Posted: November 28th, 2011 | Author: Joe | Filed under: Economy | Tags: Economy, news, Wealth, Wealth gap | 1 Comment »
According to a recent “news” article on CNNMoney.com, Old Americans are 47 times richer than young .
Is this social injustice?
Is this even a news story?
It seems from the article that the writer wants to at least give the implication that this portends something inherently unfair:
“According to analysis by the Pew Research Center released Monday, younger Americans have been left behind as the oldest generation has seen wealth surge since the mid-1980s”
Just look at some of the statistics on these greedy elderly people:
- Households headed by adults younger than 35 had a median net worth of $3,662 in 2009.
- Households headed by adults ages 65 years and older had a median of $170,494 in 2009.
- The net worth in the less than 35 age bracket declined 68% since 1984.
- The net worth in the 65 and older bracket increased 42% in the same time frame.
Is this really a story?
CNNMoney is comparing 2 separate things at the same time and getting them muddled.
First, instead of pitting the two age groups against each other, it should serve as an example of how the American dream is still achievable – you can be better off tomorrow than you are today! People, on average, tend to be better off financially as they move through life. This is a good thing. They accumulate more assets and less liabilities – their net worth improves. Comparing younger and older people in this sense is like saying that older Americans are less young than younger Americans. it may be true, but it’s a pointless comparison.
Secondly, comparing these segments to similar segments from 1984 is wildly inaccurate. Here’s why:
- The economy in 1984 was on an upswing after the brutal recession of 1980-82, while the economy in 2009 was still in the midst of the Great Recession.
- Housing prices were hardest hit in the 2008-2009 recession. Most homeowners in the under 35 age set had recently purchased their homes at high prices and had very little or no equity, in contrast to the over 65 age set who had held homes for longer (on average) and not lost as much equity. This skews the net worth towards the older set.
- Simple demographics are different. People are working and living longer in 2009 than they were in 1984, giving them longer to accumulate more worth.
- Children were deferring there entrance to the workforce longer in 2009 than they did in 1984, staying in school longer and accumulating student loan and credit card debt when they would have been earning a salary and likely saving some money or buying assets like houses.
Maybe I’m cynical, but it seems like this CNNMoney piece is just meant to contribute to the sense of class warfare out there and lead people to assume this ” 47-to-one wealth gap” is the result of unfair tax policies, or greed, or Halliburton or whatever. Then again, maybe it’s just a poorly written, minimally researched piece to fill some deadline for the writer.
Judging by some of the comments on the original article, quite a few are taking the story as a justification for class envy, which is just a sad state of affairs.
What say you?
Related Posts:
Posted: August 3rd, 2011 | Author: Joe | Filed under: Economy | Tags: Debt, Economy, Recession, Wealth | 1 Comment »
The Great Recession is the most racist recession in generations!
At least that’s the implication in the CNN Money story titled: Recession worsens racial wealth gap
It all revolves around the “wealth gap.” There’s been much chatter about the gap between rich and poor since 2008, and the writers of this CNNMoney story (and others) seem to think the gap is due to race.
Can a recession be racist? Is the wealth gap really race based?
Here’s the breakdown of the effects of the recession along “race lines”…
The wealth gap (2009).
The story relies on data from a 2009 study by the Pew Research Center, which found that:
“[T]he median wealth of white households was 20 times that of black households and 18 times that of Hispanic households.”
The study defines household wealth as:
“the sum of a family’s assets minus the sum of its debts.”
Assets include:
- homes
- cars
- savings accounts
- financial investments
Debts include:
I’m not sure what they group into “other things”. Presumably other debt?
Regardless, the study found that while the Great Recession hammered just about everyone’s wealth, the gap between white households and black or Hispanic households is the widest it has been since 1984, when the government began publishing such data by ethnicity.
The AP puts it differently:
“The recession and uneven recovery have erased decades of minority gains, leaving whites on average with 20 times the net worth of blacks and 18 times that of Hispanics, according to an analysis of new Census data.”
