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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: GST who wrote (78261)	2/20/2007 4:17:37 PM
From: GraceZ	Read Replies (2) \| Respond to of 110194

Half the US population have a total of 2.8 percent of the wealth in America -- as per Table 9. If this is true, then half of America basically does not have a net worth. For them to know that the top 10% are having the time of thier lives is small consolation. You are measuring their net worth according to your own. Like my much wealthier sister's comments to me that my first house purchase was a "car". It was a car to her, a house to me. I recall a comment one of my clients made to me. She was feeling pretty good about her 2 million in savings until she read some financial guy who said you need 10 million to retire! It's all relative. You also make another glaring error, you assume that net worth is bounded somehow on the downside. It is skewed somewhat (with a very long low right side tail and much shorter fatter left side tail) because it is difficult but not impossible to have a seriously negative net worth (although people like Trump tested that hypothesis) but the upside is almost unbounded. Still one can take the median and see that a large majority of American households fit in the peak of the distribution bell curve (that is what forms the bell) and each standard deviation away from that median is well within what we would see as "middle class". The death of the middle class is greatly exaggerated for political gain. If you are well off does it make you miserable knowing that someone else is so rich that it makes your riches appear puny in comparison? All I can say, if that is the case you only have to read a few rags to riches stories to see that huge amounts of money tend to bring misery and suffering to most people. How miserable you are being broke depends where you are in life. Most people who borrow for a college education graduate from college with a negative net worth (I did). I can assure you they don't see themselves as desperately poor simply because they are just about to enter into their most productive and highest earning years. Myself and my contemporaries had lean years while we were building up our businesses and getting started in our careers but most of us entered into the upper top two quintiles for income and net worth by the time we reached our mid thirties and forties. Now in our 50s we're flattening out and some people's incomes are declining. This is to be expected. Almost every rich person I have met, and I've met quite a few, was at one time flat busted. Now OTOH the 50% of Americans that retire with no other income than SS payments are in a bad way. Although both my father and my mother (separitely) were able to amass some small amount of cash savings and buy a house with no other income but SS for the last 25 years of their lives before they died. You have to wonder how it is that people can go through an entire lifetime without accumulating any savings in a country where it is so easy in which to do so. When you take a look under the stats you see that the greatest majority of people who retire without income producing assets are women who had reduced lifetime earnings due to child rearing and shorter or interrupted work histories. The high divorce rate in the US and subsequent re-marriage by their ex-husbands (having second and third families) leaves many older women with a much lower share of family lifetime savings. The perennially poor are overwhelmingly single elderly or single heads of households with young children, typically people who rent housing and borrow little in comparison to their wealthier counterparts. They aren't double income yuppies who borrowed up the whazoo to live in a big house who spend 15k a month on credit cards. I've done enough net worth statements for people all up and down the income scales to back up that assessment. The rich borrow more than the poor and they borrow for different reasons. Now some double income household borrowing for that first house might dip into negative net worth territory and some will stay there and eventually have that debt discharged in BK, but most will go on to accumulate a nice chunk of change if they are accurate in assessing their future incomes properly. In the last seven years (or 30 for that matter) it would have been difficult to impossible for a saver to rent and invest the difference, beating the person who borrowed and bought a house. You could have done it in the 90s, but that decade was unusual with out-sized stock returns and flat RE returns. I've lost track of the number of clients I advised not to max out their home buying, to live within their means, who disregarded my advice and have zoomed past me and my husband with our much more conservative borrowing habits.