The Rich Get Poorer

By: Roshawn Watson

We often hear about the catastrophic effects of the economic downturn, such as rising unemployment and foreclosures. As distressing as such news may be, there is often a disconnect between our daily lives and the economy because unless the news hits home (i.e. we ourselves are out of work), then our lives are not directly altered. Likewise, we often think of the wealthy as somewhat insulated against economic blows, and they are to a certain extent. However, the implications of this recent recession have been far-reaching enough to put a big dent in American and world wealth. Both the magnitude of wealth and the number of millionaires decreased profoundly in 2008.

Results of 13th Annual World Wealth Report
In an effort to better understand the economic climate and the needs of their clients, Merrill Lynch and Capgemini conduct an annual survey on wealth (I wrote about last year's report here), and their results were summarized in a report that was released on last Thursday. Apparently, the number of millionaires (individuals with investable assets of at least $1 million USD excluding primary residence, consumables, collectibles, etc.) plummeted by a record 19.5% in 2008 to 8.6 million worldwide (down from 10.1 million). This is the largest decline in the 13-year history of the Merrill Lynch and Capgemini wealth survey. Similarly, the value of millionaire assets also decreased by 19.5% from $40.7 trillion in 2007 to $32.8 trillion in 2008. Undoubtedly, this stems from the decimated real estate and stock markets, contracted gross domestic product, and the declined values of private equity and hedge funds around the world.

One particularly disheartening “nugget” from the report was that last year’s losses in the US erased all the gains from the previous two years.

In other words, America’s wealth boom is back to around 2004 levels.

The report also highlighted a change in the global landscape of wealth as well. Although the United States is globally-known for having the highest concentration of wealth, with 28.7% of world’s millionaires residing here, the millionaire population in other countries have seen some major changes. While the United States’ millionaire population fell 19%, the United Kingdom dropped 26%, while Russia had a 27% drop, India declined 32% and Australia and Canada both fell 23%. Those countries least effected include Brazil, with a 9% drop, and China, with a 12% fall. Millionaires in the Asia-Pacific region are expected to outnumber those in North America by 2013, in part due to strong economic growth in China. In fact, China now has more millionaires than the United Kingdom. In addition, Brazil moved up on the list to the country with the 10th largest millionaire population, surpassing the more developed Spain and Australia.

Implications of Study: Wealth Distribution and Benevolence
In addition to providing a more complete perspective of the global economy, this survey also provides insight into the distribution of wealth and the impact that declining wealth will have on charitable endeavors. For example, the ultra-wealthy (defined as those with a net worth of at least $30 million) saw their ranks drop 25%, with their wealth dropping 24%. This is important because the loss of wealth among the ultra-wealthy disproportionately affected the overall trends. Although the ultra-wealthy make up less than 1% of the total millionaires, they hold 34.7% of the wealth. This survey also sheds light on the drastic decline in the number living donors noted earlier this year by Slate Magazine and Chronicle of Philanthropy. Simply put, wealthy individuals were less magnanimous because they felt poorer.

Perhaps, the biggest lesson from this report to me is to not place your trust in uncertain riches. To lose years worth of work in one year can be disheartening to anyone, regardless of how many digits comprise your net worth.

Lastly, if you like this post, please subscribe (upper right-hand corner); You will RECEIVE My eBOOK; also, support this post and Propel it, Stumble it, and tag it on Delicious.

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Michael Jackson - The Death Of a Legend

You have undoubtedly heard that the iconic entertainer, Michael Jackson, passed away on yesterday at age 50. His talent, innovation, and skill really go unparalleled. His music touched hundreds of millions all around the world, and he literally changed the landscape of music, music videos, and dance as we know it. He is the perfect example of how one person really can change the world!

Just as he was about to embark on his sold out comeback tour, he succumbed to a cardiac arrest. His death deeply saddens me, and my prayers are with his three children and the rest of his family. He will always be the King of Pop to me.

Roshawn Watson

Uncommon Money News (Vol 63)

By: Roshawn Watson

In preparing to write my posts, I often come across noteworthy and sometimes bizarre financial and business news. Below are links to some of these sites. Enjoy!

We got an Editors Pick From Money Hacks Carnival #68!!! The post was ls Recession-Induced Frugality Sustainable? The post was also included in the carnival of financial planning hosted by ZachStocks. Thanks to financial ramblings for also featuring the post.

To my readers: I am so honored by your support. Thank you for reading, subscribing, and for voting for articles from this site on social bookmarketing sites such as stumbleupon, reddit, delicious, digg, propeller, and yahoo buzz. Together, we are telling thousands of the importance of financial literacy. I absolutely could not do it without you. You are vital this this site, and I appreciate your help so much! Thanks.

