Fact Checking - Financial Well-Being of US households
As I was doing research on a topic for a client, a well known academic made key references as part of his argument in support for his position. More specifically, he was suggesting that the US government should be focusing on their domestic agenda, as opposed to their foreign policies. He cited a study by the New York times that showed that over the last 40 years, the median household income in the US has been stagnant or falling; which has been, in part, the root cause of many of the social ills and challenges in the US seen in recent times. And that US public funds would be put to better use to address the financial well-being of US households.
The US is the largest economy in the world and has a very high GDP per capita by world standards, I found the claims a little suspicious. The academy did not show any charts or data and I was not able to find the cited article. So in typical FYT fashion, we dredged up the facts and went to see if it was true.
As with the approach we teach in our workshops, we are going to start with a few key questions or hypotheses
Is it true that the median household income in the US fell or remained stagnant in the last few decades?
If the above is true, is that an exceptionally bad outcome; or just par for the course for developed western economies
If true, is it more true for specific groups in the US?
The US is near the top among high income western economies. Over the last 20 years, they as a group they grew at an average of 1.62% CAGR. The US grew at 1.38% CAGR over the same period; which was just at the median. No surprise there.
The surprise came when we compared the average and median household income changes in the same 20 yr period. The average household income growth was 36% of GDP per capita and the median household income growth was only 26%. (0.59% and 0.43% CAGR respectively). While not stagnant or falling, it was very low. Bearing in mind that Singapore's median household income grew at 3% CAGR over the same period.
Digging deeper into the topic, we also discovered that
The lower 60% of household incomes grew at even lower rates
Black household incomes grew slower than other races across all quintiles
This little example is intended to illustrate some of the key concepts FYT often stress in our workshops and is turning out to be more and more important in our data laden world; where many are passing off opinions as facts and not enough are checking. In fact, we hope to demonstrate that fact checking is not as painful as one thinks and you might even learn new things in the process.
Through this analysis, the evidence that US households have not enjoy much of the spoils of economic growth; in fact data shows that many low income and black household incomes stayed almost the same in real terms over the last 20 years. While not entirely the same claims as the academic, but the key messages still rang true.
For more information about the research, please feel free to click the visual and it will take you to an interactive data visualization to explore for yourself.