On Average

Dear Readers,

Shuffling along the crowded streets of Oxford and London recently, I found myself eyeing the teeming masses and wondering how the average person gets by in this toilsome, expensive world.

Since returning from England, I have continued to mull over what it means to be “average”, and finally found time to dig in a bit deeper.

At the onset, I want to apologize for the length and the meandering nature of this edition.

It turns out that this is a very big topic, and at every turn my innate curiosity led me off into another direction.

Those of you who are time-stressed may want to just skim this posting, though even as you do I think you’ll find interesting tidbits.

While this edition of Sendero took a lot more time to research and write than I could have imagined, in the end I really feel like I learned something. Hopefully you will, too.

As we set forth on this new trail, I am listening to a live version of Lynyrd Skynyrd’s Free Bird, circa 1977.

While the song's lyrics are pretty hokey and singer’s voice only average, I found the film of the ill-fated band and of the concert audience interesting. Plus, about half-way through the song, it kicks into high-gear and gets the foot tapping, something I always appreciate.

On Average

The idea that someone or something is “only” average is often viewed in a negative light.

Which may be why most people fancy themselves “above average”, at least in some core aspect of their being.

Yet, is being average so bad?

Isn’t being average a clear indicator you know how to “go with the flow”... to follow the well-worn path of least resistance?

After all, the average job requires only average intelligence and average effort. As a result, the average person can punch out at the end of the average eight hour workday and leave the job behind.

That frees up a lot of time for what one would assume are more pleasurable pursuits.

Given that it is one of this world’s few indisputable facts that no one gets out alive, why would anyone aspire to anything more than being average?

However, there is a compelling economic reason to try and stand out from the crowd, because as you’ll read, average just isn’t going to work for most people.

More on that momentarily.

First, however, I want to begin by framing the parameters of what it means to be average, starting with physical attributes.

For instance, if you are the average American male, you would be 5’9.5” tall. That’s about half-an-inch taller than in Canada, and a full 4 inches taller than the average Mexican.

The tallest people come mostly from Europe: men from the Netherlands and Bosnia-Herzegovina both mark the yardstick at 6’.05”, on average. Even the average Brit is half-an-inch taller than their Yankee cousins.

The shortest folks come from more southerly climes. The Bolivians mark the tape at just 5’3” and the average Indonesian stands in their bare feet at only 5’2.5”.

Is this sort of information of any practical value? Maybe.

For starters, it’s well established that taller people are accorded more respect than their shorter peers, and are even paid more.

If you look at a map of the world broken down economic success, with few exceptions - for example, Australia and New Zealand, where immigrants from the northern climes run things - the successful countries skew heavily north.

There may be some historical significance as well.

Jump back in history to when the Dutch were smashing around Indonesia. Or to the age of empire when the Brits (5’10”) were sweeping through India (5’4.75”), and the Spaniards (5’10”) were raping and pillaging the diminutive Aztecs.

Might the disparity in height provide a clue as to why such small European armies so thoroughly dominated larger native populations? Obviously, the Europeans had technical advantages, but for largely primitive and isolated peoples, the invaders must have looked like white giants.

And doesn’t height help explain why males have dominated women throughout the millennia? After all, the average US female is just 5’4” tall, almost half a foot shorter than their male counterparts.

Even in Indonesia, where you would think the diminutive size of the men would give the women a fighting chance, the average woman is just 4’10” tall… that’s the cut-off point below which people in other parts of the world are considered midgets.

Still on the physical characteristic of what it means to be average, we find that the average US male weighs in at 197 pounds, while the average US female weighs in at 168.5 lbs.

So, again, men and women clearly fight in a different weight class.

Veering on to a Quick Sidestreet…

According to the CDC, US males, on average, weigh almost 30 lbs more today than they did in the 1960s. And the average woman weighs 28 lbs more. That’s about an 18% gain for men, and over 20% for women.

In the case of the latter, the extra weight is being hung on significantly smaller frames, making the weight gains even more significant.

