Tag Archives: income

Do “real-life millionaires” buy McMansions?

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The spending habits of millionaires tends to be a popular topic but few people discuss exactly what kind of house they live in:

A millionaire is a person with a net worth of $1 million or more. Net worth is the value of everything a person owns, minus all debts…

Such an individual could have a negative net worth, yet they drive a Range Rover and live in a McMansion. Meanwhile, the millionaire next door lives in a three-bedroom house and drives a Hyundai…

Although it’s a common misconception that millionaires spend their money on luxury vacations, clothing, houses, and cars, what I’ve learned in growing my own net worth — and speaking with other millionaires — is that after a certain point, money stops mattering as much as it once did.

This seems to line up with the accepted wisdom that many American millionaires are relatively frugal and made their way to that wealth through saving and hard work.

But, if millionaires are not buying all those McMansions, who is? The flip argument expressed above that there are plenty of people living a millionaire lifestyle or above their means does not apply in all cases either.

Part of the trick here might be disconnecting income from wealth. Having $1 million plus in wealth does not necessarily mean you have the kind of assets to put down a sizable down payment or make sizable payments on a large house. (Think of the people who have paid off their mortgages and have a lot in retirement and savings accounts – this is not always easy to access.) Some people might be willing to buy homes based on whether they can afford the monthly payments – does it roughly fall within 30-35% of my monthly take-home pay – while others would be unwilling to splurge on a McMansion.

To be honest, I have not seen a convincing article or set of data regarding McMansion owners. I would guess a good number are in the top 20% of earners in the United States but probably a good portion are also living paycheck to paycheck.

The tipping point income for men getting married may be $40,000

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Amidst more Americans living alone, here is some discussion regarding at what income point men are more or less likely to be married:

Instead, analysts said, the decline in both marriage and partnerships is likely a result of the declining ability of men to earn a salary large enough to sustain a family.

“All signs point to the growing fragility of the male wage earner,” said Cheryl Russell, a demographer and editorial director at the New Strategist Press. “The demographic segments most likely to be living without a partner are the ones in which men are struggling the most — young adults, the less educated, Hispanics, and blacks.”

Russell pointed to data that shows marriage rates increase for younger Americans in connection with salaries. Fewer than half of men between the ages of 30 and 34 who earn less than $40,000 a year are married. More than half of those who make more than $40,000 a year are married, including two-thirds of those who make between $75,000 and $100,000 a year…

The Pew data underscores the economic marriage gap: Adults who do not live with partners are more than twice as likely to live in poverty than those who have partners.

“Our surveys show us that one of the things that’s holding unmarried adults back from getting married is that they feel they’re not financially stable enough,” Parker said.

While there are likely additional reasons for this (one example: the development of the idea that marriage is about two economically stable people coming together), marriage in American is increasingly tied to social class.

Reading into a decreasing poverty rate, increasing median household income

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Here are a few notable trends in the new data that shows the poverty rate is down in the United States and median household incomes are up:

Regionally, economic growth was uneven.
The median household income in the Midwest grew just 0.9 percent from last year, which is not a statistically significant amount. In the South, by contrast, the median income grew 3.9 percent; in the West, it grew 3.3 percent. “The Midwest is the place where we should have the greatest worry in part because we didn’t see any significant growth,” said Mary Coleman, the senior vice president of Economic Mobility Pathways, a national nonprofit that tries to move people out of poverty. Median household income was also stagnant in rural areas, growing 13 percent, to $45,830. In contrast, it jumped significantly inside cities, by 5.4 percent, to $54,834, showing that cities are continuing to pull away from the rest of the country in terms of economic success…

African Americans and Hispanics experienced significant gains in income, but still trail far behind whites and Asians.
All ethnic groups saw incomes rise between 2015 and 2016, the second such annual increase in a row. The median income of black families jumped 5.7 percent between 2015 and 2016, to $39,490. Hispanic residents also saw a growth incomes, by 4.3 percent, to $47,675. Asians had the highest median household income in 2016, at $81,431. Whites saw a less significant increase than African Americans and Hispanics, of 1.6 percent, but their earning are still far higher, at $61,858.

