The Lithuanian middle class: are you in it?

Every third Lithuanian resident views themselves as a member of the middle class. Economists say that those earning a thousand euro per month could call themselves such.

Nevertheless, some 42% of Lithuanians currently see themselves as lower middle class, 15% – as being poo and 8% – as being in the higher middle class.

This was revealed by a Spinter Tyrimai survey commissioned by Swedbank.

“A numerous middle class reflects a country’s economic capacities – developed Western countries have middle classes comprising 50-60% of their population. The representatives of the middle class can, without great struggles, satisfy their basic needs and set aside for savings or investment every month, or dedicate more to consumption.

Even if the middle class is not as large in Lithuania, as it is in developed countries, it has growth potential because a young and educated generation is entering the job market, investment flows are on the rise and the number of middle class jobs is on the rise,” Swedbank finance institute head Jūratė Cvilikienė commented.

According to her, in Lithuania it is educated, young (18-25 years old) residents, who identify as middle class. More frequently men (37%) than women (34%). The group to least self-identify as middle class is typically those aged 56 years old or above (28%).

Lithuanian residents view those earning more than 1069 euro per month after tax as being middle class. Meanwhile the highest extent of middle class earnings is seen as 1980 euro per month after tax.

According to J. Civilkienė, representatives of the middle class are characterised not just by their incomes. Most (75%) respondents believe that the representatives of this class should own their own home and 45% believe that the representatives of this class should be able to set aside for savings.

Around a third of respondents believed that middle class representatives should have savings equivalent to 3-6 months’ worth of wages and do not have debt, bar long term commitments.

Both the results of Swedbank research and the typical definitions of the middle class show that it is defined not just by income, but also lifestyle and property. Based on two of three criteria, at least a third of Lithuanians really could be said to belong to the middle class.

“Last year almost a third of Lithuanians went on holiday abroad – this is double that compared to a decade ago. Over the past year, 43% of citizens attended cultural events – the theatre, a concert or opera and this is one of the highest metrics in the EU. Such a lifestyle is one of the indications of the middle class,” Swedbank chief economist in Lithuania Nerijus Mačiulis said.

According to him, based on the property criterion, roughly a third of Lithuanians can confidently view themselves as middle class. Around 39% of adults have a car, which is no older than 10 years old and 29% of residents have two or more thousand euro financial property – at least three average wages. An entire 90% of Lithuanians claim they live in their own home.

That said, the economist believes that a significant number of people live in low quality homes or are not content with its quality. For example, a whole 14% of residents make use of an outdoor toilet.

“Finally, based on solely the income criterion, the Lithuanian middle class is somewhat smaller. Only 14% of those in employment earn more than 1.3 thousand euro per month before tax. That said, we can be happy that the number of individuals in this income bracket has almost tripled since 2010. Considering all income, this portion would be even smaller because the incomes of those receiving pensions and other benefits do not reach the middle class margin,” N. Mačiulis commented.

According to him, nonetheless, the results, which show that 35% of Lithuanian residents view themselves as middle class, despite many not earning up to 1069 euro reveals that they value not just incomes, but property and in particular – lifestyle. Even when you earn several thousand euro per month, it is possible to misjudge one’s capacities, take up excess financial commitments and live quite poorly.

According to the economist, some 70% of citizens in Scandinavian states are seen as middle class. To make the middle class more numerous in Lithuania, it would be necessary to reduce labour taxation, attract more investment, particularly in the regions and improve education and requalification programmes.

Upcoming reforms – not for the middle class

When asked whether the upcoming tax changes, which are being hinted at, will aid in strengthening the middle class, N. Mačiulis stated, “What is currently coming out is hard to judge. One of the main changes is likely the merger of income tax and social security payments. This would mean that the untaxed income size takes on more weight – it will be applied to a larger portion of paid taxes and social security payments. As such, incomes will rise for those earning less than average.

Yes, a part of them will perhaps transition from the poverty line to middle class incomes. However, the reform is nonetheless directed not at strengthening the middle class, but reducing poverty. That is to say, the interval of people, who could be viewed as middle class is expanded, but based on income, they remain discontented, which is what the research shows.

Here we would perhaps need a very low Sodra ceiling, which would increase incomes for most earning a larger amount, not just earning the least.”