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The term ‘“middle class” is often discussed but rarely defined. It’s a term the majority of Americans would use to define themselves, yet most people don’t know whether their household truly fits into this category.
Based on the Pew Research Center’s analysis of government data, roughly 49% of Americans don’t actually fall into the middle class income category.
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Here’s a closer look at why that is.
The squeezed middle class
Pew Research Center defines the middle class as a household with income that is at least two-thirds of the U.S. median income to double the median income. This would imply a range of incomes from $56,600 to $169,800, based on government data for 2022.
As of 2023, 51% of American households fit into this category.
But, most Americans might not be aware that this cohort of middle-income earners is getting squeezed. Roughly 61% of households across the country were part of this group in 1971 — a full 10 percentage points higher than the recent 51% rate.
This trend may be a reflection of growing income inequality across the country. And many families feel like they’re on the brink of falling into a lower category.
A recent survey by the National Foundation for Credit Counseling (NFCC) found that 53% of U.S. adults feel like they can’t make financial progress and 48% say they are “constantly treading water financially.”
Are you at risk?
If you and your family are middle-income and worried about falling behind, there are ways to cement your position.
Reducing debt, especially consumer debt, could be a great way to secure yourself financially. In 2024, there were 494,201 personal bankruptcy filings in the U.S. — over 60,000 more than the previous year, according to Debt.org.
Read more: Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
By reducing your debt burden, you can mitigate the risks of bankruptcy and reduce the monthly cost burden of servicing the debt.
If you have significant debt and are struggling to pay it off, consider opting for a debt consolidation loan.
Debt consolidation loans typically have lower interest rates compared to credit cards, and can lower your interest burden. Plus, with just one outstanding loan, you won’t need to juggle multiple payment dates or amounts.
Credible is an online marketplace that lets you shop around and compare rates on debt consolidation loans offered by lenders near you.
Just answer some basic questions about your finances by filling out a form, and Credible will sort through its database and display rates from top lenders near you. From there, you can compare rates and repayment terms to choose the loan best suited for you.
The best part? Checking rates with Credible is fast,free and won’t impact your credit score.
After reducing your debt burden, you can automate investing in low-cost index ETFs with Acorns. Consistently saving spare change from everyday purchases can add up over time, thanks to the powers of compounding.
Here’s how it works: When you buy a coffee for $4.25, Acorns automatically rounds up the purchase to $5 and sets aside the extra $0.75. Once the round-ups reach $5, they’re automatically invested into a smart investment portfolio of diversified ETFs.
While the spare change doesn’t seem like much, saving and investing just $3 each day adds up to over $1,000 a year — and that’s before it compounds and earns money in the market.
What’s more, you can get a $20 bonus investment when you sign up for Acorns with a recurring deposit.
Another way to secure your position is to have an emergency fund that can cover your living expenses if you suddenly lose income. A six-month emergency fund can give you enough time to find a new job or different source of income without putting your family at risk.
Parking your emergency fund in a high-yield savings account can help you earn higher returns while keeping your money accessible at all times.
One option is to earn 4% APY on deposits with a Wealthfront Cash account —- that’s roughly 10 times higher than the national average interest rate typically offered by big banks.
The account offers free domestic wire transfers, as well as free instant withdrawals to eligible accounts.
The best part? Deposits of up to $8 million in your Wealthfront Cash account are insured by the Federal Deposit Insurance Corporation (FDIC), ensuring your funds remain secure.
Get started now and receive a $30 bonus when you fund your account with $500 or more.
Find other ways to save
Almost 1 in 5 Americans are “doom spending” — making impulsive and excessive purchases amid increasing economic uncertainty — according to a recent report from CreditCards.com.
However, this could result in increasing financial insecurity especially among the middle class.
Budgeting and tracking where your money is going at all times can help you identify the areas in which you’re overspending, helping you take control of your finances.
One area where you are likely overspending is insurance. The average American spends approximately $2,433 on full-coverage auto insurance yearly, according to MarketWatch. In addition, homeowners’ insurance costs roughly $2,341 per year, according to Bankrate.
And premiums are projected to rise further. Insurify estimates that car and home insurance costs are expected to rise by 5% and 8%, respectively, in 2025.
You can reduce your premiums by shopping around and comparing rates from multiple insurers near you, and choosing the lowest rate. A LendingTree survey showed that 92% of Americans lowered their monthly auto insurance premiums by switching insurers.
With OfficialCarInsurance.com, you can compare rates and coverage from reputable providers like GEICO, Allstate and Progressive within minutes.
You can find rates as low as $29/month — without spending a penny or hurting your credit score.
If you’re looking to switch homeowners insurance carriers as well, consider shopping around and comparing rates through OfficialHomeInsurance.com.
Simply answer a few basic questions about your finances and the home you’d like to insure then OfficialHomeInsurance.com will sort through more than 200 providers near you to display the best rates. On average, you can save $482 each year by shopping around and selecting the lowest possible rate.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
