Just How Rich Are You?

According to a Gallup poll last year, almost two-thirds of Americans identify themselves as middle class.  Despite identifying as such, most Americans can’t define ‘middle class,’ which isn’t too surprising because the definition varies so broadly.

I found a nice calculator on The Washington Post’s website that allows you to type in your income and your location to find out where you stand.

Before going any further, I should note that I assume that Amazon, the Post’s owner, already knows my income, location and a whole lot more about me, so I provided them with this data catnip without too much bother.

The calculator uses data from the American Community Survey, which is part of the census.  They define the middle class as those with incomes that fall between the 30th and 80th percentile of average households.

I would like to see the analysis with total wealth instead of income, but I assume that this data is harder to find.

The calculator shows that in St. Louis County (you have to use the period after ‘St’ to find St. Louis), a middle-class income ranges between $36,500 and $122,000.  Across the United States, the range is $32,100 to $109,000.

For our friends in St. Charles County, the middle-class income ranges between $43,400 and $127,600, which almost exactly matches the highest income counties in the US.

At the other end of the scale, the lowest income counties, the definition of middle class means that you earn between $18,100 and $66,300.  That more closely matches St. Louis city proper, where the range is $19,800 and $78,600.

I found this calculator after reading another article on my Washington Post app, about the global middle class.  I tried to link that article here, but for some reason, my app subscription doesn’t work online and I couldn’t access it.

The thrust of the article, titled ‘Does $60,000 Make You Middle Class or Wealthy on Planet Earth?’ is that a $60,000 income goes a long way in most of the world.

In fact, the definition of middle class, according to Homi Kharas as the Brookings Institute, a Washington DC think tank, is $4,000 to $40,000 per year.

Of course there is nothing surprising that the middle class in the US earns more than their middle class brethren outside of the US, but here’s where I thought the data got staggering.  The middle class, globally, totals about $3.7 billion people.  Wow – that’s well more than 10 times the US population.

Kharas estimates that between 140 and 170 million people around the world are moving into the middle class each year.  Wow – that’s about half of the US population EACH YEAR!

Based on these numbers, Kharas thinks that by 2020 that more than half of the world’s population will be part of the middle class.  I couldn’t tell from the article what he defined as upper class, which means that I don’t know what the lower class is either.

In a sense, though, the news is so good that it doesn’t matter, because the idea of a middle class didn’t really exist before the Industrial Revolution.  Kharas is quoted in the article saying, ‘it was just royalty and peasants.  Now, we are about to have a majority middle-class world.’

Mostly I wrote this article because I thought it was interesting and most folks want a sense of how they are doing versus the Jones’ even if they know they shouldn’t.  My conclusion, though, is much broader, and is twofold.

First, I think this is great news for humanity.  What could be bad about more and more people having enough money to cover basic needs like food, clothing, shelter, and still have money for electricity, transportation and satellite television.  The fewer people living for basic sustenance, the better.

Second, there must be investment implications, especially for emerging markets.  I didn’t have emerging markets stocks on my mind when I started, although perhaps it was subliminal since I need to write an article about how they’re in a bear market right now.

Maybe this article covers the long-run argument for emerging, that people around the world are entering the middle class and will want to consumer more as a result.  I’ll write something else later, but what was simply a ‘feel-good’ article seems like a solid investment case as well.

If you’d like to read the full report, you can find it here, at the Brookings Institute website.