Look again at the film of the 1970s Lynyrd Skynyrd concert, or any photos from the 1960s and there’s nary an overweight person to be seen.

While there will be a number of factors in such a dramatic increase in personal poundage, some I can think of include:

Prosperity. Since the 1960s, per capita GDP has steadily increased, more than doubling from under $20,000 to about $55,000. Of course, one has to take into account the impact of inflation, and recognize that not everyone enjoys the same share of the wealth, but looking at purchasing power parity, shown in the chart here, you can see a more or less steady increase in prosperity since the data first started being collected.

Naturally, the more disposable income you have, the more and the better you can afford to eat. In some cultures, obesity was - and still is - viewed upon favorably, as a status symbol representing wealth.

Is there a clearer graphic of the prosperity of the “American Century” than the chart here showing the increase in US meat consumption since the early 1900s?

The downturn in US meat consumption over the last decade is interesting. It seems to have been tipped over by the 2008 financial collapse and could signify something deeper going on in the economy that’s affecting the average person. More on that later.

Just because I found it interesting, even though it is a bit out of date, here’s another chart, a clear picture of the Chinese economic miracle viewed in meat consumption.

The widespread adoption of the automobile. Before the age of the automobile, getting from point A to point B almost always involved some form of footwork. Since the 1960s, the adoption of cars in the US has soared.

Increased consumption of processed foods. While I suspect, but can’t confirm, that the trend is changing, there’s little question industrial foods have added to the weight problem of the average american.

The collapse in the number of people working in the agricultural sector. I well remember a conversation with a shiftless hippie sort who explained he was on welfare because he couldn’t find a job he liked. Given his back-to-earth philosophy, I suggested he might give farming a shot. He looked at me with something akin to fear in his eyes and said, “Oh, man, I tried that once for a week… it was REALLY hard work!!”. (Maybe that’s why farmers have the highest suicide rate of any profession?)

The US Government Food Pyramid. One of my business partners at RiskHedge, Dan Steinhart, weighed in with this one:

“Up until a few years ago, the US government insisted that carbs like bread, pasta and grains should form the foundation of a healthy diet. In fact the food pyramid, which you can see below, officially recommended we eat 6-11 servings of carbs every day! Most scientists and studies now agree that this advice was laughably wrong. Newer studies show carbs and sugar are what make people fat. "Fat" in food was never the culprit.”

Regardless of the reasons, the US ranks #1 in terms of obesity among the first world countries, though only #19 in the global obesity contest.

The heftiest folks are found among the Pacific Islanders, with over half of the population of the Cook Islands falling into the category of obese. Somewhat interesting, after the Pacific Islanders, the next heftiest countries are found in the Middle-East, with about 40% of the population of Kuwait and the UAE overweight.

Also interesting is that in Japan, one of the most prosperous first world countries, only about 3.30% of the population is obese. Which may explain why, on average, the Japanese live the longest.

Sushi anyone?

But I digress… horribly.

To this point we have established that if you are the average US male you’re 5’9.5” inches tall and weigh 198 pounds.

To complete the picture, I will mention you are also white (62%) have dark hair (only 1% of population has red hair, and 2% are blonde), are 38.1 years old and have bluish colored eyes (about 50% of the population). You wear a size 10.5 shoe and are within two standard deviations of a 100 IQ.

Of course, if you turn your attention to different demographic slices, the data all changes, and significantly so.

Point in fact, the average black male will live to 71.8 years old, whereas the average white female will live to over 81 years of age, a full ten years longer.

Interestingly, Hispanics have the longest life expectancy… perhaps because of the cultural strength of the family unit?

However, to try and cross all the t’s on this topic would require a book, and a thick one at that. I really can’t begin to tell you how many data sets I went through, and ultimately left out. It was a lot.

Moving on…

Financial Mediocrity

Now, let’s turn to how the average person manages to put bread on the table every day.

On that point, while in London I recall looking over the finely uniformed doorman at a posh hotel and wondered how much he was paid for standing around looking down his nose at any riff-raff hoping to mount the gilded barricades in order to use the bathroom.

