Progress:
- It promotes the development of human capital and a well-educated population.
- It creates a stable demand for goods and services.
- It helps create a new generation of entrepreneurs.
- It supports political and economic institutions.
In short, a strong middle class benefits many fundamental parts of the U.S. economy, education, business, and politics.
The middle class can still live paycheck to paycheck
Just because a person is in the middle class doesn’t mean their finances are in the best shape. In fact, approximately 64% of Americans live paycheck to paycheck.
If you need extra help increasing your income, here are a few suggestions.
1. Develop a new skill
Gallup’s research shows that employees who develop a new skill earn an average of $8,000 more per year than those who do not.
2. Get a side hustle
Many people have experiences and talents they honor that can be used in side projects. Some lucrative side hustles have become even easier with the incorporation of artificial intelligence.
3. Find a way to create passive income
As legendary investor Warren Buffett once said, “If you don’t find a way to make money while you sleep, you’ll be working until you die.” Investing some of your money is a good way to do this, but even renting out a room in your home is a good way to earn passive income.
If you need additional help managing your money, you might consider trying one of the best budgeting apps. A budgeting app can help you understand where your money goes each month and set financial goals, like saving for a house or building an emergency fund.
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