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Anyone with an average net worth, say, 50k is beyond broke. They are in a situation that "bankrupt" cannot even begin to describe. A true personal balance sheet should include the present value of all future liabilities: rent/mortgage interest, car insurance, utilities, school fees, cable TV etc. Good luck funding a lifetime of that stuff with 50K. Sure your job is "your greatest asset", and the present value of your future wages exceeds your liabilities, but if you were thorough and risk-adjusted those cash flows you would realize that your liabilities are as certain as death and taxes, whereas your employment income can disappear in a flash. Essentially we are all highly leveraged speculative traders in goods and services, living day to day in constant fear of a margin call. Good luck everyone.
Your argument implicitly assumes everyone should live on income produced by capital and not by laboring to earn it in wages/salaries.
The problem with that line of thinking is that somebody has to work, otherwise we will all die. How do I know this? Simple. No labor means no production. No production means no products. No products means nothing to consume. Nothing to consume means no consumption. And no consumption means no sustenance.
It is human nature to become lazy and not do the things necessary for production. Trouble is, someone's gotta do the work, and they have to be made to do the work by society. On average, a person must produce as much as he/she consumes.
The way we keep track of production and consumption is with money. In a very important sense, money represents 'frozen labor' (i.e. having money signifies a right to future consumption earned through the corresponding amount of production). So while it may seem unfortunate to need to work for a living rather than simply being endowed with the capital to provide it for you, it is in fact necessary for the continued survival of the human race that that be the case.
I'm not always sure if most people understand what net worth is. Very simply it's assets minus liabilities. Assets meaning house equity, cash in the bank, monetary value of material possessions, retirement savings etc. Liabilities meaning basically anything owed on mortgages, credit cards, college tuition loans, car loans, loans for home improvement, medical debt, etc.
When these simple things are taken into account we can see most everybody except the very rich top 5-8% are worth nothing to less than 0. When you own everything outright, have no loans and have substantial money in the bank, then you are wealthy. Upper middle class Americans are not well off either contrary to what your upper middle class neighbor living next to you with his BMW, $300,000 home and fancy clothes may have you believe.
The above person even if his spouse is working and they are college educated and making $150,000 combined are worth nothing probably. Add up all they owe versus some equity in the home and some retirement money in an 401K or otherwise, a meager savings probably and some money in material possessions (electronics,etc) and they probably owe more than the sum total of any assets.
Really most of us "rent" our lifestyle. The more we make, the more the banks can loan us money to further our debt. That's really how it works. You don't own your car, you rent it as long as you make payments or don't have any. By then, the car usually has very little market value and as a asset is practically nothing. You rent your home as long as you pay your mortgage. More people are underwater than ever before on their homes when they owe more than the value of the homes. Stop making payments and find out you are not really a "homeowner", you merely are a home "renter" until it's paid off.
Having a so called "good lifestyle" today merely means having the ability to "rent" some nice things in life so to speak and finance your life through debt. Anybody care to discuss these points?
Having only house equity (and not the whole property value) as an asset and including the mortgage as a liability is counting the mortgage debt twice.
If you do that, concluding that most have a net worth less than zero isn't all that meaningful, really...
Your argument implicitly assumes everyone should live on income produced by capital and not by laboring to earn it in wages/salaries.
The problem with that line of thinking is that somebody has to work, otherwise we will all die. How do I know this? Simple. No labor means no production. No production means no products. No products means nothing to consume. Nothing to consume means no consumption. And no consumption means no sustenance.
It is human nature to become lazy and not do the things necessary for production. Trouble is, someone's gotta do the work, and they have to be made to do the work by society. On average, a person must produce as much as he/she consumes.
The way we keep track of production and consumption is with money. In a very important sense, money represents 'frozen labor' (i.e. having money signifies a right to future consumption earned through the corresponding amount of production). So while it may seem unfortunate to need to work for a living rather than simply being endowed with the capital to provide it for you, it is in fact necessary for the continued survival of the human race that that be the case.
Sorry I think this is getting a bit too academic for me, coz I have no idea what you are talking about really. My point was that most people in this country are buried in financial commitments and are desperately working just to keep up with them, therefore any sense of wealth accumulation is vastly overstated, and as the OP suggested we are indeed "renting our lifestyle". As far as the production/consumption cycle being necessary for human survival, it might be true in theory but in practice half of the crap that is produced these days could vanish without threatening human existence. I certainly don't think human nature is lazy, quite the opposite. But the idea that being a slave is the only way to survive is a complete scam. There are more than enough productive assets around to sustain entire populations, they are just not being used for that purpose, thanks in part to the kind of grand economic theories that you have been studying, but that are sadly completely irrelevant to flesh and bone human life.
