Monday we learned that two years ago Americans were at the same level of prosperity as of 20 years earlier.
Though almost two years old, the data from the much-anticipated Survey of Consumer Finances is still relevant. Climbing out of the 2008 recession is at a snail’s pace due to budgetary and political dynamics.
We’re also learning that things will never be the same, especially in the housing market. Seventy-five percent of “lost” income is a result of the devaluing of the current housing stock. For many middle-income earners, the equity they have in their homes is their primary asset. The wealthy, meanwhile, have their main investments in stocks and bonds, which have since rebounded in value.
Household debt is taking a bigger bite out of people’s paychecks. Record-low interest rates have helped many refinance their mortgages, but as a country, almost 75 percent of households owe money. A bigger share is incurred by student loans, now outpacing that owed for cars.
IF WE COULD have an Etch-a-Sketch moment to wipe the slate clean, new thinking as well as old standards come into focus.
1. Disregard the standard that a home is an investment. It’s a place to live. You may get your money back from the money spent on new countertops, floors and landscaping when it comes time to sell, but it’s better to make such changes only if you can afford them now. In other words, don’t take out a loan to pay for such improvements betting that the house will sell to cover those costs.
Think of a house like a car. Unless you have an ocean view, your house will devalue with time. Those updates may keep a house at its current value — if we’ve truly hit “bottom” — but don’t count on them warranting a bigger price tag.
2. Invest your savings. As a country, only 52 percent record any savings, down from 56.4 percent in 2007. For those who can, investing in the stock market is still your best bet. Most investments have regained their earnings over the past few years.
3. Don’t get sucked into fast-cash loans that have usurious interest rates. It’s the fastest tack to torture.
UNTIL WE CAN better bridge the gap between the wealthy and the poor, Social Security increasingly will be needed. For millions of retirees and the unemployed it’s their only lifeline between survival and starvation.
We need to continue to devote more to the system. That can be done easily by raising the income cap.
Today, those who earn more than $110,000 pay no Social Security tax on that additional income.
Congress should insist the fund remains solvent. If the earnings cap needs raised — do it.
Over the last 20 years the U.S. income tax code has become less redistributive among earners, strongly favoring the wealthy to the detriment of the middle class and the poor.
