Since economists first began keeping track in 1970, every decade has ended with fewer people in the middle class than at the start. And 2015 was the first year on record when Americans in the middle-income bracket did not make up the majority of the country: that is, those above and below the middle class — rich and poor combined — make up half the population, according to a Pew Research report from December 2015.
This had led to a fear among wealthy people that wealth inequality will lead to social unrest. South African billionaire Johann Rupert voiced this concern at the Financial Times Business of Luxury Summit in Monaco in 2015.
With 7 billion people on the planet and only a few hundred super-rich, he said: “How is society going to cope with structural unemployment and the envy, hatred and the social warfare? We are destroying the middle classes at this stage and it will affect us. It’s unfair. So that’s what keeps me awake at night.”
In at least one sense, the shift represents economic progress: While the share of U.S. adults living in both upper- and lower-income households rose alongside the declining share in the middle from 1971 to 2015, the share in the upper-income tier grew more.
But middle-income Americans have fallen further behind financially in the new century. In 2014, the median income of these households was 4% less than in 2000. Moreover, because of the housing market crisis and the Great Recession of 2007-09, their median wealth (assets minus debts) fell by 28% from 2001 to 2013.
Meanwhile, the far edges of the income spectrum have shown the most growth. In 2015, 20% of American adults were in the lowest income tier, up from 16% in 1971. On the opposite side, 9% are in the highest-income tier, more than double the 4% share in 1971. At the same time, the shares of adults in the lower-middle or upper-middle income tiers were nearly unchanged.
Thus, there seems to be something going on. The future is going to probably see a smaller middle class. That means that your kids are more likely to be either rich or poor (not in between).
Where do you want your kids and grandkids to be?
One way to help your kids prosper is to follow the 8 Keys (as set out in my book of the same name). One of those Keys is to have a family office, which is a full-balance sheet management structure that will provide continuity for your family. Following this advice will help ensure that your future generations don’t squander their inheritances or potential and end up with the “have nots.”