The poverty rate for black residents also decreased last year, falling to 22 percent, from 24.1 percent the previous year. The poverty rate of Hispanics decreased to 19.4 percent, from 21.4 percent in 2015. In comparison, 8.8 of whites, or 17.3 million people, were in poverty in 2016, which was not a statistically significant change from the previous year, and 10.1 percent of Asians, or 1.9 million people were in poverty, which was also similar to 2015…

Income inequality isn’t disappearing anytime soon.
Despite the improvements in poverty and income across ethnic groups, the American economy is still characterized by significant income inequality; while the poor are finally finding more stable footing following the recession, the rich have been doing well for quite some time now. The average household income of the the top 20 percent of Americans grew $13,749 from a decade ago, while the average household income of the bottom 20 percent of Americans fell $571 over the same time period. The top 20 percent of earners made 51.5 percent of all income in the U.S. last year, while the bottom 20 percent made just 3.5 percent. Around 13 percent of households made more than $150,000 last year; a decade ago, by comparison, 8.5 percent did. While that’s something to cheer, without a solid middle class, it’s not indicative of an economy that is healthy and stable more broadly.

Both of these figures – the poverty rate and median household incomes – are important indicators of American social and economic life. Thus, that both are trending in the right direction is good.

Yet, we also have the impulse these days to (1) dig deeper into the data and (2) also highlight how these trends may not last, particularly in the era of Trump. The trends noted above (and there are others also discussed in the article) can be viewed as troubling as the gains made by some either were not shared by others or do not erase large gaps between groups. Our understandings of these income and poverty figures can change over time as measurements change and perceptions of what is important changes. For example, the median household income going up could suggest that more Americans have more income or we may now care less about absolute incomes and pay more attention to relative incomes (and particularly the gap between those at the top and bottom).

In other words, interpreting data is influenced by a variety of social forces. Numbers do not interpret themselves and our lenses consistently change. Two reasonable people could disagree on whether the latest data is good for America or suggests there are enduring issues that still need to be addressed.

The seven American counties where there is no black-white income gap

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Pew looks at the seven places in the United States where black residents have higher median incomes than whites:

Yet, a tiny number of places exist where black household income is greater than that of whites. Of the 364 large U.S. counties whose populations are at least 5 percent black, there are seven, according to a Stateline analysis of U.S. Census Bureau American Community Survey data for 2010-14…

The greatest similarities may be their proximity to core urban areas and high-paying corporate or government jobs, as well as their supply of affordable, albeit expensive, homes and good schools.

Valerie Wilson of EPI said affluent black families may have had to move farther from cities to find the good housing and schools they seek because the black middle class, with less net worth, cannot afford rising housing prices in the cities or private schools.

The article stresses that there are no lessons to be learned here even as there might be some patterns. The seven places do raise a number of interesting questions worth exploring:

  1. The emphasis here is on the movement of black households to these counties. At the same time, what traits do the white residents of these counties have (that they are not living in areas with more inequality)?
  2. Did the counties or local governments do anything to help promote these trends? I’m guessing these are largely the result of the “free market.” Yet, just because it happened in seven counties suggests this is a pretty rare outcome of the this free market.
  3. What are the levels of residential segregation in these counties? Simply suggesting that blacks and whites have similar incomes doesn’t necessarily mean that the two groups regularly interact.
  4. That this kind of equality can only be found in suburban areas likely would not please many suburban critics. However, many large cities and closer suburbs have a range of issues – from concentrated poverty to a lack of affordable housing – that can limit the opportunities for non-whites to succeed.

These places would be worth watching in the coming years.

Middle-class incomes have biggest year to year rise – with a catch

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New data suggests middle-class incomes rose in 2015:

The incomes of typical Americans rose in 2015 by 5.2 percent, the first significant boost to middle-class pay since the end of the Great Recession and the fastest increase ever recorded by the federal government, the Census Bureau reported Tuesday.

