Tag Archives: wealth

Global wealth: $3,650 of wealth puts you in the top half of the world

Posted on by

A new report on global wealth from Credit Suisse has some interesting statistics:

• If you have $3,650, including the value of your home, you’re among the wealthiest half of people in the world. (This is net wealth – so, once debts have been subtracted.) The other half own less than 1pc of global wealth, while 77pc of adults – that’s 3.3bn people – have less than $10,000.

• The top 10pc of people – membership requirement is $77,000 – hold 87pc of the world’s wealth.

• You need $798,000 to make it into the top percentile of the world’s wealthiest. This select group accounts for almost half – 48.2pc – of global assets.

In other words: (1) it doesn’t take much to break into the top half of the world and (2) those at the top of the distribution control significant portions of the world’s wealth.

Poorer suburbs the result of fewer two-parent families?

Posted on by

One writer argues poorer suburbs ended up in this position because the suburbs were built for two-parent families in single-family homes and poorer communities have less of these families:

Before we can understand what makes some suburbs so miserable, we first have to understand what makes others succeed. The most successful suburban neighborhoods fall into two categories. First, there are the dense and walkable ones that, like the most successful urban neighborhoods, have town centers that give local residents easy access to retail and employment opportunities. These neighborhoods generally include a mix of single-family homes and apartment buildings, which allows for different kinds of families and adults at different stages of life to share in the same local amenities. The problem with these urban suburbs, as Christopher Leinberger recounts in his 2009 book The Option of Urbanism, is that there are so few of them, and this scarcity fuels the same kind of gentrification that is driving poor people out of successful cities.

The other model for success can be found in sprawling suburban neighborhoods dominated by households with either the time or the resources to maintain single-family homes and to engage in civic life. As a general rule, the neighborhoods in this latter category don’t allow for apartment buildings or townhomes on small lots. They implement stringent local land-use regulations that keep them exclusive, and they attract families that tenaciously defend the character of their neighborhoods.

There are many differences between these two models. But the most important one is that denser suburbs can accommodate family diversity relatively well while sprawling suburbs simply can’t. Living the low-density lifestyle requires that you either be rich in money or rich in time and skill.

Think about it this way. The typical postwar suburb was built to meet the needs of two-parent, single-breadwinner families. They were full of single-family homes that were rarely built to last, and their chief amenity was privacy, which generally meant a decent-sized lawn. Maintaining these houses was a heroic endeavor, but the division of labor implied by two-parent, single-breadwinner families meant that it was not an impossible one. Indeed, the very fact that maintaining these homes was such a chore made them precious to their owners, for whom they were a store of wealth as well as a place to live.

There is little doubt that the family structure in the United States has changed from the early days of the post-World War II suburban boom to today. And, numerous suburbs have going to have to respond to these changing demographics as they think about providing housing for older residents with no kids, single-parent families, and single households which are now the most common household type in the United States.

Yet, this argument seems too reductionistic. Similar to Rodney Balko’s argument about odd government dealings in St. Louis County, Missouri, I think this article ignores other important factors in the construction of suburbs, particularly policies and zoning and behaviors motivated by race and keeping non-whites out of wealthier suburban communities.

“Which [Chicago] suburbs are income tax givers and takers?”

Posted on by

The Daily Herald looks at income tax info to figure out which Chicago suburbs are giving or getting more money:

As a whole, the suburbs are more giving than Chicago and much of downstate when it comes to redistribution of income taxes, but individually the suburbs are a mixed bag, based on a Daily Herald analysis of Illinois Department of Revenue and U.S. Census Bureau data.

That’s because taxes are paid to the state based on wages earned, but the amount returned from the state is a fixed amount per resident…

This state’s income tax redistribution policy means some suburban areas like parts of Aurora got back more than 25 percent of what residents paid in income taxes, while other areas like Oak Brook and Barrington received less than 2 percent of the income taxes workers there paid…

Taxes on higher incomes cover not only the local share but also a bigger portion of the cost of operating the state. The distribution of the income taxes helps ensure all parts of the state have the resources to operate effectively, experts said.