Humorous Money News

Do you have any sales experience? (Dilbert)

Business

Citigroup - which has so far received $45 billion in U.S. gov't bailout funds - plans to raise base salaries by as much as 50% to help compensate for a reduction in annual bonuses.

Wall Street upset at its "pariah" status

Ballmer (Microsoft) Says Tax Would Move Microsoft Jobs Offshore

The great McNugget caper: McDonald's is ripping you off

High Court Halts Chrysler Sale to Fiat

Top Ten Crooked CEOs

Pizza Hut to change their name and to Have In Store Videos

How much does it cost to make enough concentrate (syrup) for 50,000 Coca-Colas? $2.60

Economy
Do We Really Want The Feds to Have More Control Over Banks

No Wonder California Is Broke (interesting image)

"You can't get a baby in 1 month by getting 9 women pregnant." -- Warren Buffet on the Economy

Trapped: It's hard to get a job if your credit is bad

American Wealth Drops By 1.3 Trillion

Millionaires ranks cut by 19%

10 Large Banks Allowed to Exit U.S. Aid Program

California nears financial meltdown
"The state's revenues from personal income taxes tumbled by 39.3 percent in May from a year earlier while revenues from corporate taxes fell by 52.1 percent"

Why American Home Prices Keep Falling

Entertainment Money News

Financial records from Mel Gibson divorce sealed

The Proposal No. 1 at Box Office: $34 Million Opening

Brooke Shields, Enquirer Settle Up Over Mom-Jacking

Offbeat Money News
Lear Jet Repo Man

Trust Fund Kids Struggle as Parents Pull those Purse Strings Shut

Does Your City Make You Broke?

By: Roshawn Watson

Just as Goldman Sachs predicted, this year the US savings rate has increased to 5-10% for the first time since 1995. Presently, we're saving on average 5.7% of our income, representing a meteoric rise compared to the negative savings rates we had just two years prior. It is incredible the difference a year can make. Just as the economic downturn has not affected everyone to the same magnitude, we are also we are also not saving at the same rate across the country.

Does your city decide whether you are a spender or saver?
The results of a recent study suggest that one's city may influence his or her spending habits. Perhaps even more interesting is fact that the results of the study are somewhat counter intuitive. For example, Detroit has taken such a beating with the real estate market being in the toilet and thousands of people losing their jobs due to demolished industries, yet the average person in Detroit spends more than the much more moneyed Birmingham, Alabama.

Fascinating New Study
The two companies that performed the research project are data and analytics firm Acxiom and market research firm BIG Research. BIG Research gather the data on shopping and saving habits via monthly surveys, and then Acxiom used their 128 million household database and algorithms to determine what people are likely to do with their money.

They found that cities that tended to spend proportionately more were Denver, Washington San Francisco, Seattle, San Diego, Austin, Salt Lake City, Cincinnati, Norfolk and Jacksonville. Cities that tended to spend less include Fresno, Nashville, Tampa, St. Louis, Indianapolis, Little Rock, Knoxville, Tulsa, Pittsburgh and Mobile.

No Homogeneous Area
Of course, Acxiom cautions that there is no such thing as a homogeneous customer or city, which is definitely true. Just as there are some real estate and employment markets that have suffered significantly more than others, there are some areas that are significantly more thrifty than others, and these results cannot always be explained by looking at median income as the Detroit-Birmingham example illustrates. Additionally, we have previously described how the economy has impacted wealthy zip codes and wealthy retail shops too. Indeed in some areas, very few want to be associated with conspicuous displays of wealth and status (read luxury goods have become the new porn).

Additionally, I hope that some of this new-found frugality will last. Although no really knows whether this recession induced thriftiness will last, at least some experts agree that this could be a culture-defining recession. In other words, the financial reset button has been pushed, and the America about to emerge may be decidedly more frugal. Indeed, the knee-jerk reaction of abrupt cessation of spending, lending, and borrowing precipitated this recession and wave of unemployment. Of course I am glad that this downturn will likely be temporal as some recent indicators suggest, I also hope that the paradigm shift pertaining to money remains. The new wave of thriftiness remains. Interestingly, there were definitely signs of many embracing frugality BEFORE September. Not surprising at all, there are still some who refuse to cut back. Particularly, it's middle-income urban families who care more about protecting the quality of their lifestyle. Whilst there is definitely nothing wrong with continuing your same spending habits to maintain quality of life if your spending, saving and investments distribution was appropriate for your income, I hope that this refusal to cut back doesn't represent the same financial immaturity that contributed to (not solely caused) this downturn in the first place.

