US Middle Class Falls Short On Savings and Investments

THE United States thinks of itself as a nation with a strong middle class. In terms of income, that remains true. But in terms of wealth - an individual's savings, investments, and ownership of property - the middle class is relatively weak. These are the broad conclusions of the latest study of wealth in the US. It uses a survey, commissioned by the Census Bureau, of nearly 20,000 households in 1983 and 1984.

Previous wealth studies had utilized estate tax numbers, projecting these to the population as a whole. The newer statistics offer far more information.

``The foundation is very thin,'' says Thomas Shapiro, a sociologist at Northeastern University. ``Wealth is distributed a lot more unequally than we had thought.''

About one-third of households have zero or negative net financial assets. In other words, they have few if any savings or investments to fall back on should they lose their job or be incapacitated. Their only safety nets are relatives, government welfare, or private assistance of some sort.

``Even the demise of the family car can precipitate an immediate economic crisis,'' notes Mr. Shapiro and another sociologist, Melvin Oliver of the University of California, Los Angeles.

Another third of US households own very few assets. The median American household had net financial assets in 1984 of only $2,599 - a financial cushion adequate to last barely three months if the household lives at the poverty level. (At the median, the number of households with more wealth equals the number of households with less wealth.)

Shapiro and Oliver used this data to produce a paper for the April issue of the American Journal of Economics and Sociology. Among its findings:

The distribution of wealth among households is far more unequal than income. This was known from earlier studies. However, the new data indicate wealth is much more concentrated than previously estimated.

The top 20 percent of American households earn more than 43 percent of all income. This same 20 percent holds 67 percent of ``net worth'' and nearly 90 percent of ``net financial assets.''

Net worth is a comprehensive picture of all assets and debts. Net financial assets excludes a household's equity in vehicles or homes.

Shapiro regards ``net financial assets'' as especially useful as it measures assets that generate income and wealth.

The median wealth (net worth) of the top 1 percent of households is 22 times greater than the median of the remaining 99 percent. Net financial assets are concentrated even more densely; the median of the top 1 percent is 237 times greater than the median of the other 99 percent of the population. The richest one-half of 1 percent (about 430,000 households) own 40 percent of corporate stock.

The economic condition of black America is ``far more precarious, marginalized, and unequal than was thought previously,'' according to the authors. White median net worth is 11.7 times that of blacks. When home and vehicle equity is removed, 67 percent of black households have zero or negative net financial assets. That compares with 30 percent of white households.

Married couples possess well over four times net worth assets of nonmarried individuals, even though their median income is only slightly more than twice as large. The net financial assets of married couples is nine times greater than households headed by nonmarried people.

Children are expensive.

Even though income data would suggest that raising a family has no detrimental effect upon material well-being, wealth statistics show that couples with children under the age of 18 have only 46.1 percent as much net worth assets as couples without children. Couples with children have only 9.9 percent as much in net financial assets as childless couples. Parents invest much income in housing, education, and other child-rearing expenses.

Means-tested social welfare policies, based on income, fail to appreciate the ``precarious resource position'' of most families raising children, Oliver and Shapiro write. If wealth was included in the definition of poverty, programs to reduce poverty would target more blacks, women, and families of all kinds with children.

In phone interviews, both sociologists said the reduction in capital gains taxes proposed by President Bush would worsen the ``maldistribution'' of wealth toward those already wealthy.

Oliver finds no evidence that the decline in marginal taxes for the wealthy during the Reagan years has resulted in the saved money going into productive investments. ``Rather, a great deal went into unproductive assets - homes, yachts, luxury goods, personal consumption, etc.,'' he says.

The UCLA professor advocates an increase in the progressivity of the income tax system (though not back to the pre-Reagan level). At present, the income tax system is basically proportional for the middle class and the well-to-do, both paying about the same percentage of their income in taxes to all levels of government. Oliver also suggests a small tax on wealth.

Shapiro urges government-subsidized loans on first-home purchases, especially since housing equity is the largest chunk of wealth held by middle class or poorer households. He also urges tougher inheritance taxes.

``One of the foundations of American society is some kind of equality in economic and social mobility,'' Shapiro says. In other words, even the poor individual can advance up the income and wealth ladder as far as his talents permit. ``The goal is equality of opportunity, not results.''