Aug 24

That was the title of a Barron’s article this past week. There’s been more and more press about the gap between the rich and the poor. In my work as a real estate agent focussing on renting to low income people, I see people who aren’t lazy, but just the opposite. Showing me proof of income made by working a 40+ hour week at a minimum wage job, and asking if we can take their cash income into account as well. The regular extra money they make doing some labor or babysitting nights or weekends. When you make $1400 a month working full time, you’re not going to able to afford much in the way of housing. We try to see three times a rent for income, i.e. $2400/mo income to qualify for an $800/mo apartment.

The Barron’s article started off with an observation, $1.4 trillion cash in the economy. The federal reserve backs up that number. The authors then make 2 logistical leaps that are beyond comprehension. First, that this cash is income. Forget for a moment that most people don’t keep more than a few hundred dollars sitting around. Even if they did, it only counted as income (declared or not) when it came in. The authors then assume that 80% of this money is income to the poorest 1/3 of households, the bottom 40 million families. Then, by magic, wait, not magic, a miracle. As in this cartoon.


Where was I? They conclude that the bottom 1/3 have an income that’s understated by as much as $30-$40K per year. To be fair to Barron’s and their real authors, the article was published in the “other voices” page.  This is where essays are solicited from readers who have some knowledge of finance. Whoever accepted this article blew it, in my opinion. Is there no cash economy? No. Of course there is. However, the numbers presented in the article offer bad math and a false conclusion. The income gap is so large that if it’s exaggerated by some percent, it’s still an issue. Sorry, Barron’s, this article isn’t worthy of your otherwise fine paper.

(Note: I am not condoning undeclared income, just putting it in perspective. A real estate agent is not an agent for the IRS, in fact we have an obligation to count any and all income, regardless of source.)


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Aug 22

A couple weeks ago, I read a Times’ article The Typical Household, Now Worth a Third Less. The punchline of this article was the fact that the US median household saw their net worth fall from $87,992 in 2003 to $56,335 in 2013.

The article linked to a report, Wealth Levels, Wealth Inequality, and the Great Recession. It offered further context to the median wealth numbers.


Keep in mind, during this period, stocks, as measured by the S&P 500, rose by an inflation adjusted 61%. Yet, total wealth (look at the first line, the mean number) fell by 8.6%. This would be disturbing enough, but the top 5% saw an increase 14.4%, identifying a large shift in wealth to the top. Three quarters of households fell behind, losing 36% or more of their wealth.

The ten year period in question contained the housing crash, and the losses shown reflect the fact that even at the 75th percentile, much of one’s wealth is contained in their home. Overall, real estate represents less than 25% of wealth in this country, but this number doesn’t spell out how this is distorted at the sub 75th percentile. For the median family, most, if not all of their wealth might be in their home.

Back to the title of this post. These ten years reflect the continuation of a frightening trend, a middle class that is fading away. Income hasn’t kept up with inflation or with the long term trend of improved productivity. In other words, the average worker is producing more, yet seeing no increased reward for the fruits of his labor. We’ve seen the results of economic bubbles, how a too-high NASDAQ (remember the dotcom bubble?) will come crashing down. We saw the housing crash. Now, I’m looking carefully at this statistical shift in wealth. A democratic society can’t continue on this path, as this trend simply shifts more and more wealth to a select fewer and fewer people. I don’t have a solution to offer, only these observations. And the desire to see a strong middle class return to this country.

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Dec 09

I consider myself a numbers guy. Not that I prefer numbers to people, but I have great respect for the numbers, and like how math is consistent over the decades, unlike our tax code for instance. That said, I find it curious that a branch of mathematics, statistics, is often used to perpetrate a fraud, or to be a bit less harsh, to produce incorrect conclusions. I posted an example at Lying With Charts 101, to show how charts can be manipulated to show correlation where none exists.

