Building Wealth

Middle Class Is Moving Up

October 22, 2017 By Twila Van Leer

“The national median household income rose to $59,039 — an increase of 3.2% from the previous year and the American middle class’ highest income level to date, beating the previous record of $58,655 in 1999 (all numbers are adjusted for inflation).” 2017 Business Insider

America’s middle class is moving up the financial ladder. But they can’t outpace the wealthiest Americans in economic growth, according to a Federal Reserve survey.

The figures show that the net worth of all American families rose 16 percent from 2013 to 2016. The median is the point at which half are above the figure and half below.

The time frame for the survey represents the recovery period after the 2008 recession. During that time, wealthy Americans saw more economic improvement than those in the middle class and whites saw more positive growth than either African-Americans or Latinos.

Two factors that have contributed to the improvement are the declining levels of unemployment and the recovery of the housing market, which has shown steady growth for the past few years.

The Survey of Consumer Finances still shows significant gaps between the middle class and the wealthy, economic gurus say. The middle tier is taking longer to recover from the recession. Those with wealth contribute more to the 16 percent improvement overall.

African-American families showed more improvement in net worth than did white families, the survey found. Median wealth for an African-American family was $17,600, up 29 percent since 2013. The increase for white families was 17 percent.

But white families enjoyed median wealth 10 times greater than for the African-Americans at $171,000. The white families also had median wealth eight times greater than Latinos. The median incomes for middle-class whites rose only 6 percent, but still easily outstripped the medians for other ethnic groups.

Median wealth for the richest 10 percent of the overall population rose by 40 percent, the survey showed, to $1.63 million, a disparity that would be hard to diminish quickly. That means that nearly 39 percent of all U.S. wealth is now held by 1 percent of the population.

The survey also divided people by where they live. City-dwellers saw median income increase by 10 percent and those outside cities just 2 percent.

Depreciating Assets Can Hurt Your Finances

November 30, 2011 By Sherry Tingley

Everyone has them— depreciating assets. What are they? Assets that lose value over time rather than gaining value. It isn’t possible, it seems, to avoid purchasing a car, major appliances and electronics. They are financial realities. However, the trick is to purchase what you need rather than what you want and to be aware up front what depreciation rates assets can have. There are some assets you probably could do without if you took into consideration how fast they depreciate. If you can’t do without them, take special care in acquiring them.

Common Depreciating Assets

Timeshares: Many people purchase them without realizing the money holes they can become. Unlike the majority of standard real estate, most timeshares lose 50 percent of their value immediately upon their purchase from a resort. Additional depreciation, up to 90 percent, occurs over the next few years.

Boats: There is a reason why boat owners often lament that the two happiest days of their lives were the day they bought their first boat and the day they sold that same piece of property. The dream of boat ownership is quickly absorbed in the reality of the expense such ownership entails. Boat rental may seem an expensive alternative, but it is usually far less expensive than to own your own. Your own boat is usually a depreciating asset you could do without.

Recreational vehicles: Just like cares and boats, RVs love a large percentage of their retail value the minute you depart from the dealer’s parking lot and they continue to lose value as they age. Few people use RVs as much as they expect to when they plunk down the purchase price. Add the costs of gas and the space rental many people have to pay for the RVs when they are not in use and ownership doesn’t make much sense.

Luxury cars: There is not much chance of avoiding a car purchase forever, but keep in mind that it is a depreciating asset. To get the most out of your purchase, focus on what you really need, not what suits your ego or what will keep you in the running with the Joneses. A used car in good condition has already seen much of the initial depreciation priced out. The corollary is someone who wants to have the benefit of gold’s stability and buys jewelry instead. You can’t have it both ways.

Electronic Gadgets: They not only depreciate, they do it quickly. Owning the latest and, purportedly the greatest in computers or electronic gadgets may be popular, but it also is the least cost-effective option. The latest models always come with a premium price. Last year’s model is usually just as effective for most people. And last year’s models will be heavily discounted as soon as the new model appears on the horizon. Make sure your purchase checks out with your wealth building plans.

The prospect of any large purchase should trigger the question: “Do I really need this?” If the answer is “Yes.” proceed wisely. Opt for the product that fulfills your actual needs at the best possible value. Depreciating assets eventually affect your finances, so avoid them when possible and consider devaluation as one of the factors to evaluate as you make your purchasing decisions.

Distribution of Wealth Between Young, Old is Growing

November 21, 2011 By Twila Van Leer

The recession that keeps dragging along has had a serious effect on the difference in what older Americans have accumulated and what younger Americans are expected to end up with over time. A relative dearth of work opportunities for young adults, coupled with housing and college debt, has doubled the disparity since 2005, Census figures show. And the gap is nearly five times what was evident a quarter century ago, after adjusting for inflation.

Older Generation May Be Better Off

It is expected that older people who have accumulated over a lifetime, would be better off than those who are just starting down the economic trail. But the current figures show the gap growing wider at an escalated pace. The Census figures were prepared for a special congressional committee that is working to find where they can cut $1.2 trillion out of federal budgets over a 10-year period. The figures tend to pit the benefits paid to older Americans in the form of Social Security and Medicare against programs that benefit those at the younger end of the scale, such as education and assistance for the poor. The debate is narrowing down to whether some of the money allocated to the elderly might be better spent at the opposite end of the spectrum.

Net Worth Of Younger Generation

The current economic downturn has hit younger Americans particularly hard. Many of them are paying for higher education and many are accumulating debt while they wait for the job market to regain its equilibrium. Many are paying for homes, sometimes for homes that are worth less now than when they bought them during the housing boom that preceded the economic slide. The Census figures show that the median net worth of households headed by someone 65 or older was $170,494 — 40 percent more than in 1984. The median net worth for households headed by younger people was $3,662, down by 68 percent compared to a quarter-century ago, according to the Pew Research Center. The older folks often have paid off their mortgages and built up more savings than their younger peers. In 2009, households headed by someone under 35 saw their median net worth reduced by 27 percent, largely due to credit card debt and student loans. It was the largest hit in any age group. Those in the 35-44 age category saw a 10 percent dip.

In all, 37 percent of younger-age households have a net worth of zero or less. That’s nearly double the figure posted in 1984. Among households headed by a person 65 or older, the percentage of those labeled at zero net worth has hovered nearly unchanged at 8 percent. While the young face the highest unemployment rate since World War II, older Americans are staying on their jobs longer.

Social Security accounts for 55 percent of the annual income for the older-age households. The payments are indexed to inflation, so have not lost relative value. Young people, on the other hand, have seen increases far in excess of inflation in such items as college tuition. At the same time, college aid has dwindled. While Pell Grants to needy students have increased somewhat, they cover a smaller portion of higher education costs.

If the current trends continue, experts say, the rising generations may be the first in America for whom the long-held expectation that each generation will do better than the one before will not come to fruition.