Living Your Best Life
Determine Your Class as Measured by Net Worth: Are You Low, Middle, or Upper Class?
Where do you fit in the American dream?
In the United States of America, we pretend we do not have a class system. That pretense is untrue. How do I know that? At the same time we pretend we do not have classes; we tell people from the lower classes to pull themselves up by their bootstraps.
My family is an example of a family that struggled with those bootlaces. My mom never graduated from high school. Hell, my mom never went to high school. She gave birth to me in the middle of her first year and never went back to school. We lived a hard life on the South Side of Chicago until my dad won a job as a policeman.
My parents were lower class until I was a teenager. Now, I would put myself and all my five siblings’ households in the middle class, with a couple of us barely sliding over into the upper class as we exit the money-making portions of our careers.
What is net worth?
“Your net worth is your assets minus your liabilities. It’s what you have left over after you pay all your liabilities.
Net worth is a better measure of someone’s financial stability than income alone. Job loss could disrupt a person’s income or reduce work hours. Income doesn’t indicate how much debt someone has or how much savings or other assets they have.
Your net worth can be a positive number, zero, or a negative number.
A positive net worth means the value of your assets covers all your liabilities, and there is still some left over. This means you have a cushion for financial emergencies. It’s good to have a positive net worth.
Zero net worth means your assets equal your liabilities. You don’t have a financial cushion.
A negative net worth means your liabilities are greater than your assets. You don’t have a financial cushion in this situation, either. “fdic.gov, Calculate My Net Worth
I use the FDIC website to instruct my young relatives on understanding their money. The calculator is on the link above.
In plain English, net worth is everything you have left over after you address all your liabilities. Again, once you pay off all your obligations, what is left is your net worth.
There is a lot of information out there about how to define your net worth to determine what class you are in. I use the US Treasury data extrapolated with data I found on the last US census because I find those numbers the easiest to understand.
The median household net worth in the US in 2020 was $140K. I use median numbers because, in the US of A, we have families at the top with so much money they skew the average. Remember, the median means an equal number of households making more and an equal number of households making less.
Second, don’t come for me about my cut points. This is my personal analysis. I am not an economist. I am a person who loves numbers and made a good living understanding and manipulating data.
You will find a gazillion different ways to cut Americans into classes on the web — based on where you get your data and how you categorize it. The data for determining class by income differs from the data for deciding class based on net worth. Now that I have covered my behind let’s go.
We will break net worth into five sections. There are a multitude of numbers out there regarding wealth in America. You can find the social classes in averages, medians, and percentiles provided by various government, private, and public agencies. The good news is that the cut-point numbers for each net worth class are not the same, but all are in the same range.
Lower Class The lowest 20% is $6,000. These people typically live paycheck to paycheck. Many cannot put together $400 for an emergency. Several agencies double that lower class number to $12K. 6K or 12K, it is not a lot of money. Many in the lower class start as adults with nothing.
Lower Middle Class: To be in the next group of 20%, you need to have a net worth of $45K. Notice the enormous leap from $6K/12K to $45K. This is a massive amount to gather when you try to pull yourself up from starting with $0K as an adult. This class is always under financial pressure.
Middle Class: The next level is more than double the wealth of the lower middle class. You need a net worth of at least $100K. You would be wrong if you think the people who make over $100K are on an easy road to financial success.
Over 50% of those making 100K do not save money. They live paycheck to paycheck, just like the people in the classes who make less than they do.
Upper Middle Class: To be considered upper middle class, the bar doubles yet again. $200K is more than double the median for the Middle Class. Climbing the ladder of success in the US takes work.
Wealthy: The last 20% is the most interesting. This is the most challenging class to climb into. The required net worth is a minimum of $608,900, with some sources driving that number up to $800K. More than four times the amount the Upper Middle class has available and 100 times the amount the lower class has in net worth.
There are reams of household income and net worth data on federalreserve.gov. They slice and dice the data by generations, sectors, age, locations, gender, and anything else you would like. I went out there and fell into a rabbit hole for hours, looking at all the different filters available for American households. If you desire a more detailed financial data analysis, this is the website for you.
Once I got out of that hole, I immediately fell into another one at the 2020 US Census data site. It’s another prodigious site if you are into the various cuts that the government makes to numbers. The link is only one of the many places you can ponder.
Establishing an emergency fund is one thing that shows if you are at least doing “ok,” no matter what class you are in. An emergency fund with about 4 to 6 months of routine expenses is necessary. Having a financial reserve significantly impacts your economic survival when life comes by and smacks you upside the head. Unexpected medical expenses, job changes, or other income loss will break a person living paycheck to paycheck, no matter how much your net worth is.
Being financially broken has short and long-term impacts on a person and their family. People can find themselves in situations they never imagined: unhoused, short of food, or unable to afford critical medical care. Living paycheck to paycheck means a person and their family are literally a single unexpected expense from immediate hardship.
Well, there you have it. Which group did you start in as an adult? Which group do you fall into now? Understanding where you started, where you have been, and where you are headed are some of the adulting things that everyone who is serious about their financial health must examine. Making a plan depends on knowing where you are.
Changing classes is hard. Good luck.
More Business Shenanigans By Toni
Toni Crowe retired from corporate America as an Executive Vice President for a Fortune 500 Aerospace company. She learned many hard lessons, so you don’t have to. She shares these lessons in her book, Bullets, and Bosses Don’t Have Friends — Winner of the 2019 Readers Favorite Gold Award in Non-Fiction, Occupational. Available on Amazon.com and Kindle Unlimited.
