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Resources & Insights

Original perspectives and personal viewpoints on developments and industry trends.

Resources & Insights

Original perspectives and personal viewpoints on developments and industry trends.

Market Memo: What is middle class?

Sep 23, 2019
Be the expert
First National Financial LP

Middle Class, it is a phrase we’re hearing more and more.  But it is becoming harder and harder to define.

The term “middle class” has been in use for about two centuries, but what most people now refer to as the middle class took shape in the years after the Second World War.  Use of the phrase grew in lock-step with the growth of the suburbs. 

Where is the middle?

What ranks as middle class in Canada covers a broad range.  A poll conducted for Maclean’s magazine in 2017, in conjunction with Canada’s 150th anniversary, suggested that 70% of us put ourselves in that category.  An Ekos poll conducted around the same time put the number at 47%. 

In loose, economic terms the middle class has been categorized as the group of households with incomes that fall between the top 20% of median income earners and the bottom 20%.  Median income is the point where half of the households earn more and half earn less.  Prime Minister Justin Trudeau describes the middle class as a family with $90,000 of household income.  Bank of Canada governor Stephen Poloz has characterized the middle class as the people who hold most of their wealth in the equity of their home.

The middle is a state of mind

It is interesting that the words “families” and “households” are used in the definitions.  It suggests that middle class is a concept that goes well beyond money.  It encompasses ideas about lifestyle, possessions and perceptions of self.  Middle class has become, very much, a state of mind.

Not surprisingly that state of mind has changed over time.  Currently many people consider themselves middle class based on their net worth, most of which is tied up in their homes.  Earlier generations tended to judge their position based on income.  Before that the “Silent Generation” (people between 75 and 90 years-old) called themselves middle class if they lived within their means and managed their bills without a great deal stress.

The universal picture

The vast majority of people in these groups do hold a few things in common though: two parents, steady incomes, a house, and children.  The Maclean’s poll commissioned for Canada 150 suggests 84% of Canadians with children consider themselves middle class, compared to 70% for those without kids.

A detached home is a virtually universal signifier of the middle class.  Nora Spinks, CEO of the Vanier Institute of the Family, says “If you ask a child to draw a picture of a house, no matter where they live in the world, they will draw a square with a triangle roof, a door and a window.”  These concepts are very deeply ingrained.

The wealthiest of them all

Back in 2014 The New York Times reported that Canada’s middle class was the most affluent in the world, having taken the title away from the United States about four years earlier, in 2010.  In the first half of 2019 The Times revisited the story.  Using information from the “global wealth report” produced by the bank Credit Suisse, the paper found Canada continues to lead.  The report puts Canadian median wealth at $106,340, well above $61,670 in the U.S.  Those figures include the value of homes.

Embarrassment of riches

Somewhat counter-intuitively, that “wealth” may be creating a kind of embarrassment that is swelling the ranks of the middle class, rather than translating into growth for the upper class.  The publication Fast Company looked into this phenomenon in early 2019.  The article quotes an American wealth advisor who points to the 2008 financial collapse and the “Occupy Wall Street” movement that followed, as having changed attitudes about wealth.  Natalie Schmook says, “…people sometimes identify as being middle class intentionally because they don’t want to be a social pariah.”

Shifting attitudes

Of course the concept of middle class continues to evolve.  Spinks, of the Vanier Institute, points to attitudes about the cost of living and debt.  In the 1960s and ‘70s life in the middle class was supported by a single-income and it took a household 15 to 20 years to pay off their mortgage.  Through the ‘80s and ‘90s a middle class lifestyle required two incomes and it took 25 to 30 years to be mortgage free.  Now it takes two and-a-half incomes and it is likely the mortgage will never be paid off.

“Retirees today are going into retirement with a mortgage.  The average middle class Canadian has resigned himself to the fact that there’s no way he’s going to pay off a $1-million house.  And it’s accepted for what it is,” says Spinks.

More change to come

The coming generations, millennials and Generation Z, will drive even further change.  Given current trends, they will shift the definition of middle class away from money and things, like homes and cars, to common values and attitudes about family, community and the environment.