LOL... The readers from New York, SF, LA are laughing at the $300,000 home number.
(I am not being uppity, it's more of an indictment on the ridiculousness of those places)
Home prices are relevant to the cost of living in the area. Its irrelevant whether its considered cheap by NY standards or not. NY, SF LA are the odd places. The median home price nationally in Feb was 200K so a 300K home means that individual is doing quite well.
Sorry I think this is getting a bit too academic for me, coz I have no idea what you are talking about really. My point was that most people in this country are buried in financial commitments and are desperately working just to keep up with them, therefore any sense of wealth accumulation is vastly overstated, and as the OP suggested we are indeed "renting our lifestyle".
Buried in financial commitments? What kind of financial commitments, children or debt? These are very different things and making blanket statements makes it difficult to discuss the issue.
Quote:
Originally Posted by skytop
As far as the production/consumption cycle being necessary for human survival, it might be true in theory but in practice half of the crap that is produced these days could vanish without threatening human existence.
By admitting that, you are also admitting that much of the average Joe's expenditures are discretionary, not necessary. From that fact, it follows that much of the average Joe's financial struggles are self-induced, not something done to them that they can't escape.
Quote:
Originally Posted by skytop
I certainly don't think human nature is lazy, quite the opposite. But the idea that being a slave is the only way to survive is a complete scam. There are more than enough productive assets around to sustain entire populations, they are just not being used for that purpose, thanks in part to the kind of grand economic theories that you have been studying, but that are sadly completely irrelevant to flesh and bone human life.
No, not without labor. The factories don't run themselves. Someone has to work, whether you like it or not.
Upper middle class Americans are not well off either contrary to what your upper middle class neighbor living next to you with his BMW, $300,000 home and fancy clothes may have you believe.
Quote:
Originally Posted by happyloman
LOL... The readers from New York, SF, LA are laughing at the $300,000 home number.
(I am not being uppity, it's more of an indictment on the ridiculousness of those places)
Quote:
Originally Posted by griffon652
Home prices are relevant to the cost of living in the area. Its irrelevant whether its considered cheap by NY standards or not. NY, SF LA are the odd places. The median home price nationally in Feb was 200K so a 300K home means that individual is doing quite well.
But it is relevant in terms of pointing out that the OP's blanket statement has some implicit assumptions that are not correct for tens of millions of Americans.
I'm not always sure if most people understand what net worth is. Very simply it's assets minus liabilities. Assets meaning house equity, cash in the bank, monetary value of material possessions, retirement savings etc. Liabilities meaning basically anything owed on mortgages, credit cards, college tuition loans, car loans, loans for home improvement, medical debt, etc.
When these simple things are taken into account we can see most everybody except the very rich top 5-8% are worth nothing to less than 0. When you own everything outright, have no loans and have substantial money in the bank, then you are wealthy. Upper middle class Americans are not well off either contrary to what your upper middle class neighbor living next to you with his BMW, $300,000 home and fancy clothes may have you believe.
The above person even if his spouse is working and they are college educated and making $150,000 combined are worth nothing probably. Add up all they owe versus some equity in the home and some retirement money in an 401K or otherwise, a meager savings probably and some money in material possessions (electronics,etc) and they probably owe more than the sum total of any assets.
Really most of us "rent" our lifestyle. The more we make, the more the banks can loan us money to further our debt. That's really how it works. You don't own your car, you rent it as long as you make payments or don't have any. By then, the car usually has very little market value and as a asset is practically nothing. You rent your home as long as you pay your mortgage. More people are underwater than ever before on their homes when they owe more than the value of the homes. Stop making payments and find out you are not really a "homeowner", you merely are a home "renter" until it's paid off.
Having a so called "good lifestyle" today merely means having the ability to "rent" some nice things in life so to speak and finance your life through debt. Anybody care to discuss these points?
Yes banks could loan you more but no one holds a gun to your head to make you sign. Also at $150k the government takes a big chunk of your money and keeping you poor. Lower taxes is worth more than a raise especially at your income level.
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