Mari-Liis Jääger, head of institute of finance at Swedbank Estonia, said 51 percent of respondents in a recent Norstat survey considered themselves to be in the lower middle class. 

"It is encouraging that the proportion of the most deprived people has decreased from 14 percent to 10 percent. However, the share of elderly people, Estonians, and women thereby has increased," said Jääger.

Six percent of respondents considered themselves to be wealthy.

"Young adults between the ages of 18 and 34 are more likely to identify as middle-class or wealthy," Jääger said, while people between the ages of 50 and 70 are more likely to regard themselves as lower middle class or poor.

Liis Elmik, senior economist at Swedbank, said the survey's findings are startling.

"Estonians appear to be highly optimistic about their life expectancy and income," she said. "People mistakenly believe that middle-class incomes are far higher than they actually are."

In the survey, respondents estimated a middle-class income to be between €1,800 and €2,400. However, the actual average income in Estonia is between €700 and 1,700.

Elmik said survey respondents estimated a middle-class family of four to have about €1,000 per month of discretionary income, the amount left after subtracting taxes and necessities.

"In reality," she said, "A family of four has three times less discretionary spending: about €300 per month."

After subtracting taxes and paying for necessities, such as food, housing, healthcare, transportation, and utilities, an Estonian middle-class family has between €50 and €125 left over.

The respondents also estimated a middle-class citizen to have at least three to six months of savings, while in reality Estonians have less in their saving accounts, Elmik said.

Seventy percent of Swedbank clients have less savings in their accounts than their monthly salary, she said, and added that "savings is a better indicator of wealth [as opposed to income]."

In addition, 81 percent of Estonians own their own home, with or without a mortgage, the report shows.

However, Elmik said, these homes are often small and in poor condition. "Many homes do not have toilets, running water, or hot water," she explained.

The importance of owning a house has increased in comparison to the results of the same poll in 2018, as property prices have risen many times faster than salaries, Swedbank analysts concluded.

The survey also revealed that people in 47 percent of Estonian households own a car.

Elmik also said that "entertainment is widely accessible," with 96 percent of families being able to afford to visit a café or restaurant at least once a month and 77 percent being able to travel abroad once a year.

Private housing was ranked as the most important distinguishing mark of the middle class by the majority of respondents.

Jääger said that individuals now place a far greater value on savings, while younger people find it important to be able to afford and repay debt.

Economist: the middle class is essential for society

Swedbank's chief economist Tõnu Mertsina said a rising middle class leads to economic development through increased consumption and investment. "A sizable and strong middle class should contribute to a more democratic and non-populist government," he said.

"The most common method to define the middle class is in terms of income," Mertsina said. "However, it is also fair to discuss what the middle class is, for instance in terms of consumption, property, and values."

Mertsina said Estonian consumers' purchasing power has increased significantly over the last decade: "Wages have increased by 85 percent, while prices have gone up by less than 40 percent."

"Even though wages are growing," Mertsina continued, "because inflation is outpacing wage growth, purchasing power has been steadily dropping since the end of last year, and this decline is now very serious."

Mertsina also said Estonia's employment rate has increased over time and is high compared to the rest of Europe, and that unemployment rates in Estonia are generally low.

The survey was conducted by the database management and market research company Norstat, who interviewed 1,100 respondents aged 15 to 74.

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