Reflections on Americans' Net Worth
betonit.ai
betonit.ai
To put it more succinctly, I know engineers/lawyers/doctors in this country I’ve been living in that make 2k a month and it’s good. They work hard, it’s stressful. A fast food worker in the US can make $15/hr and bring in 2.4k a month.
Data from US gov since 2000 show this (BLS, SSA), as do multiple university studies (MN, KY). And the ratio for rural areas is getting worse, more pressure, than urban.
That it varies is not interesting, lots of things have variance. The data shows its generally true.
Income to rent ratio, which is what this thread is about, varies geographically. Rent eats 30-40% of income in prestige cities like NYC or SF or LA. It's only 25% in Kansas City or Columbus.
You seem to be thinking about overall cost burden over time.
Even things like fast food or Walmart are a testament to the abundance the US has
Supermarkets are pretty American, but that's not true for the same reason it might have been in Yeltsin's day. I think you'd have trouble making a serious argument that communities with Tesco are fundamentally poorer or worse off than those with Walmart.
American megastores with 60,000+ SKUs are just a cultural preference in North America, and not even a universal one at that. Costco is very successful both domestically and internationally by rejecting that model. Trader joes (Aldi) is extremely competitive in the US despite a blatantly European business model. Americans are far more excited for either one of those to move in than a Walmart.
Easiest example would be groceries. If you live in a crazy expensive place like Manhattan, you could easily spend 4-5x more on groceries compared to a city like Warsaw. But it's not like you are getting better produce or products in Manhattan, you are getting same stuff, just paying way more.
And this is true for other day to day stuff too like Housing, Healthcare, Schools, etc.
But people's perception of their own wealth depends way more on relative value of their wealth compared to cost of living. If you live in a city where some shitty 2 bedroom apartments cost 1m$+, you aren't going to feel all that rich even if you have 10 million dollar net worth.
In fact, that's sort of the problem: the massive "rich people get paid for being rich in proportion to how rich they are" cash flows run away exponentially from the "poor people get paid for working" cash flows, inflating the price of any inelastic good beyond their reach. The economy stops being about work and starts being about wealth. Which might be fine if most people were wealthy enough to not work, but that's overwhelmingly not the case so it's overwhelmingly not fine.
Of course rational thing to do would be to take the money and move to a less expensive city, but with the same logic, anyone who has 1m net-worth could liquidate their assets, move to a different country, retire and live a proper wealthy lifestyle.
But we don't see that happening all that much at all. Mostly what happens is that people are choosing to live middle class lifestyles in most expensive areas that they can afford.
Even your new numbers: $10M NW, half of it goes to luxury housing, the rest gives you $500k/yr of passive income and that's pretty damn nice by any standard that doesn't involve employing others. I get that this is HN where many of us aspire to such things, but surely that's beyond the point where one should feel wealthy?
Still wealthy either way but I always find it a bit jarring how skewed the US self perception is since people generally experience something closer to the median.
There has only been one of those in history, and he is no longer one.
Is this chart based off personal or household net worth?
Families would suggest household, not personal.
The article has the author listed at the top. If you click on it, you'll see which university he works for. With his name and university, you can Google to find his wikipedia page.
"I got in early to the ponzi and life is good can't see what the ungrateful young'uns are whining about!"
The author's data says the median net worth for 65–74 year-old households is about $410,000, but 56% of it is home equity. Exclude the house and the median net worth drops to $171,000 and the median financial assets (the part that could actually be converted to cash easily) are only about $115,000. At the 25th percentile, wealth excluding home equity is under $30,000 for every age bracket from 55 up. So basically the net worth number looks best for the people whose wealth is least spendable.
That calls into question the author's claim that "given their current net wealth, a solid majority of Americans can comfortably retire without Social Security." Back of the envelope math: safely drawing 4% on $115,000–$170,000 provides just $5,000–$7,000 a year versus a median SS retirement benefit in the low $20,000s.
For a typical retiree, SS is worth more than every financial asset they own combined. The author says that downsizing or reverse mortgages count as "doing fine" but that's just his opinion. Reverse mortgages are expensive and you lose your equity quickly, and downsizing in the current market basically means that you pay way more for way less.
From what I can tell, it's basically the top third who could do without SS comfortably. Not at all a "solid majority."
Can you elaborate on that? It's pretty common for people to sell their 4 bedroom family house and retire to Florida. But it's not "way more for way less"
Price per square foot tends to go up the smaller the home and the types of homes older people prefer (single-level, near hospitals, newer/lower maintenance) are in higher demand so they're also harder to find and more expensive.