I did a bit of research, and the payscale for a doorman comes in at around US$16.00 per hour. Just enough, perhaps, for modest lodgings and a palliative pint of pilsner at the end of his shift?

Crossing back over the pond and increasing the sample size, I looked at the latest data from the US Bureau for Labor Statistics and found median income broken down into age groups. We have to use median, versus average, because the 1% of the 1% -- Bezos, Buffett, Zuckenberg, etc -- would skew the averages.

Here’s the latest.

Note that the data set is only for full-time and salaried workers. Only about 35.4% of the 327 million US population, or 115 million people, fall into that category.

Trying to get a better fix on the situation, I looked at median income per household, which rings in at around $57,617.

The average household contains 2.54 people. Setting aside everyone under 15 years old, we find 81.26% are of an age to have some income. With apologies to Bud Conrad and other more mathematically inclined dear readers for any oversights in my analysis, my calculation works out as follows:

This next chart shows where households and individuals fit in on the income scale, as a percentage of the total population. As you can see, 71% of Americans earn less than $50,000, with 35% earning less than $25,000.

Not a lot of money, when you get right down to it.

Drilling down a bit, I looked at what the average person can earn in what might be considered an average job.

The actual numbers will depend on a number of factors, including your skill levels and, more importantly, where you are physically located. To state the obvious, a waiter in New York City will make a lot more than someone working in Des Moines.

Some examples.

Barista, top end of the range is $28,694
Construction laborer, about $40,000.
Waiter, around $24,000.
Secretary, mid range around $30,000.
Elementary School teacher, about $50,000.

Source: https://www.payscale.com/

Again, not a lot.

Where the Rubber Meets the Road

Of course, the amount of income you take home at the end of the week is very much a here and now kind of thing.

But what about the future, when you can no longer put shoulder to wheel? This is where savings come in, and the simple fact is that the average American woefully under saves. Ultimately that failure to save shows up in net worth, the proverbial nest egg one has to fall back on.

For this statistic, it is again best to look at the median, as opposed to the average.

As you can see, for the most Americans, the majority of their net worth is tied up in their homes. But let’s not forget that, for most, a home is not really an asset, but a nagging cash drain.

For example, in the small Vermont town where we have our summer home, owning a modest house involves paying protection money to the state government of around $500 each and every month. As our house is a bit less modest, our property tax bill comes to over $1,000 a month. That payment is not optional, it’s pay up or else.

In some jurisdictions, property tax is based on income. For example, in Passaic County, New Jersey, you’ll pay 8.79% of your income to the state. Must be a very nice place, or I can’t imagine why anyone would still live there.

Then there’s utilities, lawn care in the summer, snow plowing in the winter, regular maintenance costs, etc.

Regardless, with or without their home equity, most people don’t have a proverbial pot to pee in.

A survey by GOBankingRates, found that 62% of adults have less than $1,000 in savings, with 34% having no savings at all.

This jives with a Federal Reserve study that found that 47% of survey-takers wouldn’t be able to come up with $400 in an emergency, at least not without borrowing, or selling something. A large percentage of respondents were unable to come up with the $400, period.

Cost of Life

Of course, at the end of the day how much you can save will depend on how much of your paycheck is left over at the end of the week.

To access the latest BLS breakdown of spending by income deciles, click here.

The first decile consists of the poorest 10% of the population, and the 10th decile, the wealthiest.

Cutting to the chase, let’s just look at the median expenditure per person in the sixth decile, which we can call solidly middle-class.

To be in that decile, your after-tax annual income would be $52,949. Not horrible... except that according to the government’s extensive data people in that decile spend on the order of $51,351 per year.

That leaves only about $1,500 per year to save for retirement, or to have available for an emergency expense.

In every decile below the sixth, your expenses outstrip your income. For example, in the fourth decile, your after-tax income would be $33,308 but your annual expenses would come to $39,308.

