The Unknown Ills of Inequality

**Note I talk about two different articles and a podcast within this blog post**
Good Afternoon,

Everyone has known that inequality exists, but over the past couple of years, new studies have been done highlighting the impact it has on societies. A couple of weeks ago the Milikin Institute in conjunction with JP Morgan released the results of a business case they are presenting for closing the wealth gap between ethnicities. From the article, a couple of stark points stood out:

1. 20% of African American Households are unbanked
2. In 2016 the Federal Reserve released a report showing that the average African American family had a net worth of 17k, while the average white household had a net worth of $171k
3. If People of Color owned business at the same rate as white entrepreneurs it would result in 9 Million more jobs and $300 Billion (yes, Billion) in worker income

The net worth gap is significant, but it is partially a derivative of homeownership being a bulk of the average American's net worth. While it can be explained, it is still not a good statistic. Bloomberg also did a report about how inequality is also squeezing the middle class. In their article, they pointed out that:

1. At the end of 2018, the average middle-income household had wealth of $340k while those in the top 10% had 4.5 Million, up 19% before the recession
2. 1/3rd of middle-income adults can't afford a $400 expense and 25% said they skipped some kind of medical care in 2018 because of its cost
3. The share of income spent on rent by the middle class rose to 25% in 2018 from 18% in 2007.

The information being presented by the three entities mentioned is damaging and shows why it has been a struggle for people since the Global Financial Crisis. One thing that is not mentioned in the Fed article is that wage growth had been stagnant for decades (yes, over 20 years) which has impacted everyone currently in the labor force over 25 years old.  The overreliance on the house as a source of net worth instead of investments has exacerbated the gap. I know I have painted a bleak picture but hopefully from this information you have gained an understanding of why I feel that blogging about financial awareness is critical for your own wellbeing.

As a bonus, I've included an NPR Planet Money podcast about Economics, Sexism, and Data so you can see how those that do the studies (and claim no biases) also have biases.

http://powerofideas.milkeninstitute.org/global-conference/global-conference-2019/a-business-case-for-closing-americas-racial-wealth-gap

https://www.bloomberg.com/news/articles/2019-05-10/fed-officials-warn-inequality-is-threat-to-what-made-u-s-great

https://www.npr.org/2019/05/03/720139562/episode-910-economics-sexism-data

Comments

Post a Comment

Popular posts from this blog

Tax Time!

Good Morning, The end of January is quickly approaching, which the means tax season is upon us. Everyone hasn’t their own method of filing their taxes, but the new 1040 form is now the size of a postcard. Marketwatch came out with an article highlighting this change and other sources. The key points from the article are: 1. Despite it being smaller, it isn’t more different than simplistic 2. You need to file schedules if you are: itemizing, have business activities, capital gains/losses or dividend/interest income associated with investments, etc. 3. The due date for most taxpayers is 4/15 When the new tax laws were put in place the goal was to simplify the tax code and allow more people to use the standard deduction. What most of us will find out is that with a change to the tax code the size of our refunds/payments will change based on the taxable percentages changing.   The simplification of the tax code might change the need for a tax preparer, but before...
Read more

Federal Reserve Raises Rates Again

(repost from 9/27/2018) Good Morning, Yesterday, the Federal Reserve raised interest rates again this year. The CNNMoney article below covered a couple points worth paying attention to: The Fed does not see tariffs having an impact on the economic data at this time There is some uncertainty with doing another rate increase in the fourth quarter (earlier this year the Fed was split on whether it should do three or four raises), but they plan on doing three increases next year, and one in 2020 Trade tensions between the US and China are a headwind for 2019 growth which is forecasted to be 2.5% (currently we are on track for 3.1% GDP growth) This article lays out expectations for the Fed to raise close to another 1% over the next 2 years which would push interest rates higher. The impact of this will be higher interest rates payments on variable loans, higher interest rate payments for the government, and this will slow down our hot economy. The Federal Reserve is dependent on ...
Read more

Fake Christmas

Good Morning, This year has been a crazy one that seemed more like a soap opera than real life. One of the topics that I have blogged about in the past was the F.I.R.E. (Financial Independence, Retire Early) methodology. When I first learned about this topic earlier this year ( January 2019 post ), I was a little skeptical based on my view that some of its underlying future assumptions are flawed. Last week a proponent of the F.I.R.E. methodology wrote an article for CNBC about why the lifestyle turned out to be unsustainable for his family. The CNBC article highlighted a couple of key points; Income needs were overestimated based on an assumption of higher bond interest Children increase cash-flow needs Healthcare costs were underestimated Location and cost of living were significant factors in the cost of living The overall concept of F.I.R.E. is attractive, but sustainability was always one of my biggest complaints. I am a fan of the concept and the philosophy, bu...
Read more