Let’s go on to a minor tangent, an example of a mistake, correlation with no causation. A study came out years ago, indicating that coffee drinkers were at a higher risk of cancer. Read that as “coffee causes cancer.” My immediate reaction was that this was likely a false correlation.  I suggested that if one took two groups, coffee drinkers and non coffee drinkers, the incidence of smoking among coffee drinkers would be significantly higher than those who didn’t drink coffee. If at the time, 25% smoked, I’d guess the coffee drinkers were skewed at 35-40% smoking rate, and non drinkers, 15-20%. So ultimately, the coffee group reflected a higher incidence of smoking, and therefore a higher cancer rate. It turns out, a few months later, the report was retracted, and the false correlation was blamed. I actually paid attention during my college  statistics classes, so this mistake was pretty obvious to me. This isn’t an isolated example, false correlations can occur for any number of reasons.

One aspect of personal growth is coaching. Can a teenager become a pro basketball player with no coach? Perhaps, but it’s more common for recruiters to find outstanding high school seniors and offer them a chance to first play in college and train under coaches who will help bridge the gap between that kid on the street and a million dollar player. Part of that process is to study how the professional handles himself, by watching hours of the sport and analyzing the moves. The DVR and big TV is a tool common to the training of most sports, baseball, football, basketball, etc.

Life coaching isn’t new. Napoleon Hill was among the earliest personal success authors.  Born in 1883, Hill published Think and Grow Rich in 1937. If you haven’t heard of it, this book is one of the ten best selling single volume books of all time having sold 70 million copies as of March 2011. This book was the result of a meeting Napoleon Hill had with Andrew Carnegie, a wealthy industrialist and philanthropist. Carnegie believed that successful men shared certain traits that if emulated, would help lead one to success as well.

This is all history, however. More recently, thanks to a fellow Finance Blogger, J Money (of Budgets are Sexy fame) I discovered Rich Habits Institute, the blog of best selling Author, Tom Corley. His book, Rich Habits, carries the subtitle, The Daily Success Habits of Wealthy Individuals. I think my own habits are those that lead to success, but as a lifelong learner, I was intrigued by Tom’s process of studying the habits of the rich and would be happy to learn what else I might do to add to my success. I caught an article in which Dave Ramsey posted a list that Tom compiled, 20 Things the Rich Do Every Day. For example, “88% of wealthy read 30 minutes or more each day for education or career reasons vs. 2% of poor.” Dave lists 20 habits and the percent of rich who do these things along with the percent of poor. I tagged the Dave article to refer to it again and was reminded of it a few days later. Tom tweeted “CNN attacks Dave Ramsey and Tom Corley What Dave Ramsey gets wrong about poverty FYI, writer got many facts wrong including my name.”

Now we come full circle. The author at the CNN site, Rachel Evans objected to the concept behind the article Dave published, citing our old friend Correlation and how Causation doesn’t always follow. Rachel presents three of the 20 habits from the list and declares them dubious statistics. Dubious? Tom explains at his site the number of people he interviewed, 233 wealthy, 128 poor. Keep in mind, the political polls you see are produced from such companies as Rasmussen or Harris are the result of an average 1000 people polled. From these polls, we attempt to discern a lead of 1-2% for candidates in close races. In the case of the list posted at Dave’s site, there’s such a wide difference, e.g. 81% of wealthy maintain a to-do list vs. 19% of poor, that the statistician in me says there’s some truth in here that needs to be understood. Rachel went on write “Ramsey responded to the pushback with an addendum to the original post calling his critics “ignorant” and “immature” and instructing them to ‘grow up.'” Well, she caught one of Dave’s weaknesses there, as my regular readers have seen, Dave’s responses are a bit emotional and defensive. She finished her thought with,”‘This list simply says your choices cause results,’ he said, again committing the false cause fallacy. ‘You reap what you sow.'” On this final quote, I agree with Dave to a point. More discussion of correlation vs causation is in order.