In addition, the poverty rate fell by 1.2 percentage points, the steepest decline since 1968. There were 43.1 million Americans in poverty on the year, 3.5 million fewer than in 2014…

The 5.2 percent increase was the largest, in percentage terms, ever recorded by the bureau since it began tracking median income statistics in the 1960s. Bureau officials said it was not statistically distinguishable from five other previous increases in the data, most recently the 3.7 percent jump from 1997 to 1998.

Rising incomes are generally good. But, note the catch in the third paragraph cited above: officials cannot say that the 5.2% increase is definitively higher than several previous increases. Why not? The 5.2% figure is based on a sample that has a margin of error of at least 1.5% either way. The data comes from these Census instruments:

The Current Population Survey Annual Social and Economic Supplement was conducted nationwide and collected information about income and health insurance coverage during the 2015 calendar year. The Current Population Survey, sponsored jointly by the U.S. Census Bureau and U.S. Bureau of Labor Statistics, is conducted every month and is the primary source of labor force statistics for the U.S. population; it is used to calculate the monthly unemployment rate estimates. Supplements are added in most months; the Annual Social and Economic Supplement questionnaire is designed to give annual, national estimates of income, poverty and health insurance numbers and rates.

According to the report (page 6), the margin of error for the percent change in income from 2014 to 2015 is 1.6%. Incomes may have risen even more than 5.2%! Or, they may have risen at lower rates. See the methodological document regarding the survey instruments here.

The Census has in recent years moved to more frequent reports on key demographic measures. This produces data more frequently. One of the trade-offs, however, is that these estimates are not as accurate as the dicennial census which requires a lot more resources to conduct and is more thorough.

A final note: it is good that the margin of error is hinted at in the article on rising middle-class incomes. On the other hand, it is mentioned in paragraph 12 and the headline clearly suggests that this was a record year. Statistically speaking, this may or may not be the case.

More Americans living on $2 a day

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A sociologist finds more Americans suffering extreme poverty:

The number of U.S. residents who are struggling to survive on just $2 a day has more than doubled since 1996, placing 1.5 million households and 3 million children in this desperate economic situation. That’s according to “$2.00 a Day: Living on Almost Nothing in America,” a book from publisher Houghton Mifflin Harcourt that will be released on Sept. 1…

“Most of us would say we would have trouble understanding how families in the county as rich as ours could live on so little,” said author Kathryn Edin, who spoke on a conference call to discuss the book, which she wrote with Luke Shaefer. Edin is the Bloomberg Distinguished Professor of Sociology at Johns Hopkins University. “These families, contrary to what many would expect, are workers, and their slide into poverty is a failure of the labor market and our safety net, as well as their own personal circumstances.”…

“Time and time again, we would constantly see people’s hours cut from week to week,” said Shaefer, associate professor of social work at University of Michigan. “Someone might have 30 hours one week, down to 15 the next and down to 5 after that. We saw people who would remain employed but were down to zero hours. This was incredibly common in this population.”…

Many of the families Edin and Shaefer interviewed saw themselves as workers, the researchers noted. Rather than the negative stereotype of the “welfare queen” created by President Ronald Reagan, the families that are suffering with less than $2 a day want to work and are using self-reliance to get by. That hasn’t stopped the stereotype from proliferating, even though Edin and Shaefer note that extreme poverty in America is an equal-opportunity affliction: It hurts single parents, married couples, white, blacks and Hispanics, as well as rural and urban families.

While this is a small percent of the American population (less than 2% based on the figures cited in this story), Edin is likely right: few Americans could imagine this level of poverty that they would tend to associate with developing countries. And these are often people willing to work but job opportunities are limited.

It will be interesting to see reactions to this. Because of the relatively small numbers as well as the relative powerlessness of poor groups, this could be easy to sweep under the rug. Yet, I would guess many Americans would want something to be done for the poorest members of society even if they vehemently disagree on the means by which to do this. (This article suggests not much is being done in any sector, from government to charities.) I hope I’m not overestimating the compassion of the American people…

Money’s Best Places to Live are pretty well-off

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The top communities on Money‘s Best Places to Live 2015 are not the wealthiest suburbs but they are fairly wealthy compared to national incomes. Only 7 have median household incomes less than $70,000 (the lowest is $57k) and 17 have median household incomes over $100,000. The median household income for the entire United States? $53,046 (data from 2009-2013).

