Wednesday, April 24, 2013

Bucking the Trend

A new report from the Pew Research Foundation finds that the as the economy "recovers" the rich keep getting richer--while the middle class get a little less "middle class".  For the period from 2009 to 2011, the upper 7% of American households saw their net worth increase by 28-percent--while those in the "lower" 93% saw their net worth decrease by 4%.

(Before we go any farther, can we please come up with a set percentage for the "evil rich"?  When Occupy Wall Street first floated this idea it was the "1%"--meaning that I was in the "99%".  Then Mitt Romney came along and put me in the "53%" of Americans that was actually paying income taxes--meaning my "majority" had declined significantly.  Then it was President Obama who claimed/lied about how only the "Top 2%" were going to pay more in taxes under the fiscal cliff agreement--which put me back {not really} in the 98% category.  And now Pew comes around and tells us that it's actually the top "7%" that are screwing us.  Let's just pick a set percentage of people to blame here, so that my identity politics crisis can be solved)

Anyway, taking a look at our own finances for that period (NERD ALERT!) I find that the Krause household's net value increased by just over 23.5%.  So how did the decidedly "non-7%" couple from Oshkosh, Wisconsin outperform their peers by so much in that two year period?

First off, we both kept working.  That was a big part of it--maintaining two full-time incomes.  However, 2010 was a down year in terms of revenue as I decided to take a pay cut in order to try and "better the public good".  But we were able to make corresponding cuts in expenditures to absorb that lost revenue.

Secondly, we continued to reap the benefits of past good decisions.  This was especially true in the area of home equity--which was apparently the biggest drag on our fellow middle-class members' net worth for the period.  We bought an underpriced, undervalued property with cash down and continued to build equity by paying off our mortgage at a rate faster than the devaluation seen during the housing bubble burst.  We also went into the period with zero consumer debt--making any decline in real wages much easier to handle.

And lastly, we continued to make good decisions during those two years.  Remember Cash For Clunkers?  It was a great little program to help the Detroit automakers out of their sales doldrums--but it also put more Americans into vehicles carrying greater debt than what they were driving before.  And as we all know, unless the car we're talking about is the 1966 Corvette Sting Ray sitting in my Dad's garage, that vehicle starting losing its value the second you drove it off the lot--and continued to lose value every day after that--further reducing the "net value" of the owners.  The Krauses rejected Cash For Clunkers--keeping both our "clunkers" and our cash.  And we followed the same process the "7%" did to boost their status,according to the study--investing 12% of our gross income into investments--which saw steady growth for the period.

It's too bad we're going to have to wait another two years to find out how we did versus the rest of our peers from 2011 to 2013.  I know our percentage of net worth growth was even better than what the "7%" saw last time around.  And I'm guessing that for "some reason" the "bottom 93%" kept making the same financial mistakes that hindered their growth in the last study.

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