According to a study conducted by the Swedbank Institute of Finances, 40% of the population classifies themselves as the so-called middle class, while 42% are below the middle class, but not poor, but almost 13% of their households rate themselves as poor. Only a small part of society or 1.3% consider themselves wealthy or above the middle class.
Respondents who are married or living with a partner, are children, earn a medium or medium-high income and have a higher education often count themselves among the middle class.
If we evaluate the trend in recent years, it can be seen that the number of households that classify themselves as middle class or wealthy is gradually decreasing in Latvia since 2019 (by four percentage points), while the poor – by more (by three percentage points).
Compared to neighbouring countries, there is more optimism among the population in Estonia, where the majority or 55% of the population see themselves as belonging to the middle class or wealthy. Meanwhile, in Lithuania, this proportion is even higher and reaches 58%.
Evija Kropa, expert of Swedbank Institute of Finances, comments: “The data of the study show that the daily challenges in the financial sphere of the population in Latvia raise doubts as to whether it will be possible to ensure an equal quality of life with the existing income as before. 45% of respondents admit that they are concerned about whether they will stay in the existing group in the next two to five years. The greatest instability appears among the population that does not attribute itself to the middle class and also not to the poor. In this population, 53% of the population is concerned about financial stability.”
The income level desired by a middle-class family in Latvia is EUR 3 777
To consider yourself middle class, according to residents, income per family member must reach an average of EUR 1 259. It is significant that this amount has not changed significantly, since in 2019 the minimum monthly income per family member of the middle class was indicated as EUR 1 249.
Although it seems to be a very high level of income, compared to the opinion of residents in Lithuania and Estonia, it is still the lowest – the evaluation of income by residents in the neighbouring countries is even higher – EUR 1 479 and EUR 1 611 per family member, respectively. For example, in a household with three family members, in the opinion of residents, an income carcass would have to be at least EUR 3 777 in Latvia, EUR 4 437 in Lithuania and EUR 4 833 in Estonia in order to be called a middle class.
What can the middle class afford?
The middle class is characterized not only by the level of income alone, but also by what it is possible to do with this income and what standard of living to provide for oneself. When asking residents what would be the criteria for an additional middle class household, it is most often mentioned – owns their own real estate (87%), the ability to easily cover all mandatory monthly payments (77%), the ability to afford a week’s trip abroad at least once a year, the ability to afford additional spending (70%) after making all mandatory payments, as well as the ability to afford private and paid medical services. The least appreciated are such things as higher education (only 33% of respondents), as well as the existence of pension savings (50%).
When evaluating how residents manage to meet these criteria on their own, the biggest difficulties are with additional free monthly spending, the ability to afford paid medical services and travel abroad.
“Residents’ beliefs about belonging to the middle class are dominated by criteria related to immediate consumption, which are also more focused on achieving short-term well-being, leaving long-term financial health in the background. A middle-class household absolutely must take care of its financial stability in the future, in addition to current spending, by making savings for achieving larger goals, old age, and also creating reserves for children’s education. Since, according to residents, higher education does not play a major role in achieving the standard of living of the middle class, it also seems natural that the provision of education for children is not the main focus. However, data from the same survey show that higher education graduates are more likely to earn medium and high incomes and to count themselves as middle-class households,” notes Evija Kropa.
In order to change the situation in a more positive direction, contributing to the formation of a larger middle class in Latvian society, in the opinion of the population, it would be most important to take care of limiting and reducing the cost of living (50%), followed immediately by a reduction in labour taxes (48%) and an increase in income levels (44%). A significant proportion of respondents also point to the need to promote entrepreneurship (31%) and reduce inequalities (25%).
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