Get used to the idea that you will never retire: GAO report shows that half of Americans 55 and older have no retirement savings at all.
Some of you might remember the glossy highly produced advertisements back in the early 1980s when Wall Street decided it was time to turn American retirement plans into casinos. The slow and agonizing death of the pension plan was supposed to be replaced by the beautiful and wonderful world of the 401(k) plan. Save for 30 years and in the end, you will be a millionaire just like your friends on Wall Street that sincerely care about your financial future. Of course since then, we have found out about junk bond scandals, mutual fund fees that make loan sharks look conservative, and of course the financial shenanigans of giving people toxic mortgages that were essentially ticking time bombs of destruction. This was the industry that was put in charge of helping you plan for your future. We are now a generation out from those slick ads and the results have been disastrous for most Americans. A recent analysis found that half of US households 55 and older have no money stashed away for retirement.
The Average Net Worth by Age: The massive financial chicanery brought on by housing equity figures and the new real estate bubble.
The best indicator of wealth is your net worth. Take you assets and subtract out your liabilities. It should come as no surprise to most Americans that half of this country is living paycheck to paycheck. One third of Americans have zero dollars for their net worth or in many cases for young Americans, have a negative net worth thanks to mountains of student loan debt. The latest data from the Census and Federal Reserve show skewed views on net worth figures. First, the recent housing bubble led by investor money buying single family homes isn’t really helping most Americans. In fact, the home ownership rate has fallen for about a decade now. Investors are thrilled as they leverage cheap funds to boost their own net worth but the main driver of net worth building, housing, is now being held by fewer Americans. The bull market with stocks has also pushed wealth figures up but it should be noted that only half of Americans actually own any stocks outright. Let us look at net worth figures by age ranges.
Trends in low wage America: 1.4 million waiter/bartender jobs gained while 1.4 million manufacturing jobs lost since 2007. Top 4 employment sectors pay $10 an hour or less.
The media pundits are scratching their heads as to why two political outsiders are garnering all the attention. You want to know why? Both are addressing the low wage epidemic plaguing the country. Now we can debate their policies since both stand at the extreme opposite ends of the spectrum but their message is clear – the reason you are going broke is because of the way things are and the deep capture of the financial status quo. And when we look at data, the trend is unmistakable. For example, since 2007 we have lost 1.4 million manufacturing jobs. During this same period, we have added 1.4 million waiter/bartender jobs. It is really no surprise that our top 4 employment sectors in the US pay $10 an hour or less. Keep in mind that with talks of the minimum wage being pushed up to $15 an hour, all of these employment sectors will be impacted. We are still seeing a dramatic growth in low wage jobs across this country. It also doesn’t help that true inflation is hitting people directly in their slimmed down wallets.
1 out of 3 American workers support the rest of the country: Those not in the labor force surges to another record at 93,770,000.
The latest employment figures did not help the market. While the unemployment rate remained unchanged this is largely being driven by the massive number of Americans not in the labor force. This is the biggest employment story going on for a couple of years but is completely ignored by the media. It is also conveniently ignored by the unemployment rate that only measures those “in the labor force” which is a very generous range. A large part of the not in the labor force group has come from people simply being unable to find work in this low wage economy. And then the media acts shocked that people like Trump and Bernie Sanders are gaining traction. The media would like to continue to paint a Pollyanna case of the economy but that is just not the truth. We recently hit a record 93,770,000 Americans that are no longer in the labor force. 1 out of 3 Americans are not in the labor force while 1 out of 3 workers are supporting the rest of the country.
Comparing the cost of living between 1975 and 2015: You are being lied and fooled when it comes to inflation data and the cost of living.
Inflation is widely misunderstood by the public. Even economists tend to have a hard time coming to a general agreement to the true definition of inflation. When you ask the person on the street what inflation is they usually respond by saying the “price of things going up” which is more of a consequence of inflation, rather than the cause. Inflation is like a new car that lacks maintenance. At first, there is little notice of the issue but overtime major problems start occurring and eventually the car breaks down. If you want to see inflation out of control just look at Venezuela right now where people are swarming stores for basic food items. In the US inflation has occurred primarily because of the Federal Reserve’s banking policy. Too much cash (or debt in this case) chasing the same amount of goods. Only when we look at longer periods of time do we see the insidious nature of inflation. Yet somehow, the data used to measure inflation misses much of what is happening because it uses derivative like measures. For example, we use the owners’ equivalent of rent (OER) instead of the true monthly cost of owning a home. Let us take a look at some data between 1975 and 2015.
The economy chugs along with consumers going into deep credit card debt: Credit card debt surges in top 25 US metro areas according to Equifax data.
Credit card debt is like crack for the American consumer. A cheap alternative to pure spending cocaine but enough to keep you on the hamster wheel of consumption. I recently discussed how credit card debt while remaining subdued since the Great Recession suddenly made a 180 degree turn. Americans are spending money they don’t have on shiny plastic. Total outstanding credit card debt recently surged beyond the $900 billion mark. That is a lot of consuming. And with the average nationwide interest rate of 14% that means spending hamsters are probably dropping tens of billions on interest costs alone. I found it interesting that I got a few e-mails proselytizing how great credit cards were after my last piece. My reaction: So you enjoy locking in future earnings for money you don’t have today? Keep in mind people pray to the hedge fund gods for a 7% annual return. Getting a 14% return is like finding El Dorado had a sister name AmEx. It is amazing to get a 14% return (and with some cards, you are getting close to usury). Equifax released credit card data on 25 US metro areas and the results are startling.
People are still surprised why new home sales remain anemic and new home building is simply not materializing. The latest Census data shows that the typical new home sold for $281,000. At the same time we also realize that your typical U.S. household is making about $50,000 per year. The reason home sales remain weak is because the vast majority of Americans simply cannot afford to purchase homes! The minority category of Millennials that are doing well are coming from rich parents – the data backs this up. You really don’t need a Ph.D. in Physics to figure this out but a household making $50,000 a year simply cannot afford a $281,000 home! Let us be generous and look at the figures for a home costing $250,000. We’ll provide you a full household budget so you can see the numbers at work.