The Census Bureau announced Wednesday that median household income in the United States had fallen to $50,054, the lowest since 1996 and down 1.5 percent from 2010.
The announcement was the latest in a series of indicators that shows American households are making less than they have in the past. Median household income is defined as the dividing line for U.S. incomes—half of Americans make more than the median, while half make less.
The drop will also have an impact on politics. Republicans will use it to sell the idea that President Barack Obama isn't doing enough to improve the economy. And in an election that is focused on the economy, it's likely that median income, along with other terms like "middle class," "low income," and "the wealthy" will be used to convince Americans to vote a specific way.
But according to experts and a large body of research, many Americans aren't aware of which one of these categories they fall into. Many believe they are better or worse off than they actually are, and have misconceptions about how other classes live. These misconceptions can lead people to vote against their economic interests, and often perpetuate policies that make it nearly impossible to climb the economic ladder.
"People form beliefs based upon the data they gather informally, and do not have the benefit of looking at a random selection of the population," says W. Bentley MacLeod, an economic professor at Columbia University. "The real issue is whether it matters or not. That depends a bit upon whether or not people feel they have the power to change their lives."
Understanding poverty, the middle class, and the upper class. According to the Census Bureau, 46.2 million people—about 15 percent of the U.S. population—currently live below the poverty line, or the income level needed to make a bare-essentials living in the United States. This figure depends on a number of factors, but is currently calculated to be an annual income of $23,050 for a family of four.
The next level of income is the middle class, a broad category that captures the vast majority of Americans. It's also controversial: Scholars and studies define sections of the middle class differently. But there are similarities between nearly all classifications.
The working class falls at the lowest end of the middle-class spectrum. These workers are employed in blue-collar industries or are paid by the hour. They typically have lower levels of education.
Next is the lower-middle class, which is primarily comprised of lower-level, white-collar workers. These workers typically have college educations, but lack the graduate degrees needed to advance to higher levels of employment. Income for these workers generally falls between $32,500 and $60,000.
Upper-middle-class workers typically have post-graduate degrees and work at high-level, white-collar positions. Household income for these workers is often above $100,000. According to the Census bureau, upper-middle-class, or professional class workers, earn enough to be in the top one-third of American incomes.
The next income level is what is commonly called the "5 percent," or the percentage of Americans who make more than $150,000 annually. At the top of the economic ladder is the so-called "1 percent," or households that earn more than $250,000 annually.
Perception vs. reality. According to Robert Gordon, a social sciences professor in Northwestern University's economic department, few people are truly aware of their place in the economic hierarchy.
"People have only a vague idea of their income, based primarily on their income-tax returns, if they are filers," he says. "If they are not filers, they are in a large lower group that has only a vague idea of what their income is."
Gordon adds that lifestyles can also be deceptive in understanding economic class. "A large majority of Americans live in the outer fringes of cities, suburbs, and exurbs. Theirs is a life of low density and backyard barbecues. Many more people today compared to five years ago are having trouble paying the mortgage on this lifestyle, but it doesn't change their feeling that they are living a middle-class lifestyle," he says.