OBAMA VOTES FOR HIS FINANCIERS BEFORE ELECTION: http://www.politico.com/news/stories/100 8/14196.html

And yet, and yet: 20 years ago all those nice young boys and girls with designer glasses came to our offices and told us about this great deal called the “401k.” If only we all put 10 percent of our pretax earnings in that, why, we’d be millionaires by the time we were ready to retire, and, and everything!

And 10 years before that–30 years ago, right after a period of hyper-inflation and in the trough of a double-dip recession–when the median family had the same (or higher) inflation-adjusted net worth as we lucky 401k hoarders have today?

Back then, lots of them just had cranky old defined benefit pension plans. Boo!

Those didn’t count toward their net worth at all.

For the last decade, in our household net worth calculation, we’ve been including our mortgage but NOT including the value of the home itself. The one is a financial obligation, the other is an illiquid asset.

Nothing wrong with having a negative net worth by that measure, at least when you are young. At least you know where you stand.

Pensions have been on the decline for decades. I don’t believe that rising pensions would balance the above changes. If anything, the shift exacerbates the downward trend.

For example, if a population is aging, net worth declines because people are selling their financial assets to fund their retirement. If the population is shifting to younger people, then net worth is also low because they are not in the “wealth accumulation” stage of their life. If the 30-60 yr age population is increasing, net worth should also increase.

These are just some examples and I really don’t know if the conclusions – that US households are not getting richer – would change, but it is still an important piece of the analysis that is ignored.

Also, net worth doesn’t include pension credit. As people work, they accumulate pension benefits that adds to their retirement income stream, so just because net worth is flat doesn’t necessarily mean that people are no better off than they used to be in terms of their overall living standard.

Other posters have made some good comments as well. Actually, I find the reteurs comment contributors an order of magnitude more intelligent than those on other news websites.

Thanks for the discussion,

“Pablo” from Canada.

In the first half of the decade, incomes were okay (though most of the gains flowed to the top 10%) but asset prices were strong. Those people in the middle whose incomes WEREN’T rising borrowed heavily against their home equity to support their rising expenses. In the second half of the decade, both incomes and asset prices fell sharply.

Factor out the asset bubbles and you would see a steady slide from the 90s to the present. (Especially if the official inflation rate reflected the reality for middle class families.) The early half of the decade wasn’t an example of a healthy economy — it was a badly diseased economy obscured by a series of asset bubbles.

I think those of you who want to separate assets like homes from income are wrong. Income and asset price are actually tied together. Our income rose rapidly throughout the late 90s and early to mid-2000s; so too did our net worth. And it was not just home values: investment portfolios and 401ks also soared.

Then in 08 the stuffing got knocked out of all three in short order: job loss, underwater mortgage/foreclosure, investment portfolio decimated. The house is gone. The income has come back about 60%. Investments about 70%.

Again, this is an average so you need to remember that some lost much more, others have actually gained nicely. Overall though the losses are steep and real, not “paper.”

So, such a chart should be compared with the percentages of households with more than 1 car, a dishwasher, broadband, more than x square feet of space per person, access to a boat or camper, or so on. (Those numbers have all surely gotten worse in the recession.)

A second problem is that “net worth” misses the “living on borrowed time and money until I die” trick. That is, people actually get away with a fairly high standard of living, associated with high debt. When they die, the debt is no longer their problem. So, in some sense, “net worth” isn’t actually a number they care about.

It *is* susceptible to structural change in the definition or composition of a “household”, but those changes happen gradually.

As for the data, it obscures a simple story. The median house rose $50k and the owners borrowed/spent half of that. The median house then declined $50k.

It is absolutely shocking that the median net worth failed to skyrocket between 2001 and 2007, given what housing prices were doing over that period. The median family owns their home, and the median home increased far more than $20k in value.

A certain bank here is heavily advertising their home equity loans (remodeling, vacations, parties, new clothes). We are told that a “good bank helps make the equity in your home work for you”. I grit my teeth…

Below that level nearly everything can be outsourced to the lowest paid worker who can get the job done. In the 80′s it was Japan, in the 90′s it was Korea. Thiland, Vietnam and Brazil are comming on strong today. All of those economies are closing the gap with the U.S. All of those economies out learn us in STEMS which Tom Friedman rightly harps about like a broken record.

Tomorrow is my daughters last day of school. She’s 13 gets straight A’s and has not mastered fractions, percentages, or even the scale of very large numbers. We do summer enrichment out of our own pocket but it’s a losing battle vs any other 1st world nation and most 2nd world nations.

Only our massive wealth of natural resources and 100 year head start with capitalism have allowed us to tread water the last 30 years. The next 30 will be harder on the US so I hope we don’s solve the innaquality problem because I think my work ethic and saving will allow my family to be on the right side of the rich vs poor divide.