The article makes it sound as if the experts generally agree that this is the way it should work: income taxes are paid and then the money redistributed to help provide services for others. Yet, isn’t this sort of analysis suggesting that this may not be “equitable”? The real question lurking here is what would be equitable and whether people should be getting back in services exactly or close to what they paid in. There is some disagreement here, illustrated by one Oak Brook official:

“Every municipality hopes to receive more than it currently does,” said Art Osten, Oak Brook’s interim village manager. “The reality is that the distribution of taxes collected by the state is a political question. We hope the determination of need and reallocation is done in a reasonable and equitable manner and that Oak Brook receives its fair share of what its residents contribute.”

On one hand, communities all want more tax money back and discussions in Illinois to lower the amount returned to municipalities would be met with resistance. On the other hand, Oak Brook wants its “fair share.”

Average American net worth #4 in the world; median net worth #19

Posted on by

In another case of mean versus median, looking at the average or median net worth of Americans leads to different conclusions:

Americans’ average wealth tops $301,000 per adult, enough to rank us fourth on the latest Credit Suisse Global Wealth report.

But that figure doesn’t tell you how the middle class American is doing.

Americans’ median wealth is a mere $44,900 per adult — half have more, half have less. That’s only good enough for 19th place, below Japan, Canada, Australia and much of Western Europe…

Super rich Americans skew average wealth upwards. The U.S. has 42% of the world’s millionaires, and 49% of those with more than $50 million in assets.

Both figures are true but they tell very different stories. America at #4 or #19?

Some other interesting tidbits later in the article:

1. Homeownership helps other countries pass the U.S. in median wealth since some have higher rates of homeownership (like Ireland and Spain) and their housing markets didn’t experience such a bubble.

2. Americans can borrow money more easily than some. This means we might be able to get our hands on more but leads to more debt which subtracts from our net worth.

More Americans again view owning a home as a good investment

Posted on by

The burst housing bubble reduced the value of many homes yet more Americans are again seeing a home as one of their best investments:

According to a recent Gallup poll, real estate beats out stocks, bonds, savings accounts and even the Great Recession’s investment darling, gold, as the favored form of long-term investment. A full 30 percent of Americans see real estate as the best investment—up from just 19 percent in 2011.

A new survey by the Pulte Group echoes such sentiments: 35 percent of Americans reported that they would like to buy a home soon in part because they see it as a smart financial investment, said Valerie Dolenga, spokesperson of Michigan-based home builder, Pulte Homes.

This kind of growing confidence should make us all wonder, though: Haven’t we learned anything from the housing crash? One of the big takeaways from the crash was to avoid this exact line of thinking…

Now that the market is recovering, and home prices are growing again—in fact home prices are at an all-time high in nearly 1,000 cities across the country, according to Zillow—the siren song of seeing your home as an investment is becoming tempting once again.

Then four tips are offered to help ensure your home can be a decent investment: location matters, buy a home that needs some work so you can increase its value, “don’t buy the best house on the block,” and expect to stay in the home a while to allow the value to increase. In other words, a house is not automatically a good investment yet good planning can go a long ways.

At the same time, sentiment about seeing homes as good investments is not necessarily related to making bad choices about buying houses. In other words, we need to see how these beliefs become translated into actions. For example, more Americans may want to buy homes but if other pieces are not in place, such as good inventory or readily available mortgage credit, then this may not lead to another housing bubble. The bigger issue may come when everyone involved from buyers to lenders to the media gets caught up in a housing rush and it takes on an inertia of action that goes far beyond consumer sentiment.

Finally, views on homeowership as a good investment are tied to other factors:

Upper-income Americans are much more likely to say real estate and stocks are the best investment, possibly because of their experience with these types of investments. Upper-income Americans are most likely to say they own their home, at 87%, followed by middle (66%) and lower-income Americans (36%). Gallup found that homeowners (33%) are slightly more likely than renters (24%) to say real estate is the best choice for long-term investments.

