This post will cover some observations on the K Shaped economy. To begin, however, let us look at a big, if not huge surprise in one major demographic shift that has been taking place in recent years. That is the growing wealth of American households with someone aged 75 or older.
Way back in 1983, the wealth of 75+ households was 5% above the total household base. By 2007, the matures had distanced themselves 16% above the total population. * Today, the gap is much wider especially when you compare the 75+ demographic to the 35-44 demo of people beginning to approach their prime earning years.
A few examples of average net worth by household demo are:
Average Net Worth
35-44 $549,600
45-54 975,800
55-64 1,566,900
65-74 1,794,600
75+ 1,624,100
You may, at first blush, feel that these numbers are absurdly high. Yes, in one sense, this is true as they are averages and let the super affluent and just plain rich pull up the numbers. A more realistic look is to look at MEDIAN net worth. The median is, of course, the 50th percentile in a group of data. So approximately half of American households are above the median and 50% below it.
Median Net Worth
35-44 $135,600
45-54 247,200
55-64 364,500
65-74 409,900
75+ 355,600
Source: Federal Reserve Survey of Consumer Finances
Lumping all demographics together, the average net worth was $1.06 million and median net worth was $192,700.
Today, the top 10% in household income make 50% of consumer purchases. That makes overall sales and economic data look good but what about the millions struggling to pay for gasoline and groceries? To me, the overall sales look like the average income figures above while the real look at the economy is more like the median data in terms of showing total accuracy.
The K shaped economy is not a temporary state as we bounce off the difficult pandemic years. The “wealth effect” has kicked in as the affluent feel more confident given current real estate and strong stock holdings.
Want to know why the Democratic Socialists are gaining traction with younger people, especially the under 35’s? Many have huge student debts and are priced out of purchasing a home in most areas of the U.S. The geezers are in a good position relatively speaking as they almost always are mortgage free, and many either have a defined benefit pension or a strong 401k balance. Some also inherited modest sums from their late parents.
Back in the 1920’s, there was a popular song entitled “Ain’t We Got Fun.” A key line allegedly stolen from English poet Shelley, is “there’s nothing surer; the rich get richer and the poor get poorer.” Some younger people feel that way and there is growing resentment against baby boomers born 1946-1964 who are doing well these days and will be largely shielded from employment shifts as Artificial Intelligence grows.
Is there a solution? With the center virtually dead in American politics, I am not sure how the K-shaped economy can be corrected with compromises coming from both ends of the political spectrum. Some people tell me the next bear market in equities and/or real estate will right the ship but remember half of all American households have almost no skin in stocks and home ownership is in strong decline. The average age of the first-time home purchaser is 40! Not that long ago it was 29. So, even a bear market in either stocks or real estate or both would not totally derail the K-shaped economy.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.
*Source—Federal Reserve’s Survey of Consumer Finances
