In 1960, the median family income was $5,600. Today, adjusted for inflation, that would be $27,435. In comparison, the real median income is $105,800 (nearly a 286% increase in real income). So why doesn’t it feel as good as the raw numbers suggest.
In 1971, 61% of Americans were middle-class. By 2023, that number had shrunk by more than 10%. While upper-income households grew from 14% to 21%, lower-income households increased from 27% to 30%. Soon the middle-class will no longer be the majority.
In 1960, a middle-class lifestyle required one income, fewer hours of work, and there was a lower cost for essentials such as housing, a car, healthcare, and education. Today, for that same lifestyle, two incomes are often required. Housing, healthcare, childcare and education often dominates the budget and they have risen far more than inflation. While consumer goods are cheaper, essentials are far more expensive. Healthcare has grown 3-4x faster than inflation. Education has grown 4x higher than inflation. Houses are 3x higher and cars are 70% more expensive than what would have been predicted by the inflation numbers alone. Hence, the feel that middle-class life hasn’t improved as much as the raw numbers suggest.
The problem rests in how the Consumer Price Index (CPI), a popular gauge of inflation, is calculated. CPI properly reflects spending for groceries, household goods, transportation, apparel, and most consumer goods. However, it far under represents the rising costs of housing, healthcare, childcare and education. Also, there is a shift to more spending on services (such as insurance) which change far faster than the CPI can update. In short, the CPI does not fully capture the lived experience of today’s middle class.
Sources for the above findings were: U.S. Bureau of Labor Statistics, Federal Reserve Bank of Richmond, Federal Reserve Bank of Cleveland
What about a different measure?
True Living Cost (TLC) Index, a measure of price changes for the minimum adequate needs required to maintain a basic standard of living. Unlike the Consumer Price Index (CPI), the TLC focuses on the basics: housing, food, healthcare, childcare, transportation, basic technology, and miscellaneous personal care and household items – the expenditures that consume nearly the entire budget of most American families. By contrast, the CPI focuses on a diverse basket of more than 80,000 items, many of which — such as rental cars, second homes and hotel rooms — are less representative of the day-to-day household costs low- and middle-income families routinely face.