November 6, 2018

Parents’ Education Key to Child’s Security

“Seven Up,” a famous British documentary series, interviewed 7-year-old schoolchildren in 1964 and filmed them every seven years after that.

Over the documentary’s 49-year span, viewers watched the children’s lives take shape. A boy at an upper-crust boarding school goes to college and on to teach math at a prestigious private school. A girl educated in a working-class school in London’s East End is just able to make ends meet as an adult. A young equestrian from a wealthy family raises her own privileged children. A boy in an orphanage becomes a bricklayer.

These personal profiles at the heart of “Seven Up” reverberate in a recent, unrelated, academic study that has reached a similar conclusion: parents’ investment in educating their children is the ticket to financial security as an adult.

The researchers estimated that people with the college-educated fathers earned nearly $400,000 more over their lifetimes (at today’s pound-dollar exchange rate) than the people from less-educated families. They analyzed periodic surveys of 9,436 people in England, Scotland, and Wales between ages 7 and 55. …Learn More

November 1, 2018

US Inequality is Feeding on Itself

The fact that the richest Americans are grabbing such a big slice of the pie isn’t exactly breaking news.

What is news is that Wall Street is getting nervous about it. Moody’s Investors Service, a private watchdog for the federal government’s fiscal soundness, has concluded that inequality has reached the point that it threatens a system already being strained by increases in the federal debt. But Moody’s also noted that inequality is contributing to slower economic growth, which further aggravates inequality.

The high level of U.S. inequality today “sets us apart” from Canada, Australia, and several European countries, Moody’s said in an October report, “Widening Income Inequality Will Weigh on U.S. Credit Profile.”

Moody’s central concern is how inequality will affect the federal budget. When the economy slows in periods of high inequality, there are more lower-income households requiring support from costly programs like Medicaid.  Federal tax revenues also decline during any downturn, leaving less money to pay for these means-tested programs and for social insurance programs like Social Security and Medicare.

The firm’s second concern is that inequality is a drag on the economy. When the middle-class is squeezed, for example, they have less money to buy consumer goods. And when the economy slows down, inequality can increase, as it did in the years after the 2008-2009 recession.

This has played out in a widening wealth gap, Moody’s said.  The typical lower and middle-income worker’s net worth – assets minus liabilities – has shrunk since the recession, while net worth rose sharply for the people at the top.

One big reason for widening inequality is the stock market. Even though the market declined sharply this month, the post-recession bull market has beefed up investment portfolios – but only for the 50 percent of Americans who own company shares or stock mutual funds.

A second contribution to a widening wealth gap, post-recession, has been housing. A home is often the most valuable asset people own, so the steep drop in house prices and the spike in foreclosures were big setbacks for people who aspired to build wealth through homeownership. …Learn More