Social class and wealth matter when determining what are viewed as good investments.

American poor can buy cheap consumer goods but have a harder time purchasing important items

Posted on by

I argued a ways back that Americans in poverty who own electronic goods illustrate the ubiquity of these goods in American life. Here is some evidence: the relative cost of consumer goods has dropped in recent decades while goods associated with leaving poverty, like higher education, have increased.

This is the tension at the core of modern impoverishment, which Annie Lowrey takes on in the New York Times today. The wonders of globalization, modern manufacturing, and ruthless Walmart-style supply-chain management have made the stuff we buy to fill our homes and time much cheaper, and as a result the poor now enjoy a level of material well-being that would have seemed unimaginable decades ago. The safety net is also infinitely more generous compared with the early 1960s, before Lyndon Johnson launched his war on poverty. Yet, because the prices of key services are spiraling out of control, the poor’s lot is still rather hopeless. The NYT captures it in this very, very long graph…

nyt_cost_graph

New York Times

Here’s what makes this trend so treacherous: Prices are rising on the very things that are essential for climbing out of poverty.

Another way to think about it might be that most Americans have a baseline of consumer goods they own. But, to move up in status or to purchase goods and services that can help one achieve mobility, more resources are needed.

It is too bad Internet service is not indexed here.

If one were to approach this from a Marxist point of view, perhaps the purpose of cheap goods is to keep people distracted while social life and economic life declines or is more exploitative. What is there to complain about what the typical person has a smartphone or a large LCD or LED TV and lots of viewing options?

Those with above-average economic power can’t help but be gentrifiers?

Posted on by

One public policy student suggests it is really hard for those with economic advantages to avoid being gentrifiers, even when they don’t move into up-and-coming urban neighborhoods:

But it’s worse than that: it doesn’t even matter where you live. Moving to a higher-income neighborhood – one where market and regulatory forces have already pushed out the low-income – means you’re helping to sustain the high cost of living there, and therefore helping to keep the area segregated. You’re also forcing lower-income college graduates to move to more economically marginal areas, where they in turn will push out people with even less purchasing power. You can’t escape the role you play in displacement any more than a white person can escape their whiteness, because those are both subject to systemic processes that have created your relevant status and assigned its consequences. Among the classes, there is no division between “gentrifiers” and “non-gentrifiers.” If you live in a city, you don’t get to opt out.

The upshot here is not that we should all descend into nihilistic real estate hedonism. But we need to recognize what’s really going on: that what we call “gentrification” these days is only one facet of the much larger issue of economic segregation. That people get priced out of the places they already live in is only half of the problem. The other half, which affects an order of magnitude more people, is that people can’t move to the neighborhoods to which they’d like to move, and are stuck in places with worse schools, more crime, and inferior access to jobs and amenities like grocery stores. That problem is easier to ignore for a variety of reasons, but it’s no less of a disaster.

And all this, in turn, is the result of a curiously dysfunctional housing system – one that’s set up to allow market forces to push up prices without regard for people who might be excluded, and to prevent market forces from building more homes and mitigating that exclusion.

The emphasis here is on the system: people with more economic resources have more opportunities to move where they want and the capital tends to be or go where they go. A few other thoughts:

1. This reminds me of the book Colored Property which argues a key shift took place in the 1950s and 1960s as white homeowners started arguing for their economic, rather than race-based, rights. Thus, buying a nice home in a nice white neighborhood wasn’t about avoiding blacks or other minorities; it was about taking advantage of one’s own hard work and protecting one’s property values. These are the same justifications underlying the system today: people with more resources argue they should be able to move to nice places and have nice amenities. But, this comes at the expense of fewer resources in other places.

