Rich Get Richer – Poor Get Poorer

Is this true?  If you read the news you’ll think that it is – but is it really the case?

The problem with the studies that look at this topic is that they measure groups of people over time and not individuals through a life cycle of earning.  For example, we would all agree that as a young man just leaving college I would earn a salary that might be the lowest I’ll ever see in my life.  Then, as I age, gain experience and win promotions that salary would grow peaking when I am near 55 or so.  After that I may slow down, retire even seeing my “income” plummet as I rely on a pension, savings or social security.

Nothing at all controversial.

More People Are Rich

So, what would happen if it was reported that more Americans earn enough to be rich?

New research suggests that affluent Americans are more numerous than government data depict, encompassing 21% of working-age adults for at least a year by the time they turn 60. That proportion has more than doubled since 1979.

Remember, it’s how the numbers are read that matters – not how they are packaged for you to digest.  Does it matter that the wealthiest are seeing their wealth rise at a rate of 10% while the rest of us are only seeing a 5% gain?  Do we not realize that we are wealthier than we once were?

Further, the changing demographic of Americans is important.  For example, take just one factor, single parents.

Consider a population of 10 couple with perfectly equal incomes; $30,000 and $20,000 resulting in a household income of $50,000.  The average is $50,000.  Now, split just one of those couples in two resulting in the same number of working adults but with 11 households – 1 turns into 2.

The average goes to $45,454.  Same number of people, same salaries and we see a near 10% degradation of average.  Additionally we now see that we have two below average incomes.

Split 3 couples and the average plummets to $38,461.  If you were to measure a trend you might report that the poorest of the population has grown 300% from 2 members to the now 6.  In fact, the poorest half used to earn $40,000 while they now earn just $25,000.  A reduction in $15,000!

Never mind that we are talking about the same number of people working the same jobs and earning the same amount of money.