RESULTS OF 3 DECADES OF STAGNANT MEDIAN FAMILY INCOMES (inflation-adjusted)

• Record high debt ratios and record low rates of savings,

• Fewer retirement and medical benefits expected,

• More children without a full-time mother as mother must work to help make ends meet,

• Lower quality education and less parental quality time with their children.

QUESTIONS WE SHOULD ASK OURSELVES

1. Are we proud to pass on to our youth an economy where inflation-adjusted median family incomes, living standards, choices and savings are expanding long-term, as they were for prior generations  —- or stagnating with less security as in recent decades? Real household incomes fell in 94% of the states (47 out of 50) in 1999-2005 — an average drop of 6%.

2. Should we be proud that it is more difficult for a child to have a full-time mother as more mothers leave home to help 'earn the bread' to compensate for family income pressures, compared to prior generations when one wage earner was sufficient?

3. Should we be proud that families have the lowest rate of saving since 1929 and historic record debt ratios, compared to the past?

4. Should we be proud that recent years show a new, all-time record in inflation-adjusted taxes paid by median income dual-earner families to federal, state and local governments, or that families must work more months each year (than before) to pay all taxes?

5. Should we be proud that the more your household looked like the traditional one-wage earner family, the worse it fared economically since 1970?

This article is a summary of the Full Family Income Report, linked below. Many young people and families 'feel' the financial squeeze. In prior generations before 1970 real incomes and rates of savings were rising smartly. And rates of debt were low — even with one wage-earner per family. Not now!! The left picture shows that during the last 27 years (1977-2004), inflation-adjusted median income fell 7.5% for full-time male workers, forcing more mothers to the work-place to try and make up some of the family income loss — leaving more children without a full-time mom.

The above charts shows the percentage decline in median household incomes from 1999-2005. Note:

• Nationwide incomes dropped 6%.
• Dark orange colors show those states where incomes dropped more than 10%.
• Incomes fell in 94% of the states (47 of the 50 states) during that period.
• Michigan's 12% was the worst; with incomes in some cities dropping as much as 24%.

Here's another chart from the Full Family Income Report, showing that 64% of married mothers of small children work. That's 6 times more mothers than the 11% reported in 1950. Note too that this is for married mothers, not single mothers.

Are children better-off from a family training, discipline, and education-quality standpoint without a full-time mother?

Can a working mother pay more attention to the quality of schooling than a stay-at-home mom? And if not, what happens to the quality of  education, compared to prior generations? As proven in the Education Report chapter, the quality of education is not only below that of prior generations, but seriously below that of today's international students. Is it all their fault or is there something unbalanced about the economy compared to before?

And even with these young moms going to work, household debt ratios soared to new records and personal rates of saving plunged to a record low - as shown below.

If families have minimal inflation-adjusted income growth, despite the mother working, then family personal savings suffer as a consequence — unless of course, families reduce consumption and taxes.

But, families have increased both consumption and tax payments and to cover this have reduced savings to historic lows and increased household debt to historic highs. More and more of our national over-consumption is fueled by the largest international account deficits in our nation's history (see the International Trade Report chapter).

Is it all their fault or is there something unbalanced about the economy that looking forward is detrimental to families and their children, compared to before?

SAVINGS PLUMMET - a record low in  world history

The chart at the right shows a 46-year trend of that part of disposable income that has been saved — called 'personal savings rate'.

Note: prior to 1970 the rate of personal savings was rising smartly — as were family incomes — despite most families then having but one wage earner while also living without increasing debt ratios (see chart below).

As family incomes continued to stagnate, despite more mothers in the work-force, it follows that later the saving ratio stopped rising as seen in the right chart.

As inflation-adjusted family incomes continued to stagnate, the saving ratio started falling rapidly — plummeting since 1992.

As of Summer 2006, savings were negative 1.6 percent — an all-time record low!! Also a record low for any leading global economic power in the modern history of the world, per economist Steven Roach Nov. 2006.

In 2005 consumers drew down savings by over $200 billion compared to the prior year, the biggest dip in savings since record-keeping began in 1929 (Bloomberg).

$1.1 Trillion in savings was missing in 2005 compared to the savings ratio 2 decades ago. (Realized capital gains/losses, if any, are not included in the personal savings calculation and may slightly mitigate this chart if one wishes to call such savings. Nevertheless, the trend with and without is at an all-time record low).

Many gamble in stock markets and state lotteries instead of exercising the self-discipline of saving much higher rates of their incomes as they used to do. Is this safe for their futures, especially recognizing significant negative national trends in company pensions, social security and health insurance — and our exploding international debt to foreigners?

Others don't save when they see their house price increase, yet they sign away future income security by refinancing to extract equity for consumption today, which implies negative impact for their future. Will they have a free and clear home plus sufficient liquid savings as they approach retirement years as many of their parents did via discipline? Will they also have better buying power via pensions and social security than current retirees? (the Social Security Report chapter of this series proves otherwise).

Americans have not saved so little since the depression of the 1930s. They have been on a spending binge, well beyond growth of their incomes. (Bloomberg Jan 2006)

DEBT SOARS

Left is another sample chart from the full report link bottom this page, and from the chapter America Total Debt Report. It shows soaring household debt ratios during the past 2 decades of stagnant inflation-adjusted median family income growth. The chart shows that household debt increased two times faster than general economic growth.

The chart also shows that during the 1960s and early 1970s, the household debt ratio held fairly steady at about 53% of national income - which means household debt was not growing faster than growth of the total economy. Therefore, during this period of rising inflation-adjusted family incomes, households did not increase their debt ratios.

This chart shows thereafter, which has been a period of stagnant family incomes, the debt ratio started upward, slowly - then exploded like a rocket - to today's historic record high debt ratios (at 110% of national income, or $11.5 trillion -   a debt increase of 11.7% over the prior year).

If today's household debt ratio had been the same as the debt ratio of the 1960s, then today's debt in dollars would have been $7.2 Trillion less than occurred. In other words, 2005 household debt would have been $4.3 Trillion, not the $11.5 Trillion that did occur. That's a HUGE DIFFERENCE!! A difference of $24,300 per man, woman and child.

As household debt ratios increased 90% faster than the growth of the economy since the late 1960s when real median family incomes stopped rising, such suggests real equity & savings have not been the driving force of so-called economic growth — it has been debt driven.

Even students are learning how to go into debt up to their necks. According to AP's Martha Irvin, in January 2002, the federal General Accounting Office, says college students are graduating with an average of $19,400 in student loans.

This is an indicator of how families try to maintain their apparent living standards and consumption ("keeping up with the Jones' with nil income growth to do so). They compensate for stagnant incomes by rapidly draining savings and rapidly expanding debt — credit cards and later the more dangerous form of credit for consumption being spending of their home equity. At the same time that families face less social security/Medicare and company benefits when they retire (than their elders), and more and more head toward their golden years more and more in debt with lower home equity and real savings (than their elders).

This chart may understate the rising debt impact on families, since it shows debt ratios for all households - - including seniors. If senior households were removed, the upward slope of family-only debt ratios would appear most likely even steeper.

Families should not wait for government bureaucrats and politicians to 'save them.'
They must gain knowledge to take their own actions or suffer the consequences

© 2006 Michael W. Hodges
Editorial Archive

 Web note: The above editorial is a recent summary of an updated chapter from Michael Hodges series, Grandfather Economic Report. Read the full article: Family Income Report on G.E.R.

Michael W. Hodges
Grandfather Economic Report
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