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July 15, 2005

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This is what I have been saying for years! Seniors are the new ruling class!

Listen, people earn plenty for what they do. The problem is that our tax system confiscates funds from workers via income tax and redistributes them to those who are less deserving. the government makes the problem worse with social security. while those who are getting social security now deserve because they paid into the system, the problem is that the return is terrible. current social security recipients and future retirees would be better off if they could invest their own money. sure, some will buy all enron stock, but if they do that they'll get what's coming to them. a diversified portfolio over time will grow. at least you have a say in whether you are broke or not. under the current system, your brokeness is guaranteed. the dems talk of social security plus, but they forget that after social security is extorted from the average worker, there is no money left for the "plus" savings plan.

and yes, taxes do redistribute resourses to those less deserving. sure there are people that can't make it on their own, the mentally retarded, disabled etc. but these are few. and although welfare is a small part of the overall budget, social security disability, which is just an invitation for these sorry people to make up a disability, is another form of welfare that is abused. further, even things that aren't counted as welfare such as police protection, fire trash is redistribution. let the ghettos burn, let them blow each other away in drive bys and eventually maybe these people will find a way out. only when it gets so terrible will these people lift themselves up. but as long as they are given just enough to get by, they'll take advantage of the situation

An additional problem is that the type of employers that exist in NYC, DC, Etc know that the grandparents and parents are subsidizing the standard of living of those trying to enter. Thus, the unpaid or low paid intern position that has become mandatory for entry into many industries.

What do get into publishing or the media, better have parents that can fundyour NYC lifestyle.

Hi Half Sigma
It shouldn't surprise anyone that older people have more wealth than younger people: it's just the power of compound interest. All assets have been appreciating throughout the last half-century so today's old people will have a lot more wealth to spend or to give to their children.

Most of us will be very wealth when we are our parents age as well. Our homes will probably continue to increase in value, the stock market will probably continue to rise, with the occasional bubble-burst thrown in.

Another thing to consider is that in a rising population, the competition for the homes in the most desirable locations and the best schools will become more fierce. And if the wealth of the extended family goes up, the price for these most desirable commodities will be bid up.

"Another thing to consider is that in a rising population, the competition for the homes in the most desirable locations and the best schools will become more fierce"

Especially when there are policies restricting or discouraging the building of new ones.

The interesting question to ask ourselves is "how come people don't look down on grown men and women taking scads of money from their parents?" Seriously - if you can gain status from having your ancestors hand you money, then any system that allows people to better themselves and build wealth over time will become infested with these goofballs using their ancestors' money to elevate themselves in the social pecking order above young people who are better at creating wealth but don't have successful ancestors to hand them a big pile of it.

Ken's comment (the one immeidately preceding this) is very interesting.

Indeed, it is considered the greatest shame for a grown man to be living with his parents. A thirty-something woman once told me that she would never date a man who lived with his parents. Never. No exceptions.

Yet it's acceptable to take money from them. What's the difference?

"Asset inflation certainly has a lot to do with this generational shift. When a young person buys a ridiculously overpriced house from an older seller, it’s a transfer of wealth from the young generation to the old generation. "

Think on this for a moment.

My house cost me $25,000 30 years ago. It was new-built. The value was roughly 3 times my annual income.

My son is now at the same stage of his life. The value of my home is now roughly $400,000. That is about 6 times his annual income. If his wife's income is included, then the ratio comes back to about 4.

Tax rates 30 years back were quite differently imposed to the present but I was paying an average tax of about 24% (not marginal tax - different matter) plus sales taxes from 3% up to 25% on different items.

My son now pays an average of 22% on his income plus a blanket 12.5% indirect tax on spending.

My son is saving for his retirement. Good on him. So did I. Out of thirty years saving I have managed to rescue enough to provide about a $18000 annual income for my wife and I to supplement our government pension.

Remember that during that 35 years, I was also paying the pension for my grandparents and my parents. Not all, but a part of my taxes went in that direction.

I used the word "rescue" in relation to my super. I had three over a period of years. One went belly up after I had put in about three years contributions, no recovery. The second I contributed to for 24 years before it too went belly up. It was bailed out by the government (it was underwritten by the govt) but I lost approximately 35% of the credit in my account.

Who is the better off? I had one car, he has one plus a company car. I had no tv (it did not exist) he has tv and all the latest bells and whistles.

How can one make blanket assumptions about comparative value, about tax levels, about intergenerational subsidies when the real world is as complex as I have found it? Simply you can not. Seriously the sooner that idealists realise that no one in this world does anything (including take care of your money) for altruistic reasons. Take a look at the Japanese banking systems - ever heard of negative interest rates on savings?

