The 70% number was based on a survey by the WSJ. It would be interesting to look at the questions and who was surveyed. After I contribute to my 401(k), pay my bills, contribute to the kids 529's, budget for the month's entertainment expenses and put a little more into by brokerage account, there isn't much left over until the next check.
I guess I'm living paycheck to paycheck too. However, to conclude that I'm not financially sound, or not saving enough for retirement, would be ridiculous. To say 70% of American's are living paycheck to paycheck is a silly statistic without knowing the details of the survey.
Let's look at the Fed report. According to the Fed, American households have a total net worth of about $49 trillion which is double what it was just a decade ago. Only about 20% of this net worth is attributable to home equity. That's a lot of additional assets American's own other than their homes. The average American households has about 57% equity in their home. Just how bad do you think any correction in the real estate market will be and; just how much will it hurt us, in aggregate, when the average homeowner has that much in equity?
The national debt, as a percentage of household wealth, is a smaller amount now, at just under 14%, than it was in 1994 when it was about 16%.
Our income and our wealth have grown faster than government spending. That's a good thing. Additionally, federal spending, as a percentage of household wealth, has declined by almost half during the past decade.
Finally, public debt as a percentage of GDP has gone down from 66.0% in 1994 to 60.3% in 2004.
From Forbes:
The idea that Americans are overspenders and undersavers and addicted to debt is all myth. Household balance sheets have never been more robust. Last year Americans increased their financial assets--checking accounts, money market funds, mutual funds, IRAs, etc.--by an impressive $590 billion. Credit card debt in-creased a paltry 4%. Take our financial household assets (not counting houses and other tangible assets such as automobiles and jewelry) and subtract liabilities such as mortgages and credit card debt, and the American consumers' total financial net worth comes to an eye-popping $26.1 trillion. Consumers today have more than $4 trillion in savings accounts, more than $1 trillion in checking accounts and directly hold another $10 trillion in equities and mutual funds. Their life insurance and pension assets are in excess of $10 trillion. To put it in perspective, Americans' total debts, including mortgages, are dwarfed by their liquid assets. Our per capita liquidity exceeds that of Japan, a nation noted for its high savings rate. As Bear Stearns' brilliant economist David Malpass notes, "The U.S. household sector is the world's biggest net creditor."
Here are the Fed stats: American's own assets of almost $60 trillion. This includes $17.7 trillion in real estate, $3.7 trillion in durable goods, $4.4 trillion in savings deposits, $884 billion in money market accounts, $2.1 trillion in credit market instruments, $6.3 trillion in corporate equities, $3.6 trillion in mutual fund shares, $1.1 trillion in life insurance reserves, $9.4 trillion in pension reserves and on and on.
Federal reserve: Flow of Funds (page 112)
I trust this information much more than some guy on the internet trying to sell me a book. The facts paint a very different picture than those who profit off of persistent doom'n'gloom. You can be scared if you want but the fact is more and more American's are increasing their wealth and are better prepared now to weather downturns than at any other time in our history.
Nice points. I didn't think the 57% equity # was that high. Hey I'm a Larry Kudlow groupie, and don't think the economy is in the tank like the media says. I do have issues with housing. The rates of increases we have seen over the past 5-7 years cannot continue. I do see certain areas taking 30-40% hits.