Middle class: You're better off than you think

But their financial risks have increased, undercutting some strong economic gains and their confidence about their prospects.

By Jeanne Sahadi, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- The middle class may not be as badly off as they think - or hear - they are. But that doesn't mean their anxieties are unfounded.

In a new working paper about economic anxiety, Elisabeth Jacobs, a research fellow at Brookings Institution, cites polls that have found that over 40 percent of households say they often don't have enough money to make ends meet, and nearly 40 percent say they're not happy with the way things are going financially.

State of the middle class
The median income in the United States is $46,326. But that is dragged down by young adults and retirees. ThirdWay, a centrist think tank, looked at the numbers for those households headed by someone of working age, 25 to 59.
Median Income: $61,629
With two wage earners: $81,265
Percentage making $100,000-plus: 24%

But by several measures, the middle class's financial picture is improving. Take numbers on household income. Usually "middle class" is defined in large part by "middle income." But the median household income - $46,326 - is dragged down by the typically low incomes of those in their early 20s and retirees.

When you look at households headed by someone of working age and most likely to be raising kids (between ages 25 and 59), the median jumps to $61,629, according to ThirdWay, a centrist think tank.

Among two-earner couples in that group, the median is $81,265.

And the percentage of households in that group bringing home at least $100,000 in current dollars has grown from 12 percent in 1979 to 24 percent in 2005.

Even when you just consider families in the statistical middle, median income has grown - after inflation - by more than 20 percent since 1979.

However, those top line figures don't tell the whole story, according to Jacobs.

While families have more income, it comes at a cost to their time. "(T)he vast majority of that growth stems from the increase in the number of hours worked by the typical family," she writes.

Meanwhile, "income volatility" is up. Jacobs' preliminary research finds that families have only about an 8 percent chance of losing half their income over two years, but that's double their risk in the 1970s.

What's more, families run by those with a college degree or higher face about the same risk of a 50 percent income loss as those headed by high school drop-outs. "The buffer of higher education has been eroding," Jacobs said in an interview.

One factor in income loss risk is certainly the decision by some to be stay-at-home parents, but it's unclear from the data how much of income loss is due to a voluntary or involuntary decision to leave a job. And a loss of income, no matter what the cause, makes a family's financial situation more precarious given the other factor fueling economic anxiety: steep increases in basic costs.

Take child care. Jacobs cites one study that found in almost all states, the cost of child care for two kids now tops median rent in those states.

Higher aspirations have also boosted financial pressures, said Anne Kim, director the Middle Class Project at ThirdWay. Costs for private colleges, for example, have risen far more than inflation in the past 30 years, but 30 years ago, parents didn't necessarily expect that their kids would go to college.

Then there are soaring healthcare costs. When a family's breadwinner loses a job and the insurance to go with it, the loss is much costlier than it would have been in the 1970s.

In many ways, the financial anxieties expressed by the middle class are more about the threat of what could be rather than what is.

"Most people are fine. Most are doing better," Jacobs said. "But the potential that the sky could fall feels a lot more real than it was in the past because it is." Top of page