Lastly, if you like this post, please subscribe (upper right-hand corner); you will my free ebook; also, support this post and Propel it, Stumble it, and tag it on Delicious.

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Just Come In, We'll Pay You To Shop

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Luxury Goods Are the New Porn

For the First Time, American Debt Shrinks

The Benefit That Matters The Most

By: Roshawn Watson and Nate Purpura

With an economy that has slowed, many new graduates are having trouble finding jobs. Employers plan to hire 22 percent fewer college graduates in 2009. Indeed, some have given up searching for jobs altogether and instead are returning to school (or home) or simply not working for awhile. Although there are some who are fortunate enough to take the time off to volunteer, do civil service work, or pursue other interests while waiting for their dream job, this simply is not feasible for most.

Interestingly, the unemployment of recent college graduates often goes grossly unreported or under-reported. Consider that in last November, "the number of college graduates who were working fell by 282,000, while only 2,000 more college graduates were classified as unemployed" (Alan Krueger, NY Times) The gap existed because of the Bureau of Labor Statistics classification guidelines. To be counted as unemployed by the BLS, one must not only be laid off but also be actively searching for jobs for at least 4 weeks. Due to the stigma of being unemployed, many students have claimed that they are not actively searching for jobs.

Show Me The Benefits
Despite a soft job market, many recent graduates are unrelenting regarding the benefits and expectations they find acceptable. According to a recent study performed by eHealth Insurance, an overwhelming majority of study participants (89%) are sure they’ll find a job related to their major once they finish school. Additionally, 85 percent believe their first job after college will provide them with a health plan.

Other key findings suggest that recent graduates value health insurance but don't understand terminology related to their plans.

• Over six in ten (61%) college students would rather live with their parents for the first year after they graduate than go without health insurance during this period of time.
• Many would take care of their own coverage instead. More than six in ten (63%) want to find their own health insurance plan and keep it regardless of where they work, not switch health plans with every job.
• Less than one in five (16%) would part with their health insurance if money was tight after finishing school; cell phones (13%) and access to the web (12%) are just as important to hang onto. Other expenses like cable TV (48%) would be much easier to do without (I like cable as much as anyone else, but I would definitely part with it if it was financially unfeasible).
  
• But less than half of college students can define basic terms such as deductible (41%) or premium (29%).
  

Should Health Insurance be the Most Important Benefit?

It is perfectly reasonable for health insurance to be very important, regardless of whether it is is a company benefit. Unfortunately, many neglect to appropriately insure themselves due to limited finances or perhaps some feel that they're invincible. However, it is a verifiable fact that one of the biggest threats to one's finances is medical illness. Medical illness is the leading cause of personal bankruptcy. Often, the bankruptcy is not just due to the medical bills but rather the corresponding loss in income associated with the illness. This is a real problem even for recent graduates because they make up the 2nd fastest growing group filing bankruptcies in America.

Even though younger individuals tend to be healthier, going without medical insurance is like playing a game of roulette. For example, I know someone battling inoperable brain cancer who is 28 years old. He got his original diagnosis while still in school. Without insurance, his family would have to struggle to survival financially, which is the last thing you want to worry about in such as situation.

The Missing Benefit

Click on image to enlarge

29% of respondents said that health care insurance was a nonnegotiable benefit when evaluating a potential job. Not surprising, but also troubling, is that disability insurance apparently did not rank on the list of non-negotiable benefits but flexible scheduling does (click here for better image resolution). However, financially it is a mistake to go without disability insurance. If one is 30 years old, he or she is statistically 12 times more like to become disabled by age 65 than dying, yet disability insurance remains one of the most under-insured areas in the insurance arena. Perhaps it wasn't even included in the survey, but make no mistake, long-term disability can be financially devastating, so protecting yourself financially with insurance is the prudent thing to do. Apparently, we somewhat got the message of health-care insurance importance, but there's work to be done on the disability insurance front.

Lastly, hopefully the graduates will use common sense when selecting their jobs. If they have job offers but are sitting on their bottoms because these jobs don't offer the optimal insurance packages, then perhaps they have unrealistic expectations given their levels of experience and expertise. In some cases, they may have to furnish the insurance themselves or deal without some of the extra coverages. In short, although it may not be too smart to deliberately go without medical or disability insurance, in most cases it makes even less financial sense to go without a job because you can't get the insurance package you desire.

Lastly, if you like this post, please subscribe (upper right-hand corner); you will my free ebook; also, support this post and Propel it, Stumble it, and tag it on Delicious.