Money’s methodology contributed to having communities with these income levels. Among other factors that went into creating these rankings:

-“[excluded] places with a median family income less than 80% of the state average”

-“Eliminate places with a median family income of more than 210% of the state average or a median home price over $1 million. Rank the rest on factors including job growth, diversity, and ease of living, giving the most weight to economic opportunity, housing affordability, education, and safety.”

In other words, the methods ensured that these communities couldn’t be too poor or too wealthy. Yet, the above-average incomes in these communities are connected to all sorts of other factors: not just jobs but higher-paying jobs (likely white collar), the money available in the tax base, the education level of residents, the kinds of available housing, and so on.

Could the average American live in these communities? Perhaps there would be some cheaper housing (that is a factor in these rankings though it is primarily about cost and not about having apartments and smaller and/or older houses) and the median household income suggests half of residents in these communities are below the figures posted here. However, these rankings are geared toward people of higher social classes.

Patterns in college major by parent’s income

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College students with parents with higher incomes study different subjects:

Once financial concerns have been covered by their parents, children have more latitude to study less pragmatic things in school. Kim Weeden, a sociologist at Cornell, looked at National Center for Education Statistics data for me after I asked her about this phenomenon, and her analysis revealed that, yes, the amount of money a college student’s parents make does correlate with what that person studies. Kids from lower-income families tend toward “useful” majors, such as computer science, math, and physics. Those whose parents make more money flock to history, English, and performing arts.

http://www.theatlantic.com/business/archive/2015/07/college-major-rich-families-liberal-arts/397439/
The explanation is fairly intuitive. “It’s … consistent with the claim that kids from higher-earning families can afford to choose less vocational or instrumental majors, because they have more of a buffer against the risk of un- or under-employment,” Weeden says. With average earnings for different types of degrees as well-publicized as they are—the difference in lifetime earnings among majors can be more than $3 million, one widely covered study found—it’s not hard to imagine a student deciding his or her academic path based on its expected payout. And it’s especially not hard to imagine poorer kids making this calculation out of necessity, while richer kids forgo that means-to-an-end thinking.

Another trend expressed in the data, Weeden notes, is that lower-income families and higher-income families tend to send their children to schools with different options for majors: Most of the priciest, top-tier schools don’t offer Law Enforcement as a major, for instance. There is also the possibility that children from higher-income families were more exposed to the sorts of art, music, and literature that colleges deem worthy of study, an exposure that might inspire them to pursue those subjects when they get to college…

From this angle, college majors and occupations start to look more and more like easily-interpreted, if slightly crude, badges doled out to people based on the wealth and educational levels of the parents they were born to. There’s a reason that the first question asked at parties is often “So, what do you do?” “If we tend to avoid asking acquaintances about their income,” four prominent sociologists wrote in the 2011 anthology The Inequality Reader, “it’s not just because doing so is viewed as too intrusive and personal but also because we suspect that querying about occupation will yield more in the way of useful information.”

Four quick thoughts:

1. Of course, what majors actually lead to what jobs is not as clear as people might make it out to be. Just because someone has a particular major doesn’t mean that is where they will be working in 10 or 20 years. At the same time, some majors might lend themselves to particular jobs right after college.

2. Outside of an associate’s degree, the majors with the lowest parent incomes (top of the chart) are helping professions. This might indicate a bigger interest in wanting to work with people or directly give back to the community. Reading uncharitably, do the majors with higher parent incomes lend themselves to a certain distance from people?

3. It is interesting that sociology, political science, and anthropology are higher up on the list of parent’s incomes. Students sometimes seem to suggest that these are luxury subjects – interesting perhaps (if they don’t think it is just common sense) but too difficult for finding a career.

