We seem to really enjoy contemplating the money and lifestyle of the top 0.01 percent. We incessantly track the incomes of hedge-fund managers, the heirs to the Wal-Mart fortune and other $100 billion families.
We are fascinated with other people’s wealth.
What about the rest of the income strata? As it turns out, there is a fascinating story there as well. It may not be as glitzy, but it is a tale of gradual improvement. So says a recent data analysis on the Global Middle Class by the Pew Research Center.
The good news is that during the first decade of the 21st century, about 700 million people were lifted out of poverty – a 14 percent reduction. The bad news is that moving into, and staying within, the global middle class is a significant challenge.
The study found that 71 percent of the global population is either poor (15 percent) or low income (56 percent). The middle class is only 13 percent of the total population. To put some hard numbers on those percentages, with a world population of 7.2 billion, about 936 million are middle class. A little more than a billion are impoverished, and more than half the world’s population, a giant 4.03 billion people, are low income.
The Pew report contains some astonishing data points: 84 percent of the world’s population, including the middle class, lives on less than $20 a day.
Pew divided the world’s population into five groups: Poor, low income, middle income, upper-middle income and high income. Less than $2 a day income is considered poor. Low income is between $2 and $10, and global middle-income is $10 to $20 a day. Income of $20 to $50 a day puts you in the upper-middle income range. More than $50 a day, or about $73,000 a year for a family of four, puts you in the global high income group.
It is noteworthy that while $10 is the lower threshold for middle-income status, it is the median daily per capita income of U.S. households living in poverty.
Let me put this into context.
Consider the 71 percent of the world’s population in the poor and low-income categories. This group devotes most of its income to basic goods and consumer staples, so it represents a huge market for your favorite companies.
Additionally, more than fourth-fifths of the world’s population live on less than $20 a day. In other words, how well these people are doing will have implications for our health care, finance, agriculture and energy industries.
Not to be too optimistic, but the economic state of the world is improving. As more people move into the middle class, they are able to buy more goods, save and invest. That creates a long-term interest in political stability and, hopefully, democratic institutions.
How well we adapt to these changes will determine how successful we in the U.S. are as investors, and as a nation.
Barry Ritholtz is a columnist for Bloomberg View.