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Forbes Celebrity 100

By: Roshawn Watson

Fame and fortune. It's what many dreams are made of, yet relatively few ever achieve it. I would argue that perhaps the biggest benefits of being high-profile celebrity is that it gives influence. For whatever reason, we as a society care what they are wearing, how they smell, and in some cases what candidates they endorse. Consider just how much of celebrity income comes from endorsements. Perhaps the perfect example of how powerful their endorsements are is the Oprah effect. Her endorsements have be credited for making James Frey a best-selling author, boosting Josh Groban Christmas album sells by a few million, and for elevating Robin Thicke's album sales to platinum status as well. Indeed, expressing disapproval and their opinions can even get them in legal trouble. For example, Oprah cased a firestorm and sparked a lawsuit a few years ago when she spoke out against how farmers were mishandling their animals.

The celebrities that comprise Forbes Celebrity 100 are of the highest caliber. Although you may not care for all their life choices and politics, the fact that you know these details alone supports their influence on our culture. With respect to their marketability and notoriety, these are in a league of their own.

I'll leave it to Forbes to detail the whole list; however, I would like to highlight two intriguing celebrities who use their fame for profit and to advance good causes.


Beyoncé Knowles – The brand that is Beyoncé consists of music, movies, clothing, a L'Oréal contract, and other lucrative endorsement deals. She has roughly 400 people working for her and her enterprises. All told, Miss Beyoncé took in a reported $87 million last year alone. Her income coupled with her high visibility has earned her the coveted #4 spot on this year’s Forbes Celebrity 100. She is very well accomplished: she has sold upward of 118 million records, won ten Grammys, starred in seven films and headlined three solo tours. Her latest solo effort I Am ... Sasha Fierce has sold 4 million copies worldwide. Because of her marketability and success, Beyoncé splits the profits with Columbia, a deal reserved for A-list performers. "

Do you want more details as to how Beyoncé earned $87 million, here are her earnings in pictures Beyoncé is also a giver. she funds the Survivor network, which is dedicated to helping the victims of Hurricane Katrina. Additionally, she donated her acting salary from Cadillac rec cords to a drug and alcohol recovery charity. Beyonce is truly a class act, no wonder her empire just keeps on growing.

Angelina Jolie - There are few who can say that they are more famous than Oprah; however, Angelina Jolie fame is really unchallenged. She brings it like no other really can, and this year she dethroned the talk-show and media mogul to claim the coveted No. 1 spot on the 2009 Forbes Celebrity 100. She brought in $27 million last year, which gives her a pay rank of #60. However, it’s her media (web and print) and entertainment (i.e. Wanted, Changeling, Salt) presence that make her the penultimate favorite.

In fact, there doesn’t appear to be reader fatigue. She graced the cover of 35 magazines last year, yet people still crave so much more. Part of her appeal stems from her multi-faceted life (mother, partner to Brad Pitt, one of the biggest movie stars on the planet, philanthropy, and she is gorgeous) additionally, the Oscar winner is a great actress. Whether it's her work as a good will ambassador, her adoption of another child, or her kicking butt in a new action movie, we will likely care about Angelina Jolie for many years to come. That's what makes her fame and her income-earning potential sustainable.

Perhaps, one thing that we can learn from celebrities is that we too can be our own brands. Brands are merely a connection that you have a with a person or company. It means that the products produced will be of a specific quality. If you would like to get started into creating your personal brand that screams out distinction and excellence, please read Tom Peter's A Brand Called You. It's is a compelling study of personal branding, and will add tremendous value to your work life.

Thanks for joining me in this slight deviation from our normal personal finance topics. I greatly appreciate you reading this site!

Uncommon Money News (Vol. 62)

By: Roshawn Watson

In preparing to write my posts, I often come across noteworthy and sometimes bizarre financial and business news. Below are links to some of these sites. Enjoy!

To my readers: I am so honored by your support. Thank you for reading, subscribing, and for voting for articles from this site on social bookmarketing sites such as stumbleupon, reddit, delicious, digg, propeller, and yahoo buzz. Together, we are telling thousands of the importance of financial literacy. I absolutely could not do it without you. You are vital this this site, and I appreciate your help so much! Thanks.

Posts of the Week

1. Seth Green (see Humorous Money News)

2. The Fall of an American Giant

3. Guess who's at the top of Forbes Celebrity 100 (It's not Oprah This Time)

Humorous Money News

Un-Broke: The Seth Green Cribs Edition

Business

The Fall of an American Giant

Another commentary on GM's demise: “The American people want GM to go bankrupt” “They don’t care.”