Studies such as this do not imply 100% cause and effect. I’ll offer an important example. I have a 15 year old, so college feels like it’s right around the corner. She’s starting to ask about the value of a degree, literally, how much do people with degrees make vs those with no college degree or no high school degree. The government data, as of 2012, tell us us the median income for those with a college degree was $1066, high school, $652, and with no high school degree, $471. What is median? It’s the middle number, half of those with the degree listed are above the median, half below. Some people with no degree at all will start a business and make a fortune. Some with an advanced degree will be out of work and decide to make lattes at Starbucks. The data doesn’t say “everyone,” it simply gives us the middle point on the bell curve. As of the same year, those with just a high school degree experienced an 8.3% unemployment rate, those with a college degree, 4.5%. It’s not about guarantees, it’s about improving yourself and improving the odds. She closes with a detour that gets into Bible quotes, after all, it’s on the Religion sub-blog to the CNN site where she writes.  When she reminds us that “‘It is easier for a camel to go through the eye of a needle,’ Jesus famously said, ‘than for someone who is rich to enter the kingdom of God,'” I realized it was time to move on.

I realized I was falling down the rabbit hole when I glanced at another article, Things Broke People Do. Three authors each wrote a piece in response to the original article at Dave’s site. Painful reading, as the first author took a sarcastic tone, “we went broke—from rich to poor—because I wasn’t forcing my children to read at least two non-fiction books a month.” Talk about missing the intent of an article designed to help. This attitude doesn’t invite discussion, by design.

Critics can say what they will, ranging from claim of logical fallacy (the correlation/causation issue), the religion based claim that rich is bad, to the strange twist that these articles belittle the poor. And my own response to those critics? Stand your ground, watch TV, reality TV in particular, don’t read, and more important, don’t read with your kids. Money is evil, and any attempt to get more of it will doom you.

To those who aren’t convinced either way – These habits will have a long term effect. There are 20, and no, your schedule may not permit you to exercise every last one. Start with a few. The one thing you can do is shut the TV, and spend time with the kids. Help them with their homework, and if you can’t keep up, just discuss it with them. Don’t focus on why some of these habits are either too difficult for you or ones you’d just prefer to ignore. Review it, and perhaps start with your own top ten.

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Jun 05

The Boston Consulting Group recently issued a report on global wealth, Global Wealth 2013, Maintaining Momentum in a Complex World.

A few of the statistics from this report caught my attention:

  • Global Wealth ended 2012 at $135.5 trillion.
  • 39% of this wealth was held by 1% of all households.
  • The number of millionaire households rose to 13.8 million


Let’s look at the implication of doing a bit of math on these numbers.

  • The remaining 61% of wealth is $82.6 trillion
  • Divided over a world population, this is an average $12,000 per person for the rest of us.
  • Mean Wealth in the world is about $3600.
  • Total US wealth is $43 trillion, 32% of global wealth, with less than 5% of the population.
  • This divides down to an average $136K for each person in the US, but even this is concentrated at the top so most have much less.

An interesting report to me. It helps put into perspective how rich the US is when compared to the rest of the world, and within the US how wealth is concentrated among the select few. How you pondered these numbers? Were you surprised, or was it what you’d expect?

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Mar 22

I saw a tweet that read “knowing that world’s top 10 richest could wipe out poverty and not even notice the money’s gone sickens me.”

A very interesting idea, but is it true, and if not, how far off the mark is it? Business Insider recently wrote an article looking at the Forbes top 10 Billionaires –


Add them up and we have $451.5B. Nothing to sneeze at, but how much good would this money do? The site Global Rich List tells us that half the world’s people live on less than $850 per year. If we confiscate the entire wealth of these top ten, we can give each of the 3 billion people at the bottom $150 each. That won’t quite eliminate poverty, not by a longshot.

To be fair to the gal that tweeted this, the distribution of wealth in the US is highly concentrated. Data shows the top 1% own approximately 40% of all wealth in this country. That’s about $24 trillion. Divide this over 3 billion people and we have $8,000 per person. Now, that might be enough to change the lives of the world’s very poor, although it’s not likely to happen anytime soon.

I’m sorry to say this is a problem for which I have no answers, not today.

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