U.S. Consumer Wages, Income, Wealth and Savings - Research Paper Example

U.S. Consumer Wages, Income, Wealth and Savings In the last three decades, the US economy has experienced one of itsbest as well as worst moments. It is during this period that consumer wages, wealth and income rates rose to unprecedented levels. The last decade however saw a mixture of both an economic boom and an economic recession which had a negative effect on income and wealth (Frank 24). This paper focuses on the consumer wages, income, wealth and savings in the United States, and how the trends in this area have changed in the last 20 years. Wealth is the value of all assets owned by a person, household or nation net of all liabilities owed at a given point. Wealth can be in the form of real estate, businesses, liquid assets, money market funds, stocks, bonds and other securities. However, having great wealth is not an indication of great intelligence. A person, community or country is said to be wealthy if they posses more assets than liabilities (Wolff2 34). People often believe that it is not possible to accumulate wealth unless your earning is high. But in fact it is possible to create wealth on low income and not to have wealth despite a high income. The following are key ways of accumulating wealth (Marquis 14): Avoiding Debts In order to create more wealth one needs to have a net surplus each month. But when one borrows, he or she essentially uses his or her next month’s income to pay for this month’s expenses. Therefore, in order to get wealthy you must first clear your debts because once you are debt free, you can accumulate wealth. Diversification By putting all your shares in one company or even a single sector, you are likely to lose everything you have accumulated incase something goes wrong in that sector. Diversification makes it possible for individuals to have more than one source of income, and so they can have more wealth. Therefore to become wealthy, one must diversify across all categories of investment. Retirement funds It is very hard to work at an older age and make more wealth. Therefore to continue accumulating more wealth, one can save for his or her old age. Another ways of saving for pension is to open an individual retirement or a personal pension account. These may vary in rule but may come in tax breaks which will be a valuable boost for the funds. Emergency saving One should build up emergency savings to cover for any emergencies that may crop up in future. Even the most prosperous people can hit a bad spell of bad luck such as illness or loss of a job and become in need of money. Therefore, to prepare for these cases one should aside some money that he or she can easily access. Monitoring your investments By monitoring your investments you are in a better place to recognize any losses that are likely to arise from the business you are engaged in. People who lose money that they have invested are those who do not monitor their investments but instead adopt an unthinkingly attitude to their portfolios. Consumer Wages and Income Income is the term that is used to describe the flow of money over a specific period and it is in the form of rates. Income is what people get through work, social welfare and retirement benefits. The United States Bureau of Census defines income as what an individual receives “on a regular basis before payments for personal income taxes, social security, union dues and medicare deductions”. Some of the factors affecting income levels in the US include: profession, education, wealth and race (Ryu and Slottje 67). Most Americans derive their incomes from their jobs. Professional earnings are normally determined by the law of supply and demand. Some professional specialties are normally in high demand but in low supply, thus making their income levels to be high. The complexity of a certain profession also determines the income for an individual. For instance, people who are involved in high-level complex Over the last three years, consumer price wages have had to deal with the issue of inflation, which has negatively affected consumers. A government issued report shows that inflation is quickly outpacing consumer wages. The 2008 recession left many Americans out of employment, meaning that many of them lost their basic source of income (Tanner and Abdih 70). The country is currently grappling with a 10% unemployment rate, a fact that is heavily impacting on consumer spending, which is in turn weighing negatively on the country’s economic outlook. The situation is even being made worse by the moderate rise in prices and the fall of consumer wages by 1.6% in 2009. This means that consumers lost their buying power by 1.6 percent, which put a strain on Americans’ finances. The fall of consumer wages can be blamed on the lack of wage increments even in the wake of rising costs of living. The job market has also become less competitive since there are very few new jobs being created. There is therefore less pressure on employers to increase the wages of their workers. Healthcare costs are also on the rise, putting more pressure on consumers to spend their meager wages and not save (Wolff1 46). Source: US Census Bureau Wealth In the US, wealth is measured through household survey in which individuals provide conclusive information about the assets that they own and any kinds of debts that they might have. According to government census records of 2009, the country’s assets stand at 68,178 billion dollars. During the last 20 to 30 years, the American economy was very strong and most of the assets value increased tremendously during this period. Tangible assets were 23,063 billion; real estate’s wealth was 18,207 while households contributed 16,575 billion dollars to the total assets (US Census Bureau). The wealthiest of all states is California which has 428 top wealth holders and a net worth of 1.79 billion dollars. New York comes second with a net worth of 942, 812 million dollars. The state has 168,000 top wealth holders compared to only 1 in North Dakota and Alaska. Alaska’s net worth is 4,776 and that of North Dakota is 3, 988. The two states have the lowest records of net worth in the whole of the US. Other states that contribute greatly to the country’s net worth include Florida, Texas, Illinois, Pennsylvania, Massachusetts and New Jersey in that order (US Bureau of Statisticss). This wealth is owned by a small number of people, mostly from the same families. According to data released by the Bureau of Statistics, only 1% of American wealthiest families own about 34.3% of the country’s total net worth. The same figures indicate that only 10% of American