Are you middle class? Note for a lecture, "E Pluribus Unum? What Keeps the United States United"

Liz Weston, usatoday.com

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Whether you’re middle class depends on who’s asking the question and how.

• About half of Americans told Gallup pollsters they weren’t. A survey in April 2015 found 51% of Americans identified as middle or upper middle class, down from an average 61% in 2000 through 2008. The rest said they were working or lower class.

• But most people said they were middle class under a broader definition. Given five categories — upper class, upper middle class, middle class, lower middle class and lower class — a Huffington Post/YouGov poll taken in May 2015 found 88% placed themselves in one of the three middle tiers. Forty-three percent placed themselves smack in the middle class, 33% called themselves lower middle class, and 12% said upper middle class.

• Based on income, fewer people are the middle class than a few decades ago. A Pew Research Center study defined middle class as households living on two-thirds to twice the median income adjusted by household size, or $42,000 to $126,000 for a household of three people in 2014. The researchers found the share of adults living in middle-income households fell from 61% in 1971 to 50% today. Many moved up: The share living in the upper tier rose from 14% to 21%, while those in the lower share rose from 25% to 29%.

Pew actually used a few different definitions of middle class. Researchers divided households up five ways, like the HuffPo poll, and also tracked what happens with a wider definition of middle class that stretched from half of median income to three times the median. It doesn’t change the trend, says Rakesh Kochhar, Pew’s associate director of research.

“What we find is that the growth is either at the very lowest end or the very highest end,” Kochhar says. “The middle is shrinking.”

It’s not about money — it’s about stability and hope

Using income alone to define your class is tricky business, obviously, since living costs — and expectations — vary so widely.

A six-figure income that feels bountiful in a small Midwestern city can feel stretched in New York or San Francisco. (See how much the cost of living varies from state to state.) At the same time, I know frugal hackers who say they live quite comfortably with incomes not that far above the official poverty line.

A few years ago I came up with a definition that avoided thinking in terms of income altogether. I wrote that middle class means having two things:

• The resources to afford everything you need and some of the things you want
• The ability to save for the future

That definition missed one key factor, however: the role of financial stability. Being middle class should include having a cushion against financial shocks. And it should include the expectation that your financial situation can improve over time.

That doesn’t mean you’re immune to setbacks or emergencies — or even catastrophes. With enough bad luck, bad decisions or both, you can still tumble into poverty.

But you’re not one paycheck away. You’re not so vulnerable that a single unexpected expense or a short stint of unemployment could drain your savings and shove you over the line.

Yet many people are just that vulnerable.

Paying the bills is only the beginning

Some of us don’t have any cushion at all, and most don’t have enough:

• Nearly half of the households polled last year by The Pew Charitable Trusts said they were just breaking even or spending more than they made.
• A third said they had no savings, including 10% of those with incomes over $100,000. The typical U.S. household can’t replace even one month of income, the researchers found. (The average household saves less than 5% of its disposable income — and it should be doing much more than that.)
• Most households don’t have steady incomes and consistent expenses, making it harder to save and plan for the future.
• Speaking of the future, only 1 in 4 households expect to have a traditional retirement during which they’re able to voluntarily stop working.

Given their precarious state, it’s no wonder that the vast majority of Americans — 9 out of 10 — told Pew researchers that financial security is more important than financial mobility, or the ability to move up the income ladder.

Being middle class should mean both: having at least some financial security now and a decent shot at growing that security over time. An emergency fund, manageable expenses and a comfortable retirement shouldn’t feel unattainable for most Americans.

What makes you middle class? It starts with you.

Some of what determines the size of our middle class isn’t in my power or yours to change. We can’t fix politics, the employment outlook or the economy, except to vote for those who best represent our economic interests.

Yet many of the decisions that improve your odds of a good financial life are yours alone, and they are independent of the next election or the price of gasoline.

No one will step in to prevent you from taking actions that ultimately sabotage your financial security.

No one can make you buy the house you can afford rather than the house you want. No one can force you to contribute to your 401(k) or tuck $20 out of every paycheck into a savings account. No one can require that you shop around for car insurance or that you pay off the balance on your credit card every month.

But if you want to move up to, or stay in, the middle class, those are the kinds of decisions you’ll need to make. Every dime you put away is an act of faith that you can change your financial destiny. (A good example: “5 Ways to Build Your First $1 Million.”)

We’re here to help. I don’t believe the American Dream is the impossible dream, and neither should you.

Liz Weston is a columnist at NerdWallet, a personal finance website, and author of “Your Credit Score.” Email: lweston@nerdwallet.com. Twitter: @lizweston