The USA Today is perfectly aligned with Obama’s talking points, that the American Dream is just that, – a dream. Today’s paper in the money section (July 7, 2014) sports the headline; “Unless you’ve got $130,000, dream on”. It continues “If you think the elusive, all-American ideal is getting harder to attain, you’re right”.
The paper offers data which suggests that unless a household has annual earnings of $130,000 based upon current values of everything, then you can kiss the American Dream goodbye. Today’s median household income for a family of four is $51,000. Referring to the 2012 census data, the $130,000 figure is exactly what one percent of the American households earn. This leaves the other 99% out in the cold and explains why they are so angry.
If there was a grain of truth to this story then the huddled masses that have been flooding our shores and sneaking across our borders would certainly have stayed at home. There must be something missing in this version of the American Dream, which liberals suggest is out of reach of almost everybody.
It is almost impossible for a liberal of any stripe to move beyond an annual income to a lifetime of hard work and prudent investing. It is only by vaulting this chasm of 40-50 years that any dream comes into view. The essential difference is through jumping from income to wealth.
What matters in jumping this chasm is what a household does with the annual income it earns. Does the household live within its means and do what it can to generate a nest egg, or does it splurge today for tomorrow never comes?
The following information, based upon a 2009 Pew Research report on wealth is the best resource for understanding the role of wealth in the American Dream. This paper is based largely upon my earlier paper entitled From Poverty to Wealth.
Households under the age of 35 include a wide variety of flavors, from single wage earners to extended families with children. Almost by definition, young households in America have no wealth. In the beginning they are starting a job, a career, and most are working for the first time outside the home. Many live at home with parents, and only the census-process and the IRS determine whether adult children living at home are part of one or more households.
The PEW data on American household net worth across ten household age groups over a single 25-year period is shown in the following table. The comparisons by age group are dramatic. Adjusting for inflation does not make the groups comparable, but makes the basis for comparison more equitable. The essence of the values reported is seen in the change column.
Median net worth by age of household in 2010 dollars
|65 and over||$120,457||$170,494||+42%|
While the median net worth during this 25 year period increased only 10%, or $6,000, the pattern of change across the age groups is startling. The younger each subsequent household age group, the poorer each group performed 25 years later. These change scores are plotted in Table 2 for visual clarity.
Change in Net Worth by Household Age Group
Such dramatic and consistent results suggest a single factor is at work which influenced the older groups less, or the younger groups more. While there are undoubtedly many factors in play, this single factor is so powerful that it must be considered the dog that wags the tail. This single factor is the increased use of debt, also known as easy credit within the national economy.
As a general rule wealth is not created through debt. Over 5, 20, or 50 years the cost of credit is a relentless drain upon household finances. A young family may depend heavily upon credit to cover the exorbitant costs involved in raising children and paying its bills. Unless this demon is recognized and managed prudently, young family finances may spiral out of control.
Staying above water financially by young families is accomplished more easily when there are two income earners in a household. At this stage the prudent management of credit and the eventual elimination of most debt is the key to the subsequent growth of household wealth.
Over the past few decades the primary pattern of family households is the increased divorce rate, more households with single parents, taking on mortgages with little or no down payment, and making minimum payments on credit card debt. The more recent purchase of new and used homes by individuals with little or no initial equity in those homes is the most recent bubble to erode the net worth of the younger families. These are the recurrent financial burdens young families face which delay or prevent the growth of household wealth.
American households do not move from poverty to wealth, like the government, through debt. American families generate wealth through leveraging every possible advantage.
Young families have no wealth. The 99% would have you believe that those with wealth inherited it from their parents. The truth is that most Americans with wealth earned it within their own lifetime through 40-50 years of hard work and prudent investing. Most American households are unwilling to make this long-term commitment.
And how, exactly, does a household leverage every advantage? Try the following prescription more or less in order:
1) Get the best possible education for yourself and your children. Surprisingly, the children are often capable of rising well above their family’s status in life.
2) Get married to have children. What virtually guarantees poverty in America is through single mothers who are heads of households.
3) Two or more household incomes are vastly superior to one. A very large number of American households have no income at all, and are trying to leverage wealth through government programs.
4) Wealth grows amazingly when the children mature, move out, and the household’s investments are not burdened by their support.
5) When household wealth grows on its own, you may be living the American Dream.