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b'Americans Are Richer Than Ever, But They Don\\u2019t Feel That Way. Which Income Class Are You In?
On March 9, 2017, the Federal Reserve reported that the net worth of U.S. households and non-profit organizations rose to $92.8 trillion during the fourth quarter of 2016, up 6.3% from the end of 2015. This is a sum of all assets (such as homes, stocks, bonds, vehicles, and cash) minus all debts, including mortgages, credit cards, and student and auto loans. Actually, it\\u2019s amazing that they can even come up with a number like that!
The big rally in stocks and a steady climb in home prices added more than $2 trillion of wealth to household balance sheets. The biggest contributor was the stock market, which added $728 billion to household net worth in the fourth quarter, and the continuing increase in national real estate prices, which climbed by $557 billion in the fourth quarter, reaching a record of $26.5 trillion. That exceeds the housing bubble\\u2019s peak by more than $1 trillion. Talk about a bounce back\\u2014wow!
Household debt increased at an annual rate of 3.8 percent in the fourth quarter of 2016 to about $15 trillion, spurred by record-low interest rates. Consumer credit grew 6.2 percent, while mortgage debt grew 3.1 percent at an annual rate.
But even though U.S. household net worth hit a new high, that news is small solace to a majority of Americans\\u2014and there\\u2019s the rub.
That\\u2019s because a rising market benefits only a small percentage of U.S. households since stock ownership is concentrated among the wealthy. Many individuals who might have been invested have also missed the eight-year bull market. Cash flowed out of U.S. equity funds in six of the past eight years through 2016, according to data from Morningstar.
On the other hand, rising home values benefited more U.S. households because there are more homeowners than stock owners and because the value of homes far exceeds the value of stocks held by typical American families. Even so, the homeownership rate is near a 50-year low and is well below its pre-crisis peak in 2006.
This is why the so-called \\u201cwealth effect\\u201d isn\\u2019t having as much of an impact on how consumers are spending their money as it used to. I think the \\u201cwealth effect\\u201d has also been smaller than usual due to lingering caution after the financial crisis.
In addition, the personal savings rate was at 5.5% as of January 2017, twice as high as a decade ago. And, while there are early signs of wage growth, wages have grown surprisingly slowly for much of the economic recovery. So, while bulging portfolios are nice, fatter paychecks are what we need to kick the U.S. economy into the next gear.
This new report also begs the question: Which income class do you belong to?
While politicians love to use the term "middle class" to evoke images of vigorous, respectable, hard-working Americans with good moral values, the truth is the middle class includes people with vastly different lifestyles and vastly different concerns.
During his first speech to a joint session of Congress, President Trump blamed the shrinking of the middle class on America\'s trade policies, repeated his promise to provide "massive tax relief" to this group, and said that a merit-based immigration system will help struggling families get back into the middle-class category.
But, really, what is middle class in America? Which Americans are actually middle class?
The median household income in the U.S. is $56,500. So approximately half of all Americans fall below this $56,500 annual income figure and the other half are above it. But this figure, by itself, doesn\'t help us compare households of different sizes\\u2014 $56,500 to a young couple with no children is very different from $56,500 for a couple with three children, especially if the kids are in college.
What is Upper-Middle Class?
According to census data from 2015, 6.1% of U.S.'