families own over 70 percent of the nation’s wealth. However the situation is considerably bleak for the bottom 40% of the population who can only claim less than 1% of the net wealth of the US. Source: US Bureau of Statistics The 2009 US census figures indicate that there are more Americans who are poor today than there have been in the past half century. The census figures also show that the gap between the poor and the rich is widening instead of closing in. there have been many things that have been blamed for the rise in poverty levels in the country. One of these is the 2008/2009 recession that led to loss of employment and personal assets. The erosion of the middle class has also been blamed for the widening poor vs. rich gap (Ryu and Slottje 67). Individuals on the lower side of the wealth ladder live in some of the most impoverished parts of the US. According to estimates issued in 2004, 12% of Americans are living below the poverty line. These people also do not get to enjoy most of the fundamental opportunities that the rich have easy access to. This means that they lack access to basic opportunities such as education and health services. In this day and era, it is hard to accumulate substantive wealth with lack of education. Most people who get good jobs and are able to accumulate wealth are those with a good education (Marquis 104). According to the United States Bureau of Statistics, of those who are 25 years 42% of them earn less than 25,000 dollars. The top 10% had incomes exceeding 82,000 dollars. Race also plays a big role in wealth distribution in American households. Asian Americans earn higher incomes than any of the rest. White Americans earn 20 percent more than African Americans and 28.5% more than Hispanic Americans (US Census Bureau). Source: US Census Bureau Inflation is one of the factors affecting the economy of the United States in a negative way. The country has less wealth than it would have had if the recession had not occurred. To offset the inflation rate and make the economic situation better, the government started an ambitious recovery plan, which unfortunately only put the country deeper into debt. 2010 estimates show that the country’s public debt is 58.9% of GDP. Savings Savings is the term used to refer to income that has not been spent. In 2005, the personal savings of Americans dipped into the negative. People made use of their savings to buy homes cars and other high cost items (Tanner and Abdih 33). At this time, many people did not think much about saving and spending their savings on non-essential things. The 2008 recession left many Americans financially broken and it is now that they are trying to rebuild their lives again. They do not save anymore and many of them have already used their former savings. Currently many of them are living paycheck to paycheck, are occasionally depending on credit cards to take care of their emergency needs (US Bureau of Economic Analysis). Source: US Census Bureau In 2008, a shortfall of savings was recorded at negative 0.2 percent. This shortfall was even greater in 2009 when it was reordered at 2.3%. This kind of savings drop was last recorded in 1934. One of the reasons why net savings dipped in 2009 was due to the federal government’s deficit spending. This reduced the net savings at a rate of 1.33 trillion dollars during the last quarter of 2009. This gap was widened further by 14.9 billion dollars by local government and state deficits (Wolff2 34). Source: US Bureau of Economic Analysis Past Trends and Future Outlook A few years to the 2008 recession, the US experienced a surge in household wealth. This surge was felt in the housing and equality shares sectors. With this increase in assets, households could now enjoy higher consumption and at the same time be able to add to their net worth. This was all happening even as savings rates fell to incredibly low levels (Rudebusch 50). After the 2008 recession, the saving capacity of Americans was tested to the limit. The value of individual and family assets suddenly plummeted after this crisis. This led families and households to consume less (Tanner and Abdih 43). However, the future does not look as bleak as it did during the recession. Policy changes have enabled lawmakers to implement fiscal regulations that are stricter in the government sector. There have also been major tax reforms that encourage Americans to save (US Bureau of Economic Analysis). These tax reforms encourage the shift of tax base more towards consumption. The implementation of monetary policies that discourage asset price bubbles which would otherwise encourage consumption is also one of the factors that have led to more savings in the recent few months. People have started to save and wealth is slowly being created among more people. Conclusion The US economy has undergone tremendous changes in the last 20 years. It has seen some of its best and worst moments and this has had a great impact on consumer wages, income, wealth and savings. Wealth distribution in the US varies greatly among different racial demographics, education levels and professions. Highly educated individuals working in complex professionals enjoy higher incomes than other people. Asian Americans are also likely to earn more then other racial groups. During the 1990s, most Americans were experiencing comfortable financial status and they engaged in asset accumulation activities. Most of them were able to secure incomes which enabled them to acquire loans with which they used to finance their asset accumulation. The 2008 economic downturn greatly affected the US economy, making people loose their jobs and enter into debts. Works Cited Frank, Robert. Richitan: A Journey Through the American Wealth Boom and the lives of the New Rich. New York, Crown Publishing, 2007. Print. Marquis, M. What’s Behind the Low U.S. Personal Saving Rate? FRSBF Economic Letter, 2002. Ryu, Hang Keun and Daniel Jonathan Slottje. Measuring trends in U.S. income inequality: theory and applications. New York: Springer, 1998. Print. Rudebusch, G.D. Monetary Policy and Asset Price Bubbles. FRBSF Economic Letter, 2005 Tanner, Evan and Abdih, Yasser. Rebuilding U.S. Wealth. Finance and Development, 2009. U.S. Census Bureau. 2010. Income Statistics. 2010. Web. Mar. 15, 2011. http://www.census.gov/hhes/www/income/income.html US Bureau of Economic Analysis. Personal Saving Rate. 2010. Web. Mar. 15, 2011. Wolff1, Edward. International Perspectives on Household Wealth. Northampton, MA: Edward Elgar, 2006. Print. Wolff2, Edward N. Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze—an Update to 2007. New York: Springer, 2008. Print. Read More