Saturday, January 30, 2010

Class definitions

For some reason I was thinking about the "middle class", and wondered what a good working definition of this group of people was. I have checked a few places, such as wiki, and it seems to be a bit of a grey area on how you define this. So here is the definition I came up with

Working Class - Need to work (obviously), and if their assets were all converted to cash, would still be in debt, or have so few assets that they are basically living hand to mouth (renting and less than 1 paychech in the bank). It is likely that they will need the full term of any debt to pay it off, causing also the repayment of about twice the initial value of the debt. They are most likely to slip off into bankruptcy as the become unable to replay debt. "Destitute" should probably be a class all of it's own, under working class.

Middle Class - Also need to work, but if their assets were all converted to cash, would not be in debt. This doesn't mean that they don't have loans - they almost all do - but on balance they have more assets than debt. For example, John and Sue might have a mortgage for $200K, and a car load for $30K, but the house is worth $600K, so they are net positive if they had to sell everything. These people are still susceptible to cash flow problems - such as losing a job, but on the whole are more secure financially. They are also likely to have superannuation and possibly other investements which they hope will advance in value so that they can retire or move to Upper class. Possibly the "upper middle" class have no debt, but not enough capital to give up work. The danger for someone in middle class is if they aquire the taste for the upper class lifestyle, and use debt to live it - which they can for a while - then it's back to Working class for them. Similarly, if that house is revalued in a falling market to $150K then John and Sue are redefined as being in the working class (and are "underwater"). This is happening on a grand scale in America at the moment.

Upper Class - do not need to work, but mostly do anyway. These people like money, know how to play various corporate games, and investments and enjoy the status of having wealth. On this basis, they continue to accumulate it. However, they do not have to as they could easily live off their wealth instead, and retire, to a modest lifestyle. These people do sometimes bet "the farm" on various investments and can be sent all the way back to working class if bets go bad, but that's often the "new money" that does this. The old money is more careful, I think. These people go into debt, but only as a tool to make more money - they never let the interest repayments suck the lifeblood out of them like the other classes do (particularly working class). They enter into agreements which can be paraphrased as "heads I win, tails you lose". These people often re-write the rules of the game so that things are very much in their favour.

Well, that was my way of splitting up the classes. I think it works.

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