The U.S. Middle Class is Losing Ground

Pew Research Center recently published a very interesting report on what is happening to the middle class in the US.  The report itself freely available online is recommended for reading, however if you do not have time to go through all 74 pages of it, I will share my observations and reaction to it. In 2015, 20% of American adults were in the lowest-income tier, up from 16% in 1971.   

        For the three person household the middle-income range was about $42,000 to $126,000 in 2014 dollars. Lower income households have incomes less than two thirds of the median and upper  income households have incomes that are more than double the median. Under this definition, the middle class made up 50% of the U.S. adult population in 2015, down from 61% in 1971.      In early 2015 120.8 million adults were in middle-income households, compared with 121.3 million in lower and upper-income households combined. Number of adults living in the middle income households has been steadily declining from 1971 to 2015.  As one commentator put it: American dream used to be a to own a house and two cars, new American dream it is to have a job. 

November 2015 update ($302,754 -$4,084 or -1%)

↑ Accumulated $4,000 USD as part of my annual saving goal for September

↑ iShares Core DAX are up by 404 USD

Grand total additions: US$  4,404 USD

↓Emerging markets ETF lost $223 USD

↓Gazprom shares lost $1,325 USD

↓Company shares combined lost $236 USD

↓British pound is lost to USD 3% over one month, for my portfolio it is $2,521 USD

↓EUR lost to USD or $3,721 USD

↓Precious metals lost $462 USD

Grand total losses:  US$  8,488

Financial Independence Family Budget 2007 -2015. 2015 - $92,814 USD

       We have started our family budget, tracking all expenses back in 2007. Initially it was looked at as fairly cumbersome and time consuming exercise.  However, over the period of a few years we educated and trained ourselves to spend 5 minutes a day  in the evening to record all expenses.

       Now with the statistic we could more accurately predict and plan our expenses. It also  helps to clarify some fallacies and incorrect assumptions. For example, as a young parent when you look at nursery cost you think that over the period of time, as your child grows it will be cheaper. Our personal experience clearly tells that it is not happening, nurseries keep rising fees and even at “low inflation” you are lucky if you keep paying the same prize.  However, enough of that, let’s go directly to figures and who we spent $92,814  vs. previous 6 years.

October 2015 update ($306,838 +$19987 or +7%)

↑ Accumulated $4,000 USD as part of my annual saving goal for September

↑ Vanguard Emerging markets is up by $1,545 USD.

↑ Vanguard S&P 500 is up by $4,435 USD

↑ Gazprom shares are up by $13,160 USD

↑ Company shares are up by $1,912 USD

↑ Rosneft shares are up by $1,176 USD

↑ iShares Core DAX are up by 1,209

↑ GBP is up to USD slightly $604 USD

Grand total additions: US$  28,041 USD

↓ Precious metals are down by $614 USD

↓ EUR is continue to fall to USD $7,440

 Grand total losses:  US$  7,219

September 2015 update ($286,850 -$11,560 or -4%)

↑ Accumulated $4,000 USD as part of my annual saving goal for September

↑ Vanguard Emerging markets quarterly dividends $194 USD or 6% at the current price.

↑ Vanguard S&P 500 quarterly dividends $196 USD or 1.9% at the current price.

↑ Vanguard Emerging markets shares are up by $3,025 USD

Grand total additions: US$  7,415 USD

↓ Vanguard S&P 500 slid down another $740 USD

↓ Company shares down collectively $1,340 USD

↓ iShares Core DAX down $270 USD

↓ Gazprom shares down $13,160

↓ GBP down to USD $3,465 USD

  Grand total losses:  US$  18,975

August 2015 update ($298,404 +$ 8095 or +3%)

↑ Accumulated $4,000 USD as part of my annual saving goal for July

↑ Gazprom shares are up 1,320 USD

↑ Gazprom annual dividends   4,542 USD  (USD 0.225 per share).

↑ Rosneft annual  dividends  258 USD  ( USD 0.144 per share)

↑ Precisious metals are up by 733 USD as investors are seeking safe harbor.

↑ GBP is up to USD 2,420 USD

↑ EUR is up to USD 3,284 USD

Grand total additions: US$  16,557 USD

↓ Vanguard Emerging markets are down 5,115 USD

↓ Vanguard S&P 500 collapsed 2,540 USD

↓ Company shares down collectively 807 USD

  Grand total losses:  US$  8,462

The Undercover Economist strikes back by Tim Harford

            I recently finished reading “The Undercover economist strikes back” by an English writer Tim Harford. Tim has an education in economics from Oxford University.  Although not very well known outside England is quite popular in it, mainly as a columnist for Financial Times newspaper.

          Aim of the book was to bring macroeconomics a little bit closer to a non-economist in an entertaining fashion.  The book is written like a dialogue between the writer and reader, based on real life examples.  The way topics are presented it has a lot of similarities with  “Irrational Exuberance” by Robert J. Shiller.

          Modern economy for general public is increasingly focusing on psychology, how people react and behave. As example acceptance of the wages falling in real terms, while growing in nominal ones – “money illusion”.  Tom continues on about Bank of England commenting: “ Public trust in the pound is now maintained by the operation of monetary policy”, apparently with a totally straight face.   This basically means that most of modern currencies worth something as long as people believe in it.

          The worrying fact is being a influential economist in his own country the author is advocating having inflation at about 4%, this would help to maintain nominal growth of salaries about zero.