Tuesday, April 28, 2015

Enough to Make a Woodchuck Quint

The census bureau and many other institutions routinely divide the American population demographics into statistical quintiles or fifths. Here is an example of how the demographics relate to age and wealth distribution, both divided into quintiles:

It is plain to see that there is no virtue in being in the first or second quintile of wealth distribution at any age or being in the third quintile and below the age of 55. Even at the third quintile age 55 and over or the fourth quintile below the age of 45, people are well enough off to be what we might call “job creators”.

Amazingly, the youngest people in the fifth quintile, those under age 35, are better off financially that most people in the first, second and even third quintiles.

It is easy to imagine that a small percentage of the population have low income because they lack skills or education and the like, but to imagine that more than half of the human demographic have a low net worth for such reasons is absurd.

It is also beyond absurd to imagine that the fifth quintile demographic has such a high net worth because of their superior skills or education.

Young people in any of the bottom four quintiles are in trouble. Middle aged people in the bottom three quintiles are in trouble. Wealth is concentrated in people who are age 55 and older, especially in the fourth and fifth quintiles.

Another way of looking at this is that those people whose skills or education do the least for others because they are retired or nearing retirement have the most wealth. This defeats the notion that skills and education are primary determinants in wealth distribution.

The extreme difference in net worth between the first and fifth quintiles is institutionalized class division in modern society and is little different than the caste systems of less advanced societies.

Those whose parents were in the best financial situation are also those in the best situation to acquire skills and education. In my opinion, there exists an association fallacy in relation to skills or education and wealth distribution, post hoc ergo proptor hoc.

The poorest segment of society is the victim of a cruel joke. They invest themselves in the acquisition of skills or education with the expectation that they will move out of their quintile into the one above it. The institutions that lend to them and educate them have no motivation to persuade them otherwise.

Here we transition from a discussion of household wealth to a discussion of household income.

A person born in the first income quintile with a college degree has roughly the same opportunity for future income as a person born in the top quintile without a college degree. For anyone in the bottom four income quintiles, the lack of a college degree will increase you prospect of remaining in or dropping below your birth quintile.

Watch live streaming video from frbsf at livestream.com

In the bottom four income quintiles, your prospects of landing in any of the five quintiles after obtaining a college degree are roughly the same. So the question remains, does a college degree move you up the income ladder or just give you an equal chance of landing in any of the five quintiles?

What matters after that is how much it costs. Did you borrow or was it paid for by your wealthy parents? It does a person little good to land a job with fourth quintile income if they begin their career deep in debt with fist quintile net wealth.

This woodchuck quints at the thought of sending young people off to borrow money and gamble on an education as the thing that will move them up the income and net wealth ladder. And it is a BIG gamble! The distance between the bottom quintile and the top quintile is immense.

The only thing that makes fighting for a chance at being in the second or third quintile worthwhile is the fear of ending up in the first quintile if you fail to get a college degree. Woodchucks everywhere tremble at the thought. 

Source: Federal Reserve Bank of San Francisco, Economic Mobility in the United States (video).

No comments:

Post a Comment