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onE the Changing Middle Class How the income gap is Polarizing Markets and Marketers

WHEn you HEAR tHE WoRDs “MiDDLE CLAss,” it’s HARD not to stARt picturing some idealized 1950s version of this scene: A blonde apronwearing mom looks out the kitchen window of her ranch home at the yard where her adorable son and even more adorable daughter are playing. The neighborhood is safe. There might be an American-made Radio Flyer wagon in evidence. They live on a cul-de-sac. Dad’s at work, and Mom is making meatloaf for dinner. She has a range oven and a counter full of new labor-saving devices. In your mind, this scene plays out in black and white, and that doesn’t even strike you as odd. As long as we’re in fantasy flashback mode, think about ad agency jobs in that time. If Mad Men is to be believed, selling products to the middle class was easy and could be accomplished between cocktails and naps on the office couch. If you worked in this world, you knew everything about that middle-class mom. There were only a handful of shows she could and would watch and only a handful of places for her to buy the products she saw advertised there. You knew roughly what her husband’s income was. In the driveway was an American-made car. She didn’t have a credit card, and therefore she didn’t really spend beyond her means.1 She might have been worried about whether she needed a bomb shelter, but there was no



chance she had ever thought about hormones in the milk her kids drank. If you had tried to explain a vegan to her, she would have thought you were talking about a communist. More joined the middle class each year and those who aspired to join regarded that goal as achievable. In 1971, the middle class included 61 percent of Americans. Today we see only 51 percent in the middle income tiers.2 In this chapter, we’ll focus on the proportion of the population that could be called “middle class” which is: • Shrinking—taking a lot of the “mass” out of the “mass-market” many products need; • Financially drained on all fronts—leaving brands with fewer viable customers; • Fundamentally impacted by the ever-increasing number of dualincome households. In short, the middle class has changed. Many of these changes have been building for decades and have been hastened and exacerbated by the recession. Now the changes are reaching critical mass. The path of families who are struggling to get into the middle class has been made harder by the sudden removal of housing equity as a reliable road to get there. Those who are struggling to stay in the middle class are worried about what the loss of a job would do to their standing. They’re being impacted by trends in income, in household structure, in credit and debt. Even the cul-de-sac suburban living they dreamed of makes it harder to sustain their lifestyle because they have to spend more on car ownership and more time in traffic than their younger, single, city-dwelling friends. Throughout the rest of the book we’ll talk about narrower segments like the aging, the affluent, the single-person households, and racial and ethnic groups and how changes in their demographics are impacting spending on such categories as health care and transportation. First, though, let’s start more broadly with a look at the changes in the middle class, which has long been the economic and spiritual heart of America. Many of the most well-known brands depend on the sheer bulk of this group and its discretionary spending prowess to fuel their growth and their very existence. The changes happening that are affecting this

the Changing Middle Class


group of consumers are fundamental and therefore fundamentally important, so we’ll start by getting a firm understanding of what’s happening to them. I’ll admit, the data doesn’t paint a pretty picture. But in times of change there is also opportunity. Some brands are adapting to the changes successfully, and we’ll take a look at those. If the scenario at the start of the chapter is what you still think of as the middle class, you’re increasingly thinking about someone like Rosemary.3 Rosemary, her husband, and their daughter live on a small residential street in a nearly rural area between Washington, D.C., and Baltimore. They have a four-bedroom home with a yard for their dog and a pair of Acuras parked in their two-car attached garage. They are the first occupants of the recent-construction home tricked out with the standard fare of granite countertops and stainless steel appliances. They recently finished the basement to add a play space for everyone—room for their daughter along with a workout room and a home office for the adults. For their daughter’s first eighteen months, Rosemary worked, but she was able to work from home part of the week, and her mother came over to watch the little one. In what is increasingly a luxury move, she then decided to stay at home full-time, but she plans to return to work once her daughter gets a little older and starts school. Your middle-class checklist looks pretty complete: two cars; nice house that’s roomy but not a mansion by any means; nice non-flashy cars; established careers; educated parents. Here’s the problem with her as an example of middle-class living: Rosemary’s income puts her well into the reaches of upper middle class. She’s not rich, but neither is she anywhere near the median. Therefore, we’ll talk more about Rosemary in the next chapter, which focuses on her bracket: the affluent. I’ve spent years studying the impacts of demographic changes on consumers. I’ve analyzed the numbers and traveled through the U.S., sitting in living rooms and kitchens talking to real people about what’s happening in their lives. As part of the research that led to this book, I tracked ten representative families who were as geographically and demographically diverse as you can imagine. But themes emerged. These days the middle class sounds a lot less like Rosemary and a lot more like these families:



