Do you live a 'comfortable' life? Many consumers say they don't.

What does it mean to live a "normal, comfortable" life?

That depends, as the idea has been changing for American consumers, and is particularly in flux as the economy grows, but many don't feel like they're benefitting, according to a new report by the Kearney Consumer Institute.

"People are saying 'I keep hearing that the economy is doing well, but I don't feel that,'" Katie Thomas, who leads the internal think tank at Kearney, told USA TODAY. Thomas' new report is "Hidden dimensions of the K-shaped economy."

As inflation persists and hiring slows, lower-income consumers are splurging selectively while cutting down on essentials, and high earners are trading down in groceries while splurging on experiences, Thomas said. Consumers are also forgoing long-term plans for short-term goals.

"There's a lot of these major expectations of a traditional middle-class life that are just really being questioned," Thomas said.

"They're not saving for a house, they're going on a vacation," she said. "Some people are questioning whether they can afford to have kids or whether it's really worth it to try to buy a home."

What is the K-shaped economy?

The K-shaped economy has been a term and concept to explain the gap between affluent consumers and those who are struggling financially. It describes the economy as the letter K.

The top diagonal or upper arm of the "K" represents the more affluent, and the leg of the K represents lower-income individuals. The model was developed in 2020 to describe the growing divergence among consumers post-COVID-19.

Thomas said the K-economy has been discussed a lot, but the concept is not as simple as people at the top of the K doing well and people at the bottom struggling.

Consumers are reporting in the latest Kearney Consumer Stress Index that there is surprising fragility at the top of the K and resilience at the bottom, Thomas said.

The global strategy and management consulting firm surveyed 24,000 consumers globally and 2,000 in the United States for its latest quarterly report.

Additionally, the K-economy analytics tend to create "an 'average' consumer who does not, in fact, actually exist," the report said. "This helps explain why, at a time when consumer sentiment is low, spending can appear healthy."

Higher income earners may be 'on thin ice'

About 50% to 60% of the country would be what's considered in the traditional middle class, said Thomas, but one circumstance, like a new job or a job loss, could change their financial situations. Those consumers are on both legs of the K, she said.

Dangling perilously close to the middle or upper leg of the K are people who "are on thin ice," or high earners whose lack of budgeting and spending has them overleveraged and exposed.

"They look good on paper, but they're still exposed to any type of financial swing, or they're very illiquid," Thomas said.

Those consumers may also struggle with "lifestyle creep," said Thomas, referring to the idea that with higher earnings comes higher spending while savings suffer.

They may also be living in a high-cost-of-living area or may be more exposed to that one financial issue that will cause them to fall through the ice, Thomas said.

"Don't assume the top of the K is just completely insulated and resilient," Thomas said.

Consumers at the bottom of the K can also move up

Thomas doesn't like the concept of the two arms of the "K" as being "the haves versus the have-nots" because she doesn't think that is accurate.

In particular, Thomas said middle-class consumers whose income would put them on the bottom leg of the K are what she calls "comfortable" in her report.

But those people may be mobile and "with one good job or one good real estate sale" would move to the top section of the K, becoming what is deemed to be affluent, she said. A lot of those consumers may also have financial help or live within their means and are not as subject to "lifestyle creep," or they may live in a lower cost-of-living area, said Thomas.

What does it mean to be comfortable?

A "comfortable life" in the United States has also changed over time, said Thomas. For many consumers, the "normal, comfortable life" has ballooned in expectation and costs, from average house size to food costs and the number of new pieces of clothing purchased yearly, she said. Even the types of vacations people take have changed, according to the report.

Many consumers want a bigger average house than decades ago (with fewer people living in it) and need to decorate it a certain way after seeing things on social media. There is more technology we are expected to have and people even have more clothes, said Thomas.

"I've talked to men who said going to business casual totally expanded the amount of clothes they have in their closet because they're not wearing the same couple of suits and the single pair of shoes," Thomas said.

How is the middle class different now?

The concept of the K economy is not new and there has always been a growing wealth gap as the middle class has been declining, Thomas said.

But companies are "oversimplifying" how they are looking at consumers and what they want in their products, Thomas said. Companies used to be able to have a good, better, best model of pricing. But that model no longer works, Thomas said, because consumers are shopping across all tiers.

"You could be at the top of the K and happy to shop at Aldi" to save money, or a consumer considered on the bottom of the K and comfortable can still afford a European or Disney vacation, she said.

Betty Lin-Fisher is a consumer reporter for USA TODAY. Reach her at [email protected] or follow her on X, Facebook, or Instagram @blinfisher and @blinfisher.bsky.social on Bluesky. Sign up for our free The Daily Money newsletter, which breaks down complex consumer and financial news. Subscribe here.