What my little life story is all about is nothing more than the long term operation of a market place.

It is the market place of life. It owes you nothing. It can return even less...

Lest everyone get the impression that Grandma and Grandpa are rolling in dough, let me point out that a substantial number of 50-plus folks are of more modest means (my husband and myself included) yet also have children who need occasional assistance. We don't have the luxury of a big equity pot to dip into, or the means to support two households. Our options are thus very narrow. Keep in mind, too, that the growing trend of grandparents actually raising their grandchildren is most prevalent among low- to middle-income families. Far from being "rich retirees", those who are no longer working have to make Social Security checks stretch to cover not only their basic expenses but also diapers and school supplies. Down here in the trenches, where economic realities are rather harsh, we're getting by -- well under the radar -- but it's no picnic. God only knows I'd love to hand my kids $20,000. But in my world it's more like $20 at a time.

"God only knows I'd love to hand my kids $20,000."

I wouldn't. What the hell for? So they can pretend to be capable of earning lots of money? So they can pretend to be full-fledged adults standing on their own two feet? So you can pretend that your adult children were properly raised to be able to earn whatever standard of living you're handing them?

Or is giving them big piles of money a way to tempt them to fail to develop the ability to stand on their own two feet, thereby allowing you to control them long after they're supposed to be on their own?

Seriously, what's the big idea? Why aren't grown men and women ashamed to take $20,000 from their parents? Why aren't their parents ashamed that the kids they raised need, or even want, that kind of money from Mommy and Daddy?

Ken,

The reason is that to actually live in NYC there is a gap between the starting wages and the cost of living (as the article pointed out, for a middle class woman in her 20's to live in NYC costs more than she can probably make.

so the alternative is to either move (and thus give up careers in certain industries), get a second job (and thus become an also ran in her first career), or get help from parents and grandparents.

The question should be what is the difference between supporting children as students at Ivy League schools and supporting kids who are interns in the Finance, Theater, publishing, media, etc industries?

Ken -- "what the hell for?" -- would a huge medical bill for emergency surgery do it for you? Or are there never any circumstances in which lending a helping hand to adult children is acceptable?

I think that some (but not all) of this is due to the incredibly high life expectancy we enjoy now. In years past by the time someone was in their mid twenties their grandparents, were very much likely dead and had passed down their wealth. Now it's not unusual for someone in their mid-twenties to have great-grandparents still alive.

I think it would be interesting to see how much money young adults were receiving due to inheritance back in the day verses the amount they are being given now through gifts.

Also, a lot of grandparents are being smarter about the gift and death taxes these days and realize that they can pay tuition directly to institutions and avoid some taxes. I think a lot of this gift giving is really just sort of an early-inheritance since life-events grandparents would want their money to pay for after their death are now occuring before it.

Good point, Christy, about the inheritance tax. Financially smart people know it's better to give it away than to let the government get most of it. Unfortunately, my late great-aunt wasn't one of those smart people, so my father and his sister ended up with less than they should have.

I still remember the first time my son took the check at a restaurant; after more than ten years the shock is still real. If a child needs money, in this hard real world, so be it. Let families stick together.

How exactly do you figure our generation is worse off than earlier generations, when pretty much every measure indicates that we have a higher standard of living?

In addition to higher average and median incomes (adjusted for inflation), we have safer and more fuel-efficient cars, better tv's, better audio systems, far more acccess to entertainment, safer work conditions, better drugs and medical care, longer lifespans, more knowledge about good nutrition (which we may or may not choose to follow), and far, far more educational opportunity than our forefathers did.

The reason that older people on average have more assets is simple. THEY'VE HAD MORE TIME TO WORK, SAVE, AND ACCUMULATE WEALTH! This is hardly rocket science. I mean, most 22 year olds also have more money than most 6 year olds.

People seem to like to labor under the illusion that there was some mythical golden age in our past that we've descended from. However, the truth is that in 1950, almost half of all families lived under what we today consider the poverty line. Household (and individual) incomes are far higher today than they were then.

Even the ultra-liberal New York Times acknowledges that things are consistently getting better economically for most people as time passes. Their only complaint is that things aren't improving AS FAST as they once were. However, comparing everything to a time when we were the lone undevestated economic powerhouse after WWII is simply silly and unrealistic.

(How did you get a BS in economics without realizing the above?)


P.S.: Manhattan is hardly a representative slice of the U.S., or anywhere else on the planet, for that matter. Obiously, there will be more spoiled kids and 20-somethings there than anywhere else.

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