2. Students often ask me what they can do about issues of poverty and social injustice. I try to inform them about these systems as well as tell them that one of the bigger choices they will have to make after graduating is choosing where they live. Should they as relatively wealthy Americans with cultural capital simply chase nice amenities, high property values, and a secure and high-paying job overall? Or, could they choose to contribute to and learn from other kinds of places?

Canada’s rising middle class the result of a housing bubble?

Posted on by

In eclipsing the American middle-class as the world’s richest, is the increasing wealth of the Canadian middle-class largely due to a housing bubble?

One word that doesn’t appear in the article, however, is housing. The U.S. is emerging from a catastrophic collapse of the housing market that obliterated household wealth for millions of middle-class families. Canada, however, is in the midst of a delirious housing boom and a personal debt craze that reminds some economists of the U.S. market exactly a decade ago (before you-know-what happened)…

One year ago, Matt O’Brien calculated that Canada’s price-to-rent ratio was the highest among advanced economies, making it the “biggest housing bubble” in the world. Canada’s historic housing boom (and our historic bust) comes at the precise moment in history that they pass us to grab the title of World’s Richest Middle Class. Just a coincidence?

Maybe. As the LIS data in the Upshot article shows, Canada’s median earner has been gaining on America for decades, powered by a strong service economy, supported by a disproportionately large energy industry. Remarkably, U.S. GDP-per-capita has been more than 15 percent richer than Canada’s for the last 25 years (see graph below), even as the median American worker has fallen behind the median Canadian earner. That’s a pretty clear indictment of U.S. income inequality…

Still, as many economists like Atif Mian and Amir Sufi have have argued, strong housing markets support middle-class income growth just as housing busts wreck middle-class income growth. The effect can be direct (more houses means more construction jobs*) and indirect (when families feel richer from rising housing prices, they spend more across lots of industries, raising incomes). As Reihan Salam writes, “the central driver of the decline in employment levels between 2007 and 2009  was the drop in demand caused by shocks to household balance sheets.”

Housing is an important factor in a middle-class lifestyle from being able to own a house (more important in certain places like the United States as a sign that “we’ve made it” as well as providing for one’s family) to affording a good neighborhood (which is often associated with lots of other good outcomes like better schools, less crime, more local resources) to paying relatively less for housing than those with lower incomes.

All that said, there is no guarantee that housing will be a significantly positive financial investment in the long run. And what happens in Canada if such a housing bubble does burst?

“Who had richer parents, doctors or artists?”

Posted on by

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.”

People who waste money purchase McMansions

Posted on by

McMansions aren’t just critiqued on an architectural level. Another argument is that owners of such homes are not frugal with their money:

As a gift to the institution that gave her so much joy, the former school teacher left $2.5 million to the Council Bluffs Public Library…

Cook supported the library financially throughout her life, thanks in part to money inherited from her parents, who also passed on their love of books and learning to their daughter. As an adult, Cook would stop by after school let out. She taught from 1964 to 1997 at Norris and the now-closed Bancroft Junior Highs in the Omaha Public Schools system. After retirement she spent even more time at the library, volunteering with the Friends of the Library organization…

He said Cook maintained the wealth she inherited through an unassuming lifestyle, spending her money wisely while living in a modest home on the west end of the city.

“She lived frugally. She didn’t have a McMansion,” her attorney said. “She took care of her money.”

In other words, people who buy McMansions spend lavishly. Such homes are testaments to their money, perhaps through their size or bad design. In contrast, people who are good with their money (and can donate big sums to the local library) live in unassuming houses. They don’t feel a need to show off their money with a big, flashy home.

Of course, these are broad generalizations. Cases like these reinforce the idea that not spending on a big house helps lead to more long-term wealth. Someone who had $2.5 million to donate to the local library could have easily afforded a decent-sized McMansion near Omaha and still have had $1.5+ million to donate. I think the idea is that buying a McMansion is a sign of broader spending patterns but this is not necessarily the case. This is a good example of citing McMansions as shorthand for other undesirable behaviors.