Are you slowly getting poorer? The numbers may surprise you

 

We keep hearing about the widening gap between the very rich and everyone else, as if life were improving for one percent of Americans, and growing harder for everyone else. But is that really true? It would be nice to know if we are advancing toward a time when we, or our descendents achieve true affluence, which I define as a condition in which one need do no un-chosen work. How can we tell if any real progress toward that goal has been made, or whether we are actually slipping further and further away.

Let's find out by taking a trip back to 1984 and seeing what normal was like back then. Based on the way certain indicators of quality of life have changed in that time, we can get a reasonable picture of where society as a whole is heading. We can also recalibrate to determine how our own level of success compares with that of our parents' generation.

Hold on to your hats, because American society has changed in some unexpected ways. Actually, nevermind, since one of those ways is that you probably don't wear a hat [Ed. Note: I think hat wearing went out long before 1984].

Note: I'll be using median numbers when possible for a relatively obvious reason: the fraction of the population for which wealth and income are increasing is vanishingly small, and despite the fact that their wealth and income have risen enough to distort the averages, that has no effect on anyone who is not a part of that minority. The median provides a far more representative picture.

Income

According to the U.S. Census Bureau, the inflation adjusted median annual household income has gone up in the past 30 years, from $46K in 1984 to $52 in 2013, so if your family is bringing in 17% more today than they were in 1984, you have the same approximate ratio of higher to lower income families that they did. Median income peaked, by the way, at $55K in 1999, which means real American incomes have been in decline for 15 years. That's right—it isn't your imagination.

Even as recently as 2007, the median income was more than $54K. If you have been wondering why it doesn't sound quite right when pundits say our society has undone all the damage done by the financial crash of 2008, this is very likely the reason. Keep in mind that declining wages are every bit as devastating to a society as inflation. America needs fewer people stockpiling gold and more people stockpiling brass—at least until they've accumulated enough to ask for a raise.

Net Worth

According to US Census information, the median household net worth, in 2011 dollars, fell from approximately $21K in 2000 to approximately $18K in 2011. While you may be able to find a greater range of years than that, I warn you that sources diverge considerably in their methodology as to how these data are derived, so be sure to stay away from biased sources, or at least be sure to find a source with a bias you share.

Many Americans don't know their own net worth, and that's understandable. Your 401K may send you a quarterly statement, but your house doesn't. The value of real estate plays a large part in the determination of net worth since for most families, the family home is still the largest investment they will make.

Since cross-generational comparison is probably impossible here, consider whether your monthly income is positive or negative in your total existence. That is, if you take all your assets, how much income do they generate, and if you take all your debts, how much interest do you pay on them? This is the real indicator of whether time is working for you or against you in economic terms. To the extent that it is working against you, you should be doing everything you can to change that.

Time may not seem to be doing much at any given time, but it goes on for a long time.

Hours Worked

Archaeologists believe the ancient Sumerians worked no more than one hour each day, preferring instead to drink beer, invent writing, and stockpile gold (what is it with that?) At some point, however, people began to work harder. According to Federal Reserve Economic Data, the average number of hours worked per year by Americans is just about 1,700. That is essentially unchanged from what it was in 1984. In this case, our parents had it no easier or tougher than we.

Our grandparents, however, had it considerably harder, as the number of hours worked per year was 1,900 in 1954. “But wait,” I hear someone saying, “I'm successful, and I work 1,900 hours year. I work more than that, in fact!” Sad to say, but that means you are considerably less prosperous than you probably believe. By working an additional 200 or more hours per year, you have taken on a tremendous economic burden. As with other economic burdens, this one can rob you of your ability to enjoy life in many ways. It not only reduces the availability of leisure time, but it inflicts numerous other harms as well, including obesity, hypertension, depression and substance abuse.

Disposable Income

Again, according to Federal Reserve Economic Data, Americans are doing better than they were a generation ago in at least one respect, disposable income. Annual per capita disposable income has risen from about $23K in 1984 to $37K today. That's a 60% improvement. If it doesn't feel that way, it is because the amount has been relatively flat since, you guessed it, 2008.

My own bias in this case would be to argue that all of what is being called “disposable” is not really disposable. Many things that didn't exist in 1984 (smartphones, for instance) are a necessity for anyone who wishes to hold a job today. The idea that this generation is frittering away 60% more money than the last on luxuries just doesn't ring true.

Children

In December of 2013, the CDC reported that in the US, there were 63 births per 1,000 fertile women. This was the lowest level ever recorded in the US, though not far below the 66 births per 1,000 recorded in 1984. In fact, the number has had two relative highs since then, first at 71 in 1990 and then at 69.3 in 2008.

Both those highs came right before big dips in the economy, which suggests that in America, greater affluence leads to more offspring. In this case, your own number of children tells you approximately the same thing as it did a generation ago, but as of today, it looks as though, if you have the same number of children as your parents, that you are slightly better off economically.

Be warned though, if you can't afford the children you have, the metric works in the exact opposite way, predicting coming financial hardship.

Julian Close has been a business writer since the first day of the twenty-first century, having written for PRA International and the United Nations Department of Peacekeeping. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. He became a stockbroker in 1993, but now works for Fresh Brewed Media and uses his powers only for good. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.

Julian Close

Julian Close

Julian Close became a stockbroker in 1995. In his 20 years of market experience, he has seen all market conditions and written about every aspect of investing. Julian has also written extensively on corporate best practices and even written reports for the United Nations. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.

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