The wealth of blacks vs. whites.
The Pew study uses the data from the Census Bureau to highlight the disproportionate effect of the housing market on blacks and Hispanics.
The study acknowledges that:
“The wealth of white households in America has always been greater than black and Hispanic households. But the recession widened the gap significantly”
Why would the recession widen the gap significantly? That implies that those at the bottom fell farther or those at the top rose greater or a combination of both?
Remember that talk above about an “uneven recovery”?
Why it isn’t a race thing.
Dig a little deep and you start to see inklings that even the AP and CNN know that this is not a race-based issue:
“the wealth of white households has probably benefited from the rise in stock prices over the last few years, since a much higher share of whites own stocks.”
If this were really due to race, then we’d be seeing ads from ETrade, Scott Trade, Fidelity, etc.. stating things like:
“$7 online trades*”
* Whites only
or using phrases like
“Minorities need not apply”
Since this is clearly not happening, I submit a better use of the Pew and media’s time and energy would be to conduct a study analyzing the wealth gap in terms of general education and financial education.
Outright racial discrimination is simply not legal, and not present in the majority of the U.S. any longer. Certainly not to the extent that would be necessary to “keep minorities down” in the wealth gap on purpose.
The real problem with these kinds of reports and studies is that it allows people to remain distracted by issues that are no longer real (i.e. racial discrimination) at the expense of ignore real causes of the problem like education and general financial savvy.
I may be going out on a limb here, but I think that most blacks don’t invest in the stock market because they simply don’t hear family members or community leaders talking about assets and investing and building wealth. They get no exposure to that. Instead, they hear about racial discrimination and how white people want to keep them down, all while they can’t do it alone and need a government program to do it for them.
Nobody ever got wealthy living on public assistance.
Further evidence
The study goes on to make the following points:
- The main asset of minorities is their home
- older whites are more likely to have 401(k) retirement accounts or other stock holdings.
If your biggest asset was your home, then you’re definitely at the lower end of the wealth scale after the historic housing bubble burst. But is that a racial thing?
The AP article points to the “uneven recovery” as the culprit to the wealth gap being so large this time around:
“What’s pushing the wealth of whites is the rebound in the stock market and corporate savings, while younger Hispanics and African-Americans who bought homes in the last decade… are seeing big declines”
Also according to the study, Hispanics are more likely to be employed in the construction industry and more likely to live and buy homes in states such as California, Florida, Nevada and Arizona – each at the forefront of the real estate bubble.
Again, is that a race thing? Is there a law stipulating that Hispanics can only go into construction?
The media and government policy wonks are now lamenting that this pushes our country further into “what the Kerner Commission characterized as ‘two societies, separate and unequal,’”
Focusing on race does nothing but perpetuate this. Instead, we should focus on introducing concepts of personal finance to more minorities. Educate them instead of indoctrinate them into believing that they need a government handout to survive.
Related Posts:
Posted: December 19th, 2009 | Author: Joe | Filed under: Debt, Reviews | Tags: Building Wealth, Debt, Rich, Thomas J. Stanley, Wealth | 2 Comments »
I just read an interesting interview with Thomas J. Stanley, Ph.D from bankrate.com, and I thought I share some of the highlights with you.
The interview is based around Dr. Stanley’s new book Stop Acting Rich: …And Start Living Like A Real Millionaire
, and he discusses some more commonalities between the rich and how it sets them apart from the rest of the population.
Here are some of the interesting points Dr. Stanley raised in the interview.
1. The rich are very frugal.
Many of “the rich” had parents that were not only frugal, but well disciplined. This makes a lot of sense since discipline is required to succeed in anything at life, aside from simply getting lucky like winning the lottery.
