Wealth and poverty

Do you have $16,000 toward your total net worth? If not, don’t worry: You are not alone. According to “The Millionaire Next Door,” a New York Times Bestseller, the average American household–excluding home equity–only has approximately $15,000 to its name.

With the US stock market soaring, inflation tame, interest rates low and the national unemployment rate in check, you would think that the average American, one of the wealthiest citizens of the world, would have a bit more than a mere $15,000 socked away, eh? Not so.
(Fifteen thousand dollars is really not such a grand sum for the residents of largest economy in the world; the average Japanese probably has a lot more stored away.)

For all of America’s vaunted prosperity, the US bankruptcy rate is still at an all-time high. According to Money Magazine, the average American Joe has got a “revolving debt” of about $5,000. Of the Americans who regularly carry a credit card balance (not me), that revolving debt rises to about $7,500, which means, at 17 percent, they make $1,275 a year in interest payments. (How can these people sleep at night?)

But wait. It gets even worse. According to the U.S. Labor Department (as reported by www.money.com), many households with total income of $50,000 or less are spending more than they earn–thanks, in part, to the liberal availability of consumer credit.

Which brings us to a very interesting but often neglected point: The rich are rich because they know how to manage and master money; the poor are poor because they don’t. This is a generalization, of course, but virtually every study conducted on the subject (including “The Millionaire Next Door”) tends to bear it out. Notice again that those who earn more than $50,000 a year tend not to spend more than they earn. (A number of rich people I know tend to be extremely kuripot (miserly)–a character trait I greatly admire.)

What is interesting, though, is that many foreigners who earn less than $50,000 a year do not spend more than they earn. Apparently, wastefulness is a distinctly American trait.

Our mainland Chinese garment factory workers, for example, are regularly able to save as much as $10,000 before returning home. This is possible because nearly all of their expenses–food, shelter, medical and transportation–are, by law, shouldered by their employers.

How many of the 250 million Americans have $10,000 saved up? How many Chamorros?

To know how much you should have ideally saved up by this time in your life, the authors of “The Millionaire Next Door” came up with the following formula: age X annual income X 10 percent; so that if you were 33 years old and earned $30,000 a year (x 10 %), you should now have a total savings of not less than $99,000. If not, then, well, you’re a bum.

So hurry up and start saving and investing!