Why Americans still feel poor

Fortune ^ | 01/26/2013 | By Nin-Hai Tseng

[SeekAndFind]

U.S. stocks have reached new highs, but most Americans probably don't feel any wealthier. That's because the prices of our homes have a bigger influence over how rich we feel and, therefore, how much we're willing to spend, suggests a recent study by the National Bureau of Economic Research.

The findings clarify the big drivers of what economists call "the wealth effect," the idea that people spend more when they have more. This sounds pretty obvious, but the real barometer of wealth hasn't been as clear. In the past, as the Federal Reserve moved to buy up billions of dollars worth of bonds to boost the economy, Chairman Ben Bernanke said that higher stock prices boost consumer wealth. And in turn, the extra spending helps the economy grow.

While that might be true, as it turns out, home prices trump any run-up on Wall Street. This is probably not that surprising, given that most Americans have relatively modest amounts of cash tied up in equities, 401ks, IRAs and investment accounts.

For most Americans, the value of their homes reflect how wealthy they feel, according to the study by economists, including well-known U.S. housing market authorities Karl Case and Robert Shiller.

In looking at the housing market's latest boom and bust, they found that households spend more when home prices go up. And unlike the results of their earlier study, they spend less when prices fall. If prices popped like they did between 2001 and 2005, household spending would rise 4.3%. And if prices plummeted like they did between 2005 and 2009, spending would drop 3.5%.

If we look at what's happening today, the findings might explain why the stock market's rally hasn't really helped the economy grow that much faster.

[dhs12345]

Then they are selfish as well as ill informed.

Our country cannot survive when everyone is expecting something free from the government.

I wonder how well people would manage if they had to deal with the conditions that our parents and grandparents and great-grandparents had to deal with.

We are all whiny wimps in comparison.

[kearnyirish2]

“I wonder how well people would manage if they had to deal with the conditions that our parents and grandparents and great-grandparents had to deal with.”

You’ll get to find out; these young people are going to have a much lower standard of living than their parents (and they know it). I can’t believe how many young people I know (25 to 35 years old) have no car, either live at home or with multiple roommates, have no steady full-time work with benefits, etc.. It is disturbing, and there is no light at the end of the tunnel; with globalization, any job worth more than $30K annually has forces at work scrambling to either send it overseas or to import foreigners to do it for less.

Our young people are selfish (they were raised that way) and ill-informed (they were “educated in a horrible school system); they are also angry. They should be.

[dhs12345]

One of the things that helped us was our faith and a sense of right an wrong. And charity.

[kearnyirish2]

“One of the things that helped us was our faith and a sense of right an wrong. And charity.”

Same here; you can scratch all three for the young people today.