∴ The Pew Study, and What it Also Means

The Pew Research Center came out with a new study this past week. It finds that in the period 2009-2011 only 7% of Americans saw their net worth increase. The other 93% saw theirs fall. The study goes on:

These wide variances were driven by the fact that the stock and bond market rallied during the 2009 to 2011 period while the housing market remained flat.

Affluent households typically have their assets concentrated in stocks and other financial holdings, while less affluent households typically have their wealth more heavily concentrated in the value of their home.

The study period began in January, 2009, shortly before the stock market’s bottom, yet a couple of years before the housing market finished its decline. What it ultimately measured, then, is what proportion of Americans hold enough invested assets to offset the continuing decline in their home equity.

The study, and commentators, go on to say that this points to an ever-widening divide between wealthier and less-wealthy Americans, as measured by the size of their investment portfolio. And that’s a popular political point to make. What the study doesn’t say, and what commentators fail to question, is why 93% of Americans hold most of their wealth in home equity with relatively little in the way of offsetting invested assets.

Most American’s investments are held in retirement accounts. 401(k)s and IRAs will provide much of their needed retirement income, rather than traditional defined benefit (aka pension) plans. Retirement planning, then, is increasingly a matter of personal responsibility, as fewer employers provide pensions. The burden of creating post-career income falls ever more squarely on the employee’s shoulders.

Setting aside for the moment those who, because of flat real incomes and greater financial burdens, literally cannot afford to build wealth toward retirement, what the Pew study has turned up is that a significant portion of Americans are uninterested or unwilling to make that effort. For an aging population heavily weighted toward Baby Boomers nearing retirement age, and away from younger workers who can be expected to have less income tucked into investments, the study is a bright red flag warning of diminished expectations and postponed retirements.

That’s the glaring (to me) import of the Pew study.