Responding to this .
Wealth does not change by buying a house, it’s calculated by taking all assets (Financial and non-financial) less all debts including any mortgages. This means that buying a house just transfers equity between asset types, you can always sell the house if you want and capitalise on any net gain just like any other asset. An income only method which you seem to support can screws the facts, it can incorrectly categorise millionaires who focus on non-financial assets as poor because their main yearly gain is non-financial until the asset is sold. Then when they do sell the asset they flip-flop though the class groups which is wrong. Pensioners are another group, they often already 100% own their houses and cars and they don’t have young kids to support etc. They chose to retire and subsequently under an income only method they artificially drop out of the middle class bracket because their income drops, but in reality their disposable income after mortgage payments etc. is simpler to what they had before. They are still living a middle class lifestyle its just they don’t need to have as much money coming in as someone much younger who pays a mortgage, is buying a car and has children.
As the article describes there are different whys people have used to show who are middle class. So instead of blanking out the table of data you don’t like, can I suggest you go and find WP:RS data which shows the information based on income only and perhaps add that to the current article along with the current split by wealth. This way we will give a reader a more rounded view of the subject as they would be able to see both methods and draw their own conclusions leaving the page with a WP:Neutral point of view. ThinkingTwice contribs | talk 10:06, 29 December 2017 (UTC)
- I never said that buying a house lowers wealth. What I said was or tried to say is the following: as shown by the OECD link, at the Middle Quintile, nearly all wealth is comprised of Non Fin Assets, which obviously means Home equity for the most part. This is not cash or anything which can directly be used to buy goods and services unless you sell the house and keep cash. So now the question is what determines home equity: Home equity is higher in places where there are a) higher home prices b) higher home ownership rates and c) low debt mortgages. Factor A is probably most important. So in essence we are ranking middle class on the basis of who has the more expensive housing market? I think that’s absurd. No WONDER you see Germany and Sweden well below poorer Spain and Italy and others. Australia has the most expensive housing market and consequently the highest median wealth. In reality, their lifestyle would be no different if Home prices were half what they are now. In fact ͏it would be better! In the USA, you can buy a house with only 3% upfront equity, which when combined with low Home prices in 90% of country leads to low Home equity and thus NF wealth. Another example, is that a family who just bought a house and has low equity may very well not even be middle class despite being upper income! Also, middle class renters will
Never be middle class according to this definition unless they accumulate some other asset. In Germany, where majority rent, This is exactly what you see.
- Meanwhile, the same OECD link says that a huge portion of Financial wealth is concentrated in the top 10%. This is also known as liquid wealth and can easily be converted to consumption.
- While the examples you provide on wealth are correct, the benefit of wealth per year is tiny in comparison to income. Income is used at a 90-100% rate in most counties (hence a 0-10%) savings rate. Wealth is only “used” to finance consumption during Retirement or Extraordinary circumstances. Of course it can also produce income itself. And typically when wealth is used during retirement, it is liquidated at a recommended 3-4% rate per year. Therefore wealth can be seen as a buffer or nest egg. As mentioned above though, most of this at the middle is simply what you have in your own home.
- I also wanted to illustrate just how small of an impact NF wealth (in terms of home equity) has in financing consumption. First of all, only about 3% of homes are sold in a given year. Assume half use proceeds to upsize and other half to downsize. Let’s even assume that the homes are all debt free with no mortgage. Of those who downsized, say they kept HALF as cash and the other half to buy a smaller property. So you do the math, and even with these generous assumptions, you still have only .075% of home equity being transferred as cash in a given year. And of that amount, it’s unlikely all will be used in a year, since the goal was probably to live off it for years to come.
- This is all why a more complete measure of income has been or should be used which incorporates wealth withdrawals. I am Pretty sure most surveys already include pensions so that is not a issue. If they do not include withdrawals from wealth they should, but I suspect it won’t add that much to overall income given the low withdrawal rate during retirements.
- You make a valid point that retirees have lower income while having more wealth. If they are just sitting on the wealth and simply living off their pension, then they aren’t living a middle class lifestyle. If they are supplementing their pension with wealth, then they very well could have a rich lifestyle depending on how much cash they have saved or transferred from their main property. its A case by case scenario but I think the overall illustration above is fruitful. Also note that retirees are not a huge part of the pop anyway. But again, you must admit that wealth misses and includes people who shouldn’t be there; most renters and new Home buyers wont have much equity and not labeled in middle class even if they are in standard of living. Likewise an elderly person sitting on a house which appreciated may be considered well off from a wealth perspective even though her income only supports a lower lifestyle. He/she would have to sell house or take on debt to get any benefit. The only benefit besides that is living without a mortgage. This speaks to what you said before about someone labeled as “poor” when they sit in an expensive property. In those years that they are sitting on it, they are indeed income poor because they can’t buy goods and services (which makes me wonder how they could afford the housing costs), and can’t otherwise benefit from the illiquid property. Also you are assuming said person sells the house to begin with. Many elderly people simply stay in it and pass it on. A small % of the housing stock is sold in a given year from data I have seen in various nations. Nevertheless the example you provided of an elderly person having less expenses like children and no mortgage is true of most elderly people no matter if their house is worth 100,000 or a million. Wealth differences don’t change this almost fact of life. Of course they may have higher expenses elsewhere like
- health care.
- I will gladly add an income perspective. Thoughts?? — Preceding unsigned copy mment added by Lneal001 (talk • contribs) 14:08, 29 December 2017 (UTC)
A simple illustration showing importance of income for financing consumption. We assume 3% rate for fin wealth which is spent in a given year, and (for NF wealth) we assume 3% of homes sold of which, half are downsized, half of that cash retained, and 20% of that spent in a given year.
Country A (all per adult)
Income: 50,000
NF wealth: 10,000
Fin wealthy: 50,000
50,000 + nil + 1500= 51,500-savings= consumption
Country B:
Income: 30,000
NF wealth: 250,000
Fin wealth: 100,000
30,000+375+3000= 33,375-savings= consumption.
So even a massive difference in wealth in favor of B will only marginally close the distance in terms of consumption. If the difference was purely due to NF assets, as in the middle quintile (where NF assets dominate=home equity), then the boost to consumption for B would be almost trivial.
This is all in terms of DIRECT impact. Indirectly, greater wealth causes more income, though that would already be taken into account. If the higher wealth in B is due to a higher home ownership rate, then we would have the benefit of a larger portion of the population living for free, which obviously is a positive vs A. If however the higher NF wealth is simply due to higher home prices (for example Australia vs USA) then there really is no net benefit unless you sell the house and take a cash proceed (which would be included in the calculations above). Plus you must counteract this with the fact that higher home prices also means less money for other goods and services.
Thus when you see median wealth of say Italy double that of Germany or Sweden for example, it does NOT mean that the former has a higher standard of living, because the the latter two make up for it by having far higher income.
Sent from my iPhone — Preceding unsigned comment added by Lneal001 (talk • contribs) 16:31, 30 December 2017 (UTC)
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