*I have received quite a few emails asking me what I look like, very tall, red skin complexion with green hazel eyes.
It is possible to take this as a sign of the approaching Apocalypse - that 15% of American households own less than nothing. It is also possible to simply observe that if you've got $10 in your pocket and no debts then you've got more wealth that 15% of those American households. And the way this works is that that ten buck bill means that you have more wealth that that 15% of American households put together. We can then go on to start chuntering about how the revolution is imminent as the oppressed masses begin to rise up against their plutocratic overlords. How can we allow a system to persist where the Waltons have that $100 billion derived from Walmart and yet near one sixth of us all have nothing, in aggregate?
Except, actually, we ought to examine this all a little more - for there is this basic truth that we ever should recall. We can only divine what an economic number is telling us when we understand firstly how it was calculated and then secondly what isn't included in the calculation. And the truth here is that this isn't, at least not in total, a shocking indictment of the way the country and the economy work. Rather, it's a description of the fact that people age. Plus, a slight failure in how we actually count wealth.
The new information comes from this very interesting report from the Federal Reserve Bank of New York.
We estimate that 15.1 percent of the households in the U.S. population have net wealth less than or equal to zero, while 14.0 percent have strictly negative wealth. Because of differences in measurement—such as in determining who is included as a household member—estimates vary across surveys and also vary somewhat over time. For example, the share of households with non-positive wealth was estimated to be 18.1 percent in the 2011 panel of the Survey of Income and Program Participation, 12.9 percent in the 2013 Survey of Consumer Finances, and 19.4 percent in the 2013 Panel Study of Income Dynamics. Our 2015 SCE estimate of the share of households with negative wealth falls within the range observed.
There are people who have no net wealth and who are unlikely to ever have much. But that's not the reason why we've such a large portion of the population with a negative net value:
What are the characteristics of households with negative wealth? We find that the heads of such households are younger than their counterparts in households with non-negative wealth—an average age of 43 compared to 51. They are also slightly less likely to have a college or postgraduate degree—43 percent and 12 percent, compared with 45 percent and 15 percent, respectively. Moreover, we find the association between having negative wealth and the head of household’s age to be stronger for those with a college degree and especially so for those with postgraduate degrees. These results are consistent with standard life-cycle models of consumption and savings, which predict that agents smooth the marginal utility of consumption by incurring debt—for instance, student loan or credit card—when young and then steadily increasing savings until retirement. In particular, those models predict that young and educated households might have negative wealth as their incomes will likely grow with age so that they will be repaying what they have borrowed when young.Consistent with intuition, households with negative wealth have much lower average annual incomes than households with non-negative wealth, $39,077 versus $86,309, respectively.
That's our first and major point to make. Negative net wealth is part and parcel of certain life points. We do borrow to invest when young - thus we have negative net wealth at some point in life. That's not the whole story though and this chart is very useful indeed:
I need to go for a swim, have a great day folks. I'll be back soon, there's nothing to do in Kookoo Beach FL.
Full article > http://tinyurl.com/y6v3el8c
