The Rise of The Thrift Class

In just one generation, the fundamental economic landscape of the American population has shifted dramatically. Half our society now earns less than $40,000 annually, and has less than $500 in savings. A once-broad and welcoming “Middle Class” has been replaced by these dramatic new stratifications:

01

The “Top 1%,” has substantial growth in annual income and financial asset appreciation. They own 40%of the country’s wealth.
02

The “Next 19%,” has modest growth in annual income (+2.1% year on year long term), but has meaningful financial assets that appreciate, creating a positive velocity in the group’s sense of wealth.
03

A “Bottom 10%” that cannot survive without government assistance. It’s not just that their income is low. It’s also that their income is very volatile; it fluctuates 30–40% from one month to the next.
04

A new “Thrift Class” comprises the rest of the 70% of society, living for the most part paycheck to paycheck, looking for bargains, careful with their money. Annual income growth for their labor is only 1.3% long term.

The emergence of the Thrift Class deserves a close look. As America has rapidly changed around them, this group hasn’t remained still. They have adapted at speed to the new constraints and opportunities in the economy.

The biggest generational change affecting the Thrift Class is a job market that would have been unrecognizable a generation ago. There has been a growth of low-paying jobs, and a disappearance of mid-paying jobs. It’s a hollowing-out of the workforce, even though “employment” is officially high.

This is a 40-year trend that is picking up significant speed. We are moving from an era where automation mostly displaced manufacturing to an era where automation displaces service jobs. To the extent the service work can be replaced with automated software—such as chatbot customer help—rather than an expensive robot, displacement of service workers will be even more rapid.

How is the Thrift Class Getting By?

We have been studying, monitoring, and modeling this phenomenon for several years. And we think it’s highly important to get familiar with how the fast-growing thrift class lives and thinks. The most common misconception here: assuming that having very modest income from part-time work and gig labor necessarily leads to a society where 70% of the population feels poor. They don’t.

The news is actually hopeful. The thrift class is not only getting by but thriving in many ways. They’re particularly vulnerable to any sort of financial hardship, like an unexpected medical bill, but they are pioneering new ways to get by on the cheap. It’s self-fulfilling; the more of them there are, the more they create demand for the good life at the price they can pay.

Turns out, you don’t need a lot of money to live “the good life.” Thanks to advances in technology and manufacturing, $40,000 a year has never stretched so far.

There are more than 20 retailers who compete at IKEA prices. You can outfit a living room or bedroom for less than ever. Rather than spending $4,000 on a Tempur-Pedic, you can spend $400 on a Night Therapy. Rather than spending $20 on eyebrow products from Anastasia Beverly Hills or Stila Cosmetics, you can go to the drugstore and buy E.L.F. for $4—and it’s nearly as good. A mens suit at Topman is 5-10x cheaper than high-end department stores, and H&M is 2x cheaper than Topman. The most highly rated treadmill on Amazon costs only $159.

The quiet rejection of overconsumption helps power the sharing economy. Short on cash? There are 38 different startup platforms for “peers” to lend each other money. Thirty-seven to help them get chores done. Thirty-six that help people share cars. Thirty-two to help them find a room with roommates. Thirty to help them sell used stuff. Twenty to borrow stuff you don’t want to buy. Thirteen to lend you a boat. Six to share bicycles.

Treat-yourself behaviors still exist among the thrift class. Don’t read frugal as cheap. The thrift class may be cautious with their purchases, researching them extensively. But if they decide that a more expensive option is the best solution, that’s the decision they will make. Millennials want value for their hard-earned money. They’re trending towards splurging on “self-care” treats and experiences as opposed to products. Products connected to experiences (a new snowboard) have an advantage with this trend. They are selectively affluent.

Technology and Entertainment

Similarly, entertainment now comes in digital form and has never been cheaper. YouTube and Instagram are free. No wonder the kids are on them all the time. Podcasts are also free. Sixty-eight million Americans listen to podcasts—it’s a far bigger phenomenon than most realize. A family Spotify Premium account is $15, or $4–5 per person, for unlimited listening to an infinite universe of songs. With a Netflix account, expanding from two screens to four screens is just $5 per screen. That’s $5 a month for all the movies and television shows you can binge.

