Why the Middle Class is Dying

The American middle class is dying… It’s really just that simple.

After reigning for over 40 years as the nation’s economic majority, middle-income Americans no longer make up the bulk of our country.

According to a recent Pew Research Center analysis of government data, 120.8 million adults were in middle-income households in 2015, compared to a remaining 121.3 million in the upper- and lower-class categories.

On the surface, these numbers might not seem too bad, but to offer some perspective, the middle class once represented 61% of the U.S. population in 1971.

Today we’re down to 49%.

As I’m sure you know, the middle class was once the backbone of our economy, and it once kept the American Dream alive and well…

Slowly but surely, though, that backbone has become paralyzed — a fact that’s easier to see today than ever before.

Perhaps even more alarming than shrinking middle-class size is the evidence of shrinking middle-class income…

According to the same Pew Research Center study, the share of aggregate income of middle-class Americans has fallen from 62% to 43% since the 1970s.

And it only gets worse when you realize how they’re defining “middle class.”

You see, the Pew Research Center currently defines “middle-income” Americans as adults whose annual household income is two-thirds to double the national median, or between $42,000 and $126,000 annually for a household of three.

In other words, Americans with as little as $14,000 in annual income are being counted as middle class.

What a Joke…

And to be clear, the decline in the financial status of middle-income Americans hasn’t been a constant trend — it’s actually been accelerating.

Middle-class wealth (assets minus debts), for instance, fell by a whopping 28% between 2001 and 2013. All the while, income for upper-class households has risen by 47%.

Now, I’m not going to waste my breath and get into a debate about the fairness of income distribution or get all up in arms about “the 1%.”

I’m a capitalist by nature, and the way I see it, you get what you earn in this country. There are no shortages of opportunities to make the American Dream a reality.

Despite the cries of so many “have-nots” out there, the truth behind this growing discrepancy of wealth in America is that most of the difference is accounted for by the markets, not by salary.

Simply put? Most middle-class Americans don’t invest anymore, while the upper class is making a killing.

Fear: Your Greatest Enemy

You see, when the market collapsed in 2008, retail investors fell into one of the worst investment pitfalls out there.

Unfamiliar with the historical ups and downs of the market, the middle class panicked. They sold off almost all their equity at the bottom, and like sharks that happen upon bloody chum, the smart money had a feast.

When it comes to investing, know that emotion is your greatest enemy, and the strongest emotion, of course, is fear.

Part of the problem, of course, is that many middle-class adults can’t remain solvent during market downturns, which is why you should never invest money you may need in an emergency.

But much of it also has to do with a growing public disdain of “Wall Street” (I’m still not sure exactly what that means), which has unfortunately resulted in a vicious cycle that’s only hurting the retail investor.

The less the middle class trusts the market, the less they invest. And the less they invest, the more they get trounced by the smart money.

But even when the middle class does invest, I find that many rarely give it any real thought.

They simply put all their cash in an index fund, which, by nature, will never outperform the market.

They never research stocks, they never take any risks, and then they proceed to wonder how in the world the upper class is outpacing them…

Of course, it’s no secret many of us have been our own worst enemies in this regard.

But the simple fact is that when you invest in solid, long-term growth companies, your money compounds.

Chances are it won’t happen overnight, but with just a little bit of patience, you’ll begin to watch your money grow.

And above everything else, the most important resource you have is time. The sooner you start, the better off you’ll be.

As it stands, the middle class is not yet dead. It’s paralyzed, and the first step to recovery is wiggling your toes.

Until next time,

Jason Stutman

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