Transaction costs (agent commissions, closing costs, moving) can be 8-10% of a sale. The capital gains exclusion is only $250,00 for singles and $500,000 for couples, so if you're sitting on big gains, a sale can come with a significant tax bill. In places like California, where assessment caps like Prop 13 keep property taxes low, buying a new home means that you could end up paying more in property tax on a much cheaper home. If you move into a condo, you have to deal with HOA fees. And so on.
Renting isn't always easy either. Senior independent communities can be really expensive (under some models you even have to pay hundreds of thousands of dollars up front) and even if you just rent a regular apartment, you need to compare the rents to drawdowns. $400,000 (the median net worth for 65–74 year-olds) provides $16,000/year at a 4% draw. The median rent for a 1 bedroom apartment in the US is somewhere between $1,200-$1,500.
You'll have a hard time convincing anyone that they want to participate in that.
Can you tell me how the table of numbers was generated? All it says is that it was "calculated" by ChatGPT. This guy is an econ professor; where's his reproducible methodology?
Further, he's treating this 2022 snapshot as a timeseries as if the various categories are tracking the same people over time. Just because 80 year olds in the data are wealthier than the younger brackets doesn't mean that those are the same people (in fact, those 80 year olds are boomers who grew up during a time of unprecedented financial growth and stability in the US, and who currently own a massive amount of housing in the US and are refusing to retire and allow younger people to take their high-paying jobs).
I can continue but those are the most egregious issues to begin with and I'm tired of reading this slop.
In my opinion, if the analysis is offloaded to the plagiarism machine, it loses all epistemological value.
People work because they dont have or need more money to survive.
Reality will tell you if people need to work as many hours and as many jobs, they must be struggling. This is also true of many western and other so called rich countries.
Sounds like a lot compared to annual income, but that's trivial if you're trying to retire and live off these assets until you die. Especially since public support, pensions, etc have been eviscerated.
Assuming you can get income of 5%/year from your assets (obviously depends on interest rates, investment mix, etc), 50 percent of people would need to survive on 20k/year or less to retire.
That's not being wealthy. That's choosing between abject piece, and working until you die. Dystopian.
Most don’t live like it and frankly the ones that show off typically are nowhere are wealthy as they’d like you to believe. Meanwhile the person driving an older model car and mowing their own grass has millions in the bank and doesn’t think twice about it.
Many are simply very wealthy but not materialistic.
Once you realize that 10% of households are getting $200k+/yr of unearned income and 1% of households are getting 1.3M+/yr of unearned income by virtue of owning lots of assets in an economic system geared to pump assets at the expense of literally everything else, it becomes very clear why the social contract experienced by the rest is undergoing rapid deterioration yet still has legions of influential staunch defenders that come out of the woodwork any time someone proposes even modestly pushing back on the worst of it.
Oops, did I say "unearned income"? Forgive me, I meant unrealized gains -- I didn't mean to imply that any taxes were due on those massive passive flows of money. Perish the thought!
1. The complaints he is mocking ("can't afford a $1,000 repair", "can't afford eggs") are about liquidity and cash flow. He rebuts them with accumulated net worth. Home equity or 401k can't pay for groceries though. Someone can both have decent net worth and have trouble affording basic necessities or paying for emergencies.
2. Households aren't people. The SCF's unit is the family, and the age is set by the reference person. The author says stuff like "Americans at the 75th percentile are millionaires by their mid-50s" describes households that usually contain two adults. Per person, divide that number by two and it becomes a lot less impressive. It also mangles the young end, e.g. a 25-year-old living with their parents aren't their own household.
3. A cross-section isn't a life cycle. He reads a 2022 snapshot as a trajectory ("age a couple decades and you're rarely poor"). But today's 65-69s are special: they caught a four-decade bond bull market, an equity boom, and a housing boom on top of that. Add survivorship: poorer, sicker people die earlier and drop out of the older bins, which mechanically inflates old-age wealth.
4. He concedes half of median wealth is home equity, then waves it away. But if you strip primary residence, the overall SCF median falls from about $192,900 to roughly $57,900. Reverse mortgages ("negative mortgages") have steep fees, low loan-to-value in your 60s, and tiny take-up... and you still have to live somewhere.
Aside from all that, he is also using the data wrong. He had ChatGPT build the table from the raw SCF. I am actually quite familiar with that file. It requires survey weights and five imputation implicates handled correctly. Percentiles in five-year age groups from ~4,600 families carry error bars that are pretty wide! Not to mention 2022 was a peak: median net worth had jumped 37% from 2019, which was the largest on record, and it happened mostly due to house prices skyrocketing. That, in turn, skewed the numbers.