Video games—and specifically “battle royale” games—are the epitome of this cheap but fun phenomenon, with an important twist. Fortnite is free to download, and easy to learn. That creates a huge funnel into the game. Or you can buy it outright for $42-$59, and, either way, play for thousands of hours with friends.

Though microtransactions can provide a sneaky way to suck cash out of players’ accounts, the gamer community has banded together to assert itself and fight back. When Electronic Arts layered microtransactions into Star Wars Battlefront II, outrage ensued, so much so that EA lost $3.1 billion in stock market valuation.

Video games are increasingly where young people, competing on teams, feel valued, trusted, and relied upon by others. Which is pretty hard to compete with. It’s meeting important psychological needs that can’t be fulfilled by working at gig jobs or service jobs.

According to Andrew Yang, author of The War on Normal People, and dark-horse candidate for US president, most young men who have left the workforce now spend 75% of those labor hours playing video games.

New platforms emerged for real-time, spontaneous togetherness. While parents saw nothing but vacuous giggles in the new generation of apps, Gen Z would tell you, if anyone bothered to listen—“Sure, but this is also where I learn the most important things about my friends.”

Can online networks really replace local community?

Beware the bias that somehow “local communities” were working for everyone and meeting all these important psychological needs of “togetherness.” No matter how far back you gaze in time, you see both that and its antithesis. In truth, geography created walls.

Incumbent societal and industry structures effectively (and deliberately) kept marginalized groups isolated from each other. Segregation made them weaker.

Social and mobile technology allowed members of disadvantaged populations to finally “see” each other despite those inertial structures, and to form communities of identity and shared interest. The punching power of these communities surprised even their originators—and caught the guardians of the incumbency completely flat-footed.

Living and Working in an A-la Carte Economy

With fewer options to pursue a traditional career, gig-work and part-time work present a tradeoff that many are happy to take. Individuals gain more control over when and where they work, and how long they work. It allows them to prioritize important personal events and then work around those events. In San Francisco, restaurants are having a hard time finding staff, even though, by law, all restaurant workers get full benefits—because young workers prefer the time-flexibility of driving for Uber and Lyft.

The generation who had their jobs unbundled into discrete hourly gigs demanded the same from brands and services. News was unbundled by aggregators. Music was unbundled by YouTube. Cable television had to break up their 500 channel packages into mini-bundles for a third of the price. In sports, season tickets were unbundled by secondary markets — 50% of sales are now in the last 48 hours. Everywhere, the thrift class is being more selective, more focused, in where they put their time, their hearts, and their money.

Less Materialism, More Meaning

Far fewer people are getting life meaning from work, so they seek a sense of living out their values and mission. People crave agency, a way to make a difference on their own. Increasingly they’re realizing that despite living on less, they have more agency than ever—in where they spend their money.

Unable to feel like they are enacting change at the ballot box, and unable to feel like they are enacting change through work, the dollars they spend become their agent of change.

“Wallet activism” or “conscious consumption” will increase in intensity; what a brand stands for will become a bigger and bigger reason to buy them.

Back when he was at Bain, before he started Uprising, Tabreez Verjee analyzed the 7,061 companies in the portfolios of the top 100 venture firms. He found that “mission-driven” companies had an average of 21% more revenue per employee, and averaged 150% revenue growth. They had 3.7x more social media followers, and a sentiment algorithm calculated they had a 20% more positive fanbase. They are able to recruit the best talent, because of the psychic income they offer employees. Labels like “social entrepreneurship” and “triple-bottom-line” almost do a disservice to what’s happening, as if there is a simple formula for conversion to “mission driven” that any firm can follow.

The thrift class is facing a general decline of social structures (family, kinship networks, traditional social organizations and clubs). But they are far from lost in this new world. They have invested in and relied on friendship groups—their urban tribes. They have adapted to a new economy and pioneered new forms of social engagement both on and off line. They may not only be showing us how to survive in the new economy, but teaching us meaningful lessons in how to live a good life in a postmodern world.

Edited by Ethan Watters