By 2030, the middle class is expected to grow by 2 billion people worldwide. Understanding who the middle class is now and in the future allows retailers and manufacturers to align their strategies to effectively connect to this growing group. But while many have typically turned to income to delineate social classes, these definitions are changing.
Today’s middle class: It’s not about consumer income; it’s about consumer mindset.
In a recent Nielsen survey, 40% of U.S. respondents say they’re living paycheck-to-paycheck. But being strapped for cash today doesn’t exactly mean what it may have meant in years past. That’s because this poll revealed that households that claim to be living paycheck-to-paycheck are also saving money. In fact, 63% within the middle class (earning $50,000-$100,000 a year) and 45% earning $50,000 or less say they’re saving money for the future.
With consumers' definitions of their paychecks changing, traditional metrics based on income definitions fall short of understanding consumers and what goes on behind the paycheck. Incorporating aspects other than income will bring about a better understanding of the middle class. A range of factors—from circumstances like location and life-stage to habits like consumers' spending priorities and propensities to spend—can affect where consumers fall on the social scale.
These additional considerations all play a role in how far money will go and impact consumer’s state of mind. Understanding consumer mindset over consumer income level allows for a new definition of middle class. An innovative approach to looking at social tiers includes three groups.
In North America’s developed economy in 2015, nearly 10% of the population considers themselves free spenders, 58% are living comfortably and 32% are only able to afford the basics. However, households that are living comfortably are represented across all income levels.
Seniors and retirees are a great example of why using these new definitions provide a better understanding of the middle class. While their incomes are lower, smaller dwellings and households, along with a decreased consumption level, balance out positively at the end of the month with perhaps more disposable income than younger counterparts. At this stage in their lives, and accounting for their life style, they consider themselves part of the living comfortably middle class.
For retailers and manufacturers, a consumer-centric approach to the evolving middle class can help them understand their brand position in the marketplace. Distinguishing the growing middle class as an economic force will allow companies to realize a growing revenue stream.