“It seems like everything got more expensive. And for me, personally, I got the same pay rate that I’ve had for five, six years. So I’m being paid the same—and the gas prices aren’t helping much, either.” —Alfredo, a married father with a son in middle school and a daughter in high school, Los Angeles County, California. “We can’t really help [our daughters in college.] We just can’t afford to. So they’ve got a lot of student loans that they’ll be paying off for a long time.” —Frankie, a married mother with three daughters— one in high school, one in college, and one recent college graduate, Teton County, Montana. “I was living paycheck to paycheck with that job and so as much as a 5 percent pay cut sounds like, well, ‘it’s just 5 percent,’ it was enough of a significant difference that I was like, ‘Oh, my God.’ So I actually started working part time for a radio station so that I could make up for it.” —Liz, an unmarried Millennial, Champaign County, Illinois. “When my 18-year-old was growing up . . . there was concern about crime, but not to the extent that it is now. So I think I’m more protective of my [4-year-old]. Where we go, who she sees. Who I will let her stay with. Things like that. Just because of the way the world is changing.” —Sandra, a Gen-X single mother, East Baton Rouge Parish, Louisiana. “All our homes here where we live, it’s like, ‘Wow, what happened to our . . . investments?’” —Basha, a married empty nester, Lake County, Florida.4

If I had to sum up what separates the middle class from those classes above and below, I’d have to say it’s about lifestyle and a word marketers love and fear: discretion. The middle class has the economic flexibility to make choices, but its members understand that trade-offs must be made and are forced to consider the impacts. The affluent can make choices more freely. But more and more households have fewer and fewer options. That doesn’t mean those households are “poor.” In fact, many would be considered middle class by


the Changing Middle Class

most definitions. They’re struggling because they’ve been impacted on all sides of the financial equation: income, net worth, and debt. Now try selling them something they want, rather than something they need. The median household income in 1980 was $17,710 according to the U.S. Census Bureau’s invaluable Current Population Survey. That rose to $50,054 in 2011. But in constant dollars, income grew only $4,030 during that span. Most of that growth happened before 1999, when income peaked at $54,932 in 2011 dollars. It has fallen more or less steadily since then to today’s level. Between 2000 and 2010 the number of families earning $50,000 to $150,000 (a rough approximation of the middle and upper middle class) declined by 2.6 million households, according to my analysis of census data.5 During that time, average household income in constant dollars for all U.S. households fell about $2,500—a 4 percent drop. Added up, that’s a $292 billion drop in total consumer income. The middle-class

Figure 1.1

Change in Average Income

$350,000 Top 5% of earners Highest 20%


Second highest 20% Middle 20% $250,000

Second lowest 20% Lowest 20%





$0 Year








Source: U.S. Census Bureau, figures in 2011 dollars


BUYographics is a smart, engaging read that will be important for every marketer to consider before creating a successful campaign Author Matt Carmichael has been tracking demographic shifts for years, and in BUYographics he provides a data-rich look at the changing American consumer. This book follows ten families in ten representative counties across the US to examine their lives and how the decisions they make impact consumer behavior. This is not just a data book because in the end each of those numbers is a person, and as you read their stories the trends come to life and give you a greater understanding of how to reach your target. Carmichael focuses on the top ten trends that are reshaping the consumer landscape and impacting buying behavior and the economic outlook of the world’s most important market. For each trend he provides ethnographic research from the families, stats from the leading consumer data sources, and exclusive interviews and examples from marketers, agencies, and media executives. These trends show how America is aging, growing more diverse ethnically, and becoming more polarized economically.

Endorsements: “The trends remaking the way we live and work in cities are powerfully reshaping what we buy and how we consume. Matt Carmichael gets it. Read BUYographics and you will too.”—Richard Florida, senior editor of the Atlantic and bestselling author of The Rise of The Creative Class “BUYographics is a combination of big data insights grounded in demographic realities. This book sets a new standard for understanding consumers and their relationships to brands and each other.” —Michael Lazerow, CMO, Salesforce Marketing Cloud, CEO/Founder: Buddy Media

BUYographics will be available wherever books are sold on November 12, 2013. To learn more about the book, please visit the author’s website


Matt Carmichael


Matt Carmichael