2. Most millionaires today came from middle-class backgrounds.
They don’t come from affluent families, and they didn’t inherit their wealth. In fact, Dr. Stanley’s research shows that most came from comfortable, middle class families. They say they never felt embarrassed by their home or where they lived growing up. But they did have that uniquely American socioeconomic mobility that allows not only opportunity to become wealthy, but the siren call to hyper consume.
3. Resisting the call.
The nut of the interview, if not the book itself, is that the rich eschew conspicuous consumption. While they grew up in an environment that lends itself to consumption of luxury goods and “prestige products”, the rich simply didn’t partake. Instead, they simple live below their income.
4. Occupation matters.
What you do apparently matters more than simply determining your income. Many of today’s rich spend their time pursuing careers that have little to do with accumulating wealth. Contrary to populist screeds in much of the media today, the rich are not wall street bankers, investors or lawyers, but rather educators, engineers, business owners and retail store managers who “have a tendency to live below their means and to be quite efficient in transforming their income into wealth.”
5. Home is where you hang your hat, not an investment.
Most of the rich today don’t live in million dollar homes. In fact, there are 1,138,070 millionaire households who live in homes valued at less than $300,000, while only 403,211 who live in homes valued at $1 million or more.
6. Just who are “The top 1%”
The top 1% makes for a nice sound byte during political campaigns, but just who does that include? Stanley refers to the top 1% as “The glittering rich.” This demographic has an income of at least 7 figures and a net worth of 8 figures or more. They are extremely rich, and as Dr Stanley’s name for them suggests, they spend like it too.
Interestingly, even the “glittering rich” spend below their means. Of course, this might be because their means are so ridiculously large they have a hard time living outside those means. But, that doesn’t stop suddenly rich celebrities and lottery winners who blow through 7 figures in a matter of months, so I guess the moral is that if you earn it, you’re more likely to keep it.
7. Meet the income statement affluent.
Beside the glittering rich, Stanley profiles what he calls the “income statement affluent.” This demographic is made up of people with high incomes, but relatively low level net worth. They’re not as effective at transforming their income into wealth. This category includes a lot of physicians, attorneys and executives. The income statement affluent tend to be driven toward hyper consumption and the need to show off their high social status.
8. Meet the balance sheet affluent.
The balance sheet affluent have more modest incomes, but relatively large net worth. Stanley found that farmers are in large concentration in the balance sheet affluent. Other members of this group include educators, engineers, and small businesses owners. The balance sheet affluent are very effective at transforming their incomes into wealth – they accumulate assets while others accumulate liabilities.
9. Meet the aspirationals.
I couldn’t say it better myself, so here’s a direct quote from the interview regarding “aspirationals”:
“in sheer numbers, the largest consumer segment for pricey cars, vodkas and homes is not the millionaire population, it is the aspirationals. These are people who think they are acting rich via their adoption of prestige brands, but in most cases they are only acting like each other.”
They take their cues from Hollywood and the advertising industry. The problem is that most aspirationals know few, if any, really wealthy to emulate.”
10. How to become the frugal rich.
It should come as no surprise, certainly at this point, that the single biggest factor to becoming rich in America is to live below your means. Here is the minimal target savings rate for a typical family by age, According to Dr. Stanley:
- 30′s – 5% of their annual income
- 40′s – 10% of their annual income
- 50′s – 20% of their annual income
Sadly, most Americans are far below these figures. Probably because most are aspirationals?
Part of living below your means is owning a home you can afford. Beside the monetary reward to doing so, there’s a psychological benefit to owning an affordable home – “a highly significant correlation between satisfaction in life and living in a home and neighborhood which are easily affordable.”
Stanley’s rule of thumb for house price is that it should be less than 3 times your total household realized income, also never take a mortgage that’s more than 2 times your total household annual income.
Those would have seemed like laughable rules a few years ago, but they’re sounding much more sensible these days even if you aren’t trying to become a millionaire.
You can read the full interview with Thomas J. Stanley here.
Related Posts:
What others are saying