Graham Stephan: Why the Middle Class Is Disappearing
Written by
Laura Beck
Edited by
Daria Uhlig
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With over 4.5 million YouTube subscribers, Graham Stephan has become one of the most influential personal finance experts for millennials. As a prolific investor, Stephan analyzes socioeconomic trends from the perspective of someone who wants to help others achieve financial success.
Though only in his early 30s, his investing advice comes from years of hands-on experience. Known for his candid advice and real estate investing prowess, Stephan examines why the middle class is dwindling in America.
The Golden Age of Middle Class Prosperity
According to Stephan, after World War II, the middle class prospered. As he stated, “This meant that it was entirely possible for 70% of American families to comfortably survive on one salary, 50% to own their own home and 50% to own a car, pay for the children’s tuition and save enough to eventually retire with the help of employer pensions.”
Factors That Started the Decline
Examining reasons for the middle class decline, Stephan pointed to the 1970s gas crisis, which “drove up the cost of living.” He also cited American muscle cars being “frequently replaced with European and Japanese cars because they were more efficient.” Finally, he stated that “we saw the emergence of two income households which provided an escape hatch that prolonged the American dream for another generation.”
How Tax Policy Widened the Wealth Gap
According to Stephan, tax policy strongly contributed to the widening disparity between the middle class and upper class. As he explained, “If you’re working a normal job with a set schedule and a specific salary, you’re getting paid as a W2 employee … You get paid, pay tax and then spend whatever’s left over. However, if you’re self-employed or you run your own business … you’re going to be operating with self-employment income,” which allows you to utilize far more deductions than are available to W-2 employees.
Debating Whether the Middle Class Is Shrinking
Stephan noted contradictory data showing the middle class growing due to government assistance, with some arguing people are moving up more than down. However, in his view, “I don’t think it’s so much of an income gap that’s contributing to the inequality of wealth but instead an investment gap.” He believes lower rates help the rich first, while inflation erodes wages for the middle class.
Steps to Improve Your Financial Position
To build wealth, Stephan advised, “Understand that your credit score is everything … If you’re not already working to improve your score, begin working on this right now.” He also recommended consistent long-term investing, stating, “If there’s anything that rich people are good at, it’s investing, often during a time where other people won’t or are too scared.”
To break it down even further, Stephan suggested:
- Improving credit score for better loan rates
- Saving money so it’s available to invest when opportunities arise
- Investing consistently for long-term growth
- Avoiding emotional decisions and short-term views
With reasoned insights on factors driving the shrinking middle class, Stephan aims to help Americans take control of their financial futures. As he stated, “There’s now a greater likelihood of moving up into a higher income bracket than at any other point in history.”
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