Economy

Americans are Finally Saving Money
All it took was a financial crisis followed by a recession to get Americans to start pocketing their cash.

Oil Is Plentiful, Demand Weak. Why Are Gas Prices Going Up?
Investors and oil producers are betting that global demand will roar back, apparently hoping that the recession has already hit bottom.

Can you Afford to Retire?

Medicare and Social Security are in terrible shape. Unfortunately, private-sector health and pension plans are doing even worse.

Trading Down: From Decadence to Discounts

Between 2000 and 2007 the average American increased his personal consumption by 44%. This accounted for 77% of America’s economic growth during that period. Much of it was financed by debt. They blew 20% of this on consumption, 19% on sprucing up their homes and 44% on assets such as stocks.

Leap in U.S. debt hits taxpayers with 12% more red ink

Each US household has a $550,000 federal obligation + $120,000 personal debt

Unemployment in U.S. Probably Surpassed 9% in May: The highest its been since 1983

Entertainment Money News

Money Lessons From Celebrities

Unbroke: Seth Green Teaches Fiscal Responsibility

The world's top earning models (in pictures of course)

Guess who's at the top of Forbes Celebrity 100 (hint: It's not Oprah)

Brandy settles fatal car crash with victim's kids

Offbeat Money News

Bill Gates Urges Fellow Billionaires to Give Away Their Fortunes

Blogger's Spotlight

Kyle from Suburban Dollar writes Online Account Aggregator vs. Financial Management Software

Donald Trump blogs about Education vs. Experience

The Revenge of The Millionaires

By: Roshawn Watson

Synopsis

Wall Street Journal released a fascinating article last week called Millionaires Go Missing: Maryland's fleeced taxpayers fight back. Briefly, Maryland failed to balance its budget last year, so it decided to create a special millionaire tax bracket to make up the deficit.

“Governor Martin O'Malley, a dedicated class warrior, declared that these richest 0.3% of filers were ‘willing and able to pay their fair share.’ The Baltimore Sun predicted the rich would ‘grin and bear it.’"

However, there were two things that Maryland politicians didn’t count on (1) a world-wide economic crisis decreasing the number of million dollar earners and (2) millionaires simply leaving (or taking in less income). “By April 2009, one-third of the millionaires have disappeared from Maryland tax rolls. On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year -- even at higher rates.”

Tax the Rich

There you have it, yet another attempt to fleece the millionaires of their money ending as a dismal failure. Here is a quote addressing the subject from over a year ago.

Ralph Nader's father purportedly once said that "Capitalism will never fail because Socialism will always bail it out." My concern, especially in this election year, is that socialists will seek revenge. Already I can hear the war cry "tax the rich!" The problem with taxing the truly rich is that the rich simply move their money to countries that treat them and their money with undue respect. And when the rich move their money, the poor and middle class end up paying more taxes (Robert Kiyosaki on April 14, 2008)

In this case, the rich did not need to move their money to other countries, just to tax-friendlier states. After all, these high income earners often own second homes in tax-friendlier states, so switching your primary residence is not nearly as big of an ordeal as leaving the country. Additionally, many of these millionaires are also business owners who control their own salary, so it would not be a tall order for some, especially those who are marginally over the tax bracket, to adjust their salary slightly downward to avoid excess taxes. Of course, there are also several loop holes in almost any tax system (especially for business owners), and many of the wealthy would used their resources to find them.

You Cannot Tax the Rich Beyond Their Willingness to Pay

Notwithstanding the recession, no one is disputing that “the millionaires did leave.” Dare I say that if this departure is real, it is merely a reflection of their contempt for being forced the bare the burden of a financially inept state government who can’t balance its budget. After all, who made this governor the moral authority of Maryland? Who is he to say that what is the fair thing for others to do with their own income? I am definitely not making a political statement but am stating that Governor Martin O'Malley may be in deep need of a history lesson.

Simply put, you just cannot tax the rich beyond their willingness to pay.

I’m not sure whether or not he reached this point or if the loss of 1000 millionares was only due to the decimated economy dropping earnings, but history does show that those who do try to soak the rich ultimately cause the wealthy to leave (or get very creative at least), which means the middle class will bear the burden of the taxes increases. Perhaps that is one of the biggest limitations of a progressive tax system anyway: it creates an overdependence of the government on the incomes of relatively few people (0.3% or less). Thus, if they fall (i.e. because of the economy), change their residence, or lower their income, the whole system stumbles.

Lastly, if you like this post, please subscribe (upper right-hand corner); You will RECEIVE FREE GIFTS; also, support this post and Propel it, Stumble it, and tag it on Delicious.

Image Credit: NOTperfect

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