Posts filed under “Retail”

Compare and Contrast: Millionaires versus 18 – 40 Demographic

We’ve run numerous stories discussing the decline of the middle class in the US. Historically, the middle class as we have come to know it was primarily a post-war phenomena. As of late, the group seems to be under increasing pressure, in what Dan Gross calls the "Cram Down decade."

Is it possible that this expansive, home-owning, SUV-driving, plasma-screen watching, internet surfing, day trading, kitchen-renovating, debt laden, cell phone chatting, iPod listening, credit card spending, consumer oriented group was merely a post-war aberration?

I sure as hell hope not . . . but if that is the case, a lot of economic infrastructure — think of each market sector referenced above  — is entering a potentially challenging period.

An interesting side note about this is that it is not a uniquely American phenomena: In Great Britain, a similar cram down effect seems to be at play:

"An official government study into Britain’s personal finances reveals a lost generation of 18- to 40-year-olds unable to cope with debts and soaring house prices, with alarmingly low levels of savings and little hope of building a decent pension.

The study, by the Financial Services Authority (FSA) and Bristol University, published today, is the biggest of its kind undertaken in Britain. It paints a picture of a generational divide fuelled by higher education costs and the collapse of company pension schemes – with 42% of adults now with no pension and 70% with no meaningful savings.

Around one-quarter of adults aged 20 to 39 have fallen into financial difficulties over the past five years, compared with 5% of over 60-year-olds, said the report."

What makes this study so fascinating is that this is less a matter of "class warfare" then it is a generational one. The UK study discovered that "24% of young adults are currently overdrawn, compared to 11% of over-50s and just 4% of over 60s."

Its not a function of thrift or industriousness, but rather, its due to "rapidly changing economic and social trends presenting young adults with greater challenges than their parents. Even after lower incomes and limited experience are taken into account those in the 18 to 40 age group are less financially capable than their elders."

In the United States, we see a similar phenomena. Younger people are saving less, and graduating college with more debt. The job market remains difficult, although the silver lining is that the entrepreneurially talented have options oday that did not exist 20 years ago.

At the same time, the number of "American households with a net worth of $1 million or more, excluding their principal residence, grew to a record 8.9 million last year," according to an article in today’s NYT:

"The number of millionaire families rose to 7.1 million in 1999, said Jeanette Luhr, a TNS manager who directed the survey, and then, after the Internet bubble burst, dropped steadily to 5.5 million by 2002. The ranks of millionaire households rose to 6.2 million in 2003 and 8.2 million in 2004, she said.

More than one in seven of the households were in just 13 of the nation’s 3,140 counties, TNS said.

In most large counties, about one household in 12, or about 8.5 percent, was worth $1 million or more, Ms. Luhr said. An exception was Nassau County on Long Island, where millionaire families were more than twice as common, at 17.5 percent of all households.

The households had an average net worth, excluding principal residence, of nearly $2.2 million, of which more than $1.4 million was in liquid, or investable, assets. The survey counted some tax-deferred retirement savings but did not include individual retirement accounts in the liquid assets."

There’s another discussion about how the rich themselves are stratifying: There’s the merely rich, and the uber rich — but that’s an enitrely different issue. Meanwhile, some of the details about the US millionaires are pretty surprising and fascinating:

"The survey found that 29 percent of the millionaire households did not own stocks or bonds and 32 percent did not own mutual funds. One in four had a second mortgage on a home. Half of the heads of millionaire households were 58 or older, Ms. Luhr said, and 45 percent were retired.

Just 18.7 percent of the millionaires own — or owned before they retired — part of a business or professional practice, an indication that high-wage earners who save and invest are the dominate group, at least among those on the lower rungs of the millionaire class.

195 counties had at least 10,000 millionaires and that slightly more than a third of all counties had at least 1,000 millionaires"

Two groups seem to be bearing the brunt of economic change: the middle class, and those who have entered into the work force over the past 20 years place.

Whether this is a temporary phenomenon or a full blown secular change will have a significant impact  — on society, on the economy, and on the markets . . .

click for larger table

Millionair_lg


Sources:

Study reveals financial crisis of the 18-40s
Patrick Collinson
The Guardian, Tuesday March 28, 2006
http://money.guardian.co.uk/news_/story/0,,1741079,00.html

New Rise in Number of Millionaire Families
DAVID CAY JOHNSTON
NYT, March 28, 2006
http://www.nytimes.com/2006/03/28/business/28rich.html

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