Middle Ground: The Shrinking American Middle Class and What It Means for the Future
Sep 09, 2024Financial Coaching
The American middle class, once the backbone of the nation's economy, has been shrinking over the past 50 years. In 1971, 61% of U.S. adults were in the middle class, but by 2021, that number dropped to 50%. Meanwhile, more people have either moved into the upper-income or fallen into the lower-income tiers. This trend reveals how the U.S. economy is changing and how different groups are experiencing those changes in very different ways.
Let’s explore how the middle class has changed, why it’s happening, and what we can do to strengthen it in the future.
What Is the Middle Class?
The middle class is typically defined by household income. In 2021, a middle-class income for a family of three ranged from about $52,000 to $156,000 a year. While income is the main factor, other things like education, profession, and homeownership also help define middle-class life.
Over the last few decades, the share of Americans in the middle class has been shrinking, while the share of people in both upper-income and lower-income groups has been growing. This change reflects some major shifts in the U.S. economy, such as wage growth, changes in education levels, and evolving household structures.
The Growing Gap Between Income Levels
One of the biggest changes affecting the middle class is the widening gap in income. Since 1970, incomes have grown for everyone, but they’ve grown much faster for the upper class than for the middle or lower classes.
Upper-income households saw their income increase by 69% between 1970 and 2020, while middle-class incomes only grew by 50%, and lower-class incomes grew by just 45%. This means that wealth is increasingly concentrating in the upper-income group. In 1970, the median income of upper-income households was about 6 times greater than that of lower-income households; by 2020, it was 7.3 times higher.
This has also shifted the overall distribution of income in the country. In 1970, the middle class held 62% of total U.S. household income. By 2020, that share had dropped to 42%. Meanwhile, the upper class now takes in 50% of all household income, up from 29% in 1970.
Family Structures and Economic Outcomes
Changes in family structures have also played a role in reshaping the middle class. Married adults and households with more than one earner are much more likely to be in the upper-income group than unmarried or single-earner households.
In 2021, 27% of married adults were in the upper-income group, almost double the share from 50 years ago. Dual-income households have been more successful economically, while single-earner and single-parent households have faced greater financial challenges. Many of these households have fallen out of the middle class altogether.
What Can Be Done?
While the shrinking of the middle class is concerning, there are ways to strengthen it and help more Americans move up the economic ladder. Here are a few key steps we can take:
Invest in Education and Job Training: With education playing such an important role in economic success, making college and job training more accessible is critical. The internet has also provided access to many free virtual and online courses and training, allowing the opportunity for people to gain new skills at their own pace. This can help people from lower-income and middle-class backgrounds improve their earning potential.
Financial Education: Financial education is crucial for building wealth and achieving financial stability, yet many people lack access to it. Studies show that only 57% of adults in the U.S. are financially literate, leaving many vulnerable to poor financial decisions. If you haven’t had the opportunity to learn, starting with basics like budgeting, saving, and debt management can put you on the path to financial success. Fortunately, it's not too late. At HAPO we have certified Financial Coaches that anyone can access at all our financial centers. We are here to be your guide and help you feel confident about your money and financial decisions.
Support Homeownership: Homeownership is one of the most important ways for middle-class families to build wealth. Expanding access to affordable housing and offering more help for first-time homebuyers could make it easier for families to own homes. When it comes to homeownership, we provide a variety of loans and programs to help our members get into their first home. Contact our HAPO Mortgage team to learn about your options.
Provide Family Support: Dual-income households tend to fare better economically than single-earner households. Policies like paid family leave, affordable childcare, and tax breaks for working parents could help families balance work and family life.
The American middle class has faced significant challenges over the past 50 years, with income inequality and changes in education, family structure, and race playing key roles in reshaping it. However, these trends aren’t set in stone. By investing in education, family support, and homeownership, we can help rebuild a stronger, more inclusive middle class. Ensuring that all Americans, regardless of background, have a fair shot at economic success will be crucial for the future health of our economy.
Source: Pew Research | https://www.pewresearch.org/short-reads/2022/04/20/how-the-american-middle-class-has-changed-in-the-past-five-decades/
Annie Jacobs
Integrated Marketing Specialist | HAPO Community Credit Union