4. This would all make sense in Bourdieu’s ideas about social class. Those with less economic capital tend to favor more functional items while those with more capital lean toward the abstract. Why should college major be exempt from the powerful organizing forces of social class?

Big differences in life expectancy across American counties due to income differences

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Here is an update on the “longevity gap,” the differences in life expectancy, by county in the United States:

Fairfax County, Va., and McDowell County, W.Va., are separated by 350 miles, about a half-day’s drive. Traveling west from Fairfax County, the gated communities and bland architecture of military contractors give way to exurbs, then to farmland and eventually to McDowell’s coal mines and the forested slopes of the Appalachians. Perhaps the greatest distance between the two counties is this: Fairfax is a place of the haves, and McDowell of the have-nots. Just outside of Washington, fat government contracts and a growing technology sector buoy the median household income in Fairfax County up to $107,000, one of the highest in the nation. McDowell, with the decline of coal, has little in the way of industry. Unemployment is high. Drug abuse is rampant. Median household income is about one-fifth that of Fairfax.

One of the starkest consequences of that divide is seen in the life expectancies of the people there. Residents of Fairfax County are among the longest-lived in the country: Men have an average life expectancy of 82 years and women, 85, about the same as in Sweden. In McDowell, the averages are 64 and 73, about the same as in Iraq…

Since the 1980s, “socioeconomic status has become an even more important indicator of life expectancy.” That was the finding of a 2008 report by the Congressional Budget Office. But dollars in a bank account have never added a day to anyone’s life, researchers stress. Instead, those dollars are at work in a thousand daily-life decisions — about jobs, medical care, housing, food and exercise — with a cumulative effect on longevity.

http://www.nytimes.com/interactive/2014/03/15/business/higher-income-longer-lives.html

This is part of a growing body of research that links demographics and social forces, including social spaces, to different health outcomes. Wealthier counties can offer a wide range of health and social services as well as have more higher class residents while poorer counties have different social structures.

While the county level data is interesting, I would assume there would also be some wide differences in life expectancy within counties. Fairfax County, Virginia is one of the wealthiest U.S. counties but income levels there are not uniform. Cook County, Illinois could include some of the poorest neighborhoods in Chicago as well as Kenilworth, Illinois, one of the wealthiest suburbs with a median household income of over $247,000. Check out these maps from VCU’s Center on Society and Health on life expectancy in metro areas. Here is what they found in Chicago:

So the contrast between a county in Virginia versus one in West Virginia might be notable but one doesn’t have to travel that far to find big differences in life expectancy.

“Who had richer parents, doctors or artists?”

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NPR looks at how the jobs and incomes of parents influence the same outcomes among their children:

After some poking around, we figured out how to settle the argument. It allowed us to look at the same group of people in 1979 and 2010 — from a time when most were teenagers to the time when they were middle-aged and, for the most part, gainfully employed…

Who's doing better than their parents?

Based on this chart, it looks like the jobs of parents that are linked to better outcomes for their children require more education and are higher-skilled. This would seem to line up with findings from the Pew Economic Mobility Project about what traits are linked to upward social mobility:

This research reveals:

  • College graduates were over 5 times more likely to leave the bottom rung than non-college graduates.
  • Dual-earner families were over 3 times more likely to leave the bottom rung than single-earner families.
  • Whites were 2 times more likely to leave the bottom rung than blacks.

Additionally, Pew’s analysis examined the intersection between income and wealth, and found that the health of family balance sheets—including accumulated savings and wealth—are related to income mobility prospects. Households with financial capital, such as liquid savings or other readily available assets such as stocks, were more likely to leave the bottom of the economic ladder. In other words, movement up the income and wealth ladders was connected, and economically secure families were also the most likely to be upwardly mobile.

So in addition to parental education and the type of job one’s parent has, going to college, having two-income families, race, and wealth matter quite a bit. Overcoming these factors is not necessarily easy: “In fact, 43 percent of Americans raised at the bottom of the income ladder remain stuck there as adults, and 70 percent never even make it to the middle.”