According to the Pew Research Center, the middle class is shrinking.
The share of total U.S. household income held by the middle class has fallen almost without fail in each decade since 1970. As a result, Americans are more financially apart than before.
From 1971 to 2023, the share of Americans who live in lower-income households increased from 27% to 30%, and the share in upper-income households increased from 11% to 19%.
However, the middle class is better off than before, and there are some key differences between those in the middle class and those who are considered lower-income. With the rise of credit card use and BNPL (Buy-Now, Pay Later) apps and programs, people who are considered lower income are often able to purchase things on credit- to their detriment. These purchases often come with hefty fees and interest. The middle class is often able to pay for these things in cash, which gives them an advantage.
So, which things do the middle-class pay for in cash that lower-income folks don’t?
Beauty Products
Beauty spending has exploded since the pandemic, with the rise of celebrity-driven brands, beauty influencers, and Zara-like serums rapidly entering the marketplace. If you’ve spent any time on TikTok, you will see this trend for yourself. However, not everyone who buys these products can afford them. A recent study by NerdWallet, showed that Some Americans have gone into debt for beauty spending: Of Americans who say they’ve made beauty-related purchases for themselves, (15%) paid with a credit card that they didn’t pay off by the due date, and( 9%) used “buy now, pay later” services.
Travel
Many people enjoy traveling and taking vacations, especially in the summer. Unfortunately, many of these purchases end up on credit cards that people can’t afford to pay off. A new poll with MoneyLion in The New York Times discovered that 49% of respondents would be comfortable taking on more than $1,000 in credit card debt to travel this year.
Retail Therapy
Splurging on vacations and dining out is taking a toll on young adults, with many turning to their parents to bail them out in our latest Axios Vibes survey by The Harris Poll.
Respondents say inflation isn’t the only reason. Instead, the combined effects of retail therapy and the fear of missing out push some to blow their budgets with discretionary expenses. As Margaret Talev and Courtenay Brown write, “Most surveyed millennials and Gen Z’ers agree it is better to treat themselves now rather than hold off for a future “that feels like it could change at any moment.” Increasingly, there are memes like ‘retail therapy’ or ‘little treat culture’ equating mental health with impulse spending. But perhaps financial literacy needs a meme of its own.”
This reliance on credit cards is pushing more and more people into debt.
