The Fed just published their survey for consumer finances which covers through the year 2010. This report provides an fairly good analysis of how the average American consumer is doing from a financial perspective. This report gives us insight in what the basic spending habits and patterns of Americans are or will be.
We wanted to point out some of the key findings in this report and give you a glimpse into how we think these demographics will impact self directed IRA investing and portfolio construction.
Median Income – Median income fell 7.7% from $49,600 to $45,800. Even though this is not huge you have to remember that 1/2 of the people are above and the other half are below.
Income Changes By Tier – What this data also shows is that the groups that lost the most in terms of income are those people in the middle. that make up about 70% of the income. Those families earning $50,000 to $80,000 dropped the most. Interestingly enough, the bottom 20%, the poorest, actually saw a slight increase in income. The middle income group saw a 10%+ decline in income over the 2001-2010 time frame. That’s the largest decline of any of the income groups.
Income Changes By Age – People 55+ did the best. They saw an overall increase in their wealth by 25%. Even people over 65 saw a 6%+ increase in income. Some of this seems to be contradictory to what AARP and the President would lead you to believe. People less than 45 or even less than 35 were hit the hardest with drops in incomes from 8 to 14%.
What do these changes mean to self directed IRAs.
There are some additional variables that we will write about in later articles, these changes in incomes tell us a story about consumption and spending. They tell us that older people are doing better than younger people. The poorest have maintained. The middle income people have suffered the most.
This all has to translate into important drivers for spending and specifically real estate. Spending will decline as the middle income and younger groups (<45) conserve and save. This will have an overall dampening effect on consumer spending and GDP. This will continue to make rental properties attractive to investors as these stressed groups will not be able to get into homes or they will need to maintain mobility in order to seek better job opportunities.
These trends also will mean that the government will continue to engage in spending and QE programs for these stressed groups. in fact these stressed groups have the potentiality to become more stressed because the government is of the belief that its these same people that will be able to pay more in taxes. This is likely to drive short term deflation, but longer term inflation as the excess dollars are pushed into the economy. Inflation would suggest that people maintain precious metals in their self directed IRA.
The information provided is for educational purposes only and are not a solicitation or offering of an investment, investment advice, or tax advice. You should consult with your tax, legal or financial advisor to determine the suitability of any investments made with a self directed IRA account.