Why is a single income no longer enough to support a middle-class family?

I often write on Quora.com, where I am the most viewed writer on financial matters, with over 335.9 million views in recent years.

In the answers below I focused on the following topics and issues:

  • Can people support a middle-class family on one income?
  • Is it really the case that 2.7% of the European population is millionaires?

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Why is a single income no longer enough to support a middle-class family?

This is a very complex issue. Your answer suggests that somebody needs to be high-income, or at least significantly above the average point, to support a middle-class lifestyle.

I presume you are writing from an American or UK perspective.

Let’s split this into three – expectations, needs and changes in the labour force.

Expectations

If you look at GDP per capita in the 1950s, in any developed country, it is much lower than today.

No matter how you measure inflation or income, it is still much lower. Whilst it is true that the average medium, male, household income has stagnated since the 1970s adjusted for inflation, even if the mean has increased, it is much higher than in the 1950s or 1960s.

In the UK, where I am from, the average male medium income has stagnated since the early 2000s.

So, if we were to compare say 1999 to today, then this phenomenon could be explained by stagnating male medium incomes, which are not enough to support a family, but I guess you are going back further.

Speaking to some friends and family members who lived through the 1970s, it is clear that expectations have risen.

I can remember one family member in the UK telling me that it “wasn’t normal in her home town for people to be able to completely fill up the car in one go”.

Needs

As per the previous section, expectations have risen. People didn’t expect two cars, foreign holidays and eating out every weekend.

Despite this, some new things have become necessities. If you would have told people, even ten or fifteen years ago, that a $1,200 smartphone would be needed for many jobs, people would have laughed:

However, it isn’t practical to do many jobs without a smartphone and laptop. Unless the company provides it, this is something that the inflation data doesn’t capture.

Phones haven’t become that much more expensive in the last five or ten years.

The difference is they used to be a fashion thing. Now they are needed by a greater number of people.

And that is just one example of many I could have used. Of course, not all societal changes have been inflationary.

The work-from-home trend has been deflationary for many people. A countless number of people can now save on the commute, and some work lunches, and have a home office, even though the costs of these services hasn’t fallen

Changes in the labour force

As plenty of people have commented below, there are some trends that have contributed to this reality:

  • The lower minimum wage in some societies, adjusted for inflation, even if there wasn’t even a minimum in most countries a few decades ago
  • Most of the gains in wages have gone to owners of capital and highly skilled workers.
  • It has always been a long-running trend for owners of capital to get better, long-term, gains, compared to those who only rely on labour. Deep down, almost everybody knows this, which is why most people want to invest in stocks, real estate etc.
  • An oversupply of labour at the bottom of the market, and sometimes in the middle as well.

Some things are changing though though. Firstly, there is now a shortage in labour, which is driving up wages and inflation in many countries. Truck drivers in the UK are now seeing huge pay rises in some cases.

Second, trends like minimalism and stay-at-home working, mean that it might become possible for more people to live from a single income in the future.

Apparently millionaires are about 2.7% of European population. How is it possible? I know few hundred people from all over Europe and I don’t think any of them is a millionaire. What about the pool of people you know? Does it confirm the statistics?

This guy is a millionaire – at least when an article was written about him online.

This man confirmed the widespread media reports in his autobiography that he was broke when this picture was taken – despite earning close to $1billion in today’s money.

Not all millionaires have high incomes and luxury lifestyles, and not all highly paid people are wealthy.

Wealth and income aren’t the same things. Countless surveys show there are many wealthy people, who don’t show off.

In many ways as well, the incentives are that way. If you are doing well in business, why show your competitors such facts on social media?

If they know you are doing well, they are more likely to copy you.

In addition to that remember the following facts

  1. In many European countries, there is an inverse snobbery towards people who are too flashy. That is very different to some “new wealthy” countries like the UAE.
  2. There are some people who on really have $1milllion+ on paperwork. Examples include old widows who have a million pound or Euro house but are struggling to pay the bills. A better indication is people’s liquid net worth. If somebody has over $1million in liquid assets like stocks, ETFs, cash, etc, that is different from having it all in one primary residency or business.
  3. Inherited wealth is now a majority of wealthy people in most parts of the world. It is a bigger thing in Europe, where some estimates show 50% of the wealthy have inherited the world. Inherited wealthy people tend to act differently compared to the “new rich”, which brings us back to inverse snobbery.

The last part of your question is interesting though. What is true is that it depends on who you associate with.

Your pool of friends might include some “understated millionaires” , or may include fewer millionaires than the statistics you mentioned.

I would say 2.7% is quite accurate for the wealthier European countries and is higher in places like Switzerland.

It is lower in those European countries where communism existed until about thirty years ago.

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Financial Planner - Adam Fayed

Adam is an internationally recognised author on financial matters, with over 417.7 million answers views on Quora.com and a widely sold book on Amazon

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