A year ago, I wrote a blog about wealth in the United States. In light of the current economic crisis, I thought I'd revisit the topic. I couldn't find hard numbers out this quickly, so this is just some extrapolating done with what I could find.
Last year, 10% of households earned more than $100,000. I haven't been able to find anything that says what percentage of this year's layoffs are affecting these higher income earners. But, the ABA Journal articles I'm reading seem to indicate that lawyers are only about 1 in 10 of the layoffs in big law firms. If that layoff ratio is the same in other industries, it's likely that the number of households earning more than $100,000 probably still falls between 9 and 10 percent.
Last year, the top 9% of households had $1 million in net worth, not counting their houses. So, the fact that their houses are worth about 20% less this year probably doesn't keep them out of the top. And, even though about 8,000 houses worth $1million or more were in foreclosure by September, that's still a drop in the bucket, less than 1/10 of 1% of wealthy households.
Where the wealthy are most likely seeing the economic slump is in their savings. These folks, with more than $1 million, were an average age of 58 last year. If they're following popular asset allocation strategies, that means they had between 25% and 40% in forms of saving that haven't diminished this year. But, that also means they had between 60% and 75% of their savings in investments that have lost lots of value. If they were conservatively invested in the Dow (down 36% - 8635 today divided by 14445 a year ago) or an S&P 500 fund (down about 42%), they've lost anywhere between$216,000 (36% of $600,000) and $315,000 (42% of $750,000). Neither the traditional strategies nor most people I've ever met are that conservative, so it's likely that they've lost a bit more. So, I'm guessing that the top 9% are no longer holding assets (excluding houses) worth over $1 million, but rather have something over $725,000.
The losses of the wealthy may seem pretty irrelevant to everyone else, but these losses may impact others. A year ago, it was considered reasonable to achieve 10% return on investments. That means these households could have had $100,000 in income from their savings beyond what they might be earning or receive from social security (nearly half were retired). With investments losing capital value and producing minimal income, many people will choose not to take any money out of investment accounts, in the hopes of regaining their former value. That means that this 9% of the population won't be putting $8,000 a month each into the economy. That's a lot less goods and services being purchased, and unfortunately a lot more layoffs rippling through the economy.