Bit of a problem, eh?

It gets worse. As I don’t need to tell you, the demographic freight train filled with aging baby boomers is now heading toward Retirement Station. Given that the boomers represent 26% of the population, and 40 percent of the economy, this is increasingly looking like a fairly imminent train wreck.

Which brings up the question of how much one should have to cover basic expenses in retirement. The calculations for what you will need in retirement are all over the place - but they all exceed the net worth of most Americans.

For the sake of argument, let’s work backwards and say that you had $1 million saved up at the time you retired at 65.

In this interest rate environment, you would be lucky to earn 2% on your money in a safe investment (e.g. T-bill). That means you would earn $20,000 on your money. Give up 20% of that in taxes (of all stripes) and you’re left with $18,000.

Of course, inflation and the shortfall between your income and expenses would carve into capital each year. If you were to retire at 65, and checked out of the planet at 75, you could get by. But what if you live to 90, as so many now do?

And that’s starting with $1 million. Per above, the average 65 year old has a total net worth of $194,000, most of it stashed in the roof over their heads which instead of generating revenue, costs money to maintain.

With just $44,000 in actual savings, anything that looks like a model retirement seems out of reach.

One study, by Fidelity Investments, calculated that the average 65 year old couple would spend upwards of $260,000 in out-of-pocket expenses to cover medical expenses before tucking in for their long dirt nap.

Then there’s the matter of long-term care facilities, which cost a minimum of $8,000 per month. Of course, not everyone will end up in a nursing home, but plenty will.

Uncle Sam to the Rescue

Arriving at this point, it sure seems that the average person is like Sisyphus with his boulder, constantly trying to reach the top of the imaginary mountain otherwise known as the American Dream, with almost no chance of success.

But there’s another factor that we have to take into account: the survival instinct of the political class.

To wit, given that the vast majority of Americans can’t make ends meet, let alone save enough to look after themselves in something that feels like retirement, the task of keeping people from living in cardboard boxes increasingly falls to the government.

According to one government study, 60% of Americans already receive more in government benefits each year than they pay in taxes.

These next two charts paint a revealing picture. The first shows all US Federal government broken into Discretionary and Mandatory spending, with a small slice representing federal interest payments.

Discretionary spending includes things like the military, the environmental protection agency and a million other meddlesome agencies. It’s the latter category, Mandatory spending, that concerns us today.

Here is the pie-chart showing where the mandatory spending goes. As you can see, there’s not a lot of slack there. Cutbacks in this spending will, for the most part, almost immediately cause people to start missing meals.

As you will already suspect, mandatory spending has been on a steady increase for the last half century and will only get worse.

While one can take a pessimistic view of the collective data about the dismal shape of the average american, you might take some comfort in the fact that the government still has a lot of tools left in the bag. Not that I’m advocating for government intervention in any form, just pointing out reality.

When push comes to shove, you can rest assured that the political class will do whatever it takes to avoid losing power. They can and will change the rules as needed, devalue a currency, renege on a debt, slap on tariffs, start a war to grab another nation’s wealth… literally whatever it takes to keep the wheels on.

And pushes will come to shoves sooner than most people think: this year, for the first-time ever, the Social Security went into the red, with Medicare following in about eight years time.

Here’s a recent article on the situation, by John Stossel.

Some Conclusions

I approached this topic without any real idea where my musings might lead. Here, hopefully near the end, I am still not sure I have a firm grip on the takeaways, but let me try.

There are two sides of the personal financial equation: earnings and expenses.

While you can, and should, try to increase what you earn during your productive years, it seems to me that most people fail on the spending part of the equation.

Speaking from the perspective of someone who lives most of the year in a very simple little town in the middle of nowhere Argentina (i.e. no malls, fancy cars, Amazon Prime, etc), I will say that the level of consumerism in the US seems to me to be in overdrive.

I see people that I know don’t have very much money driving expensive cars, or living in houses that far exceed their needs.

During my research for this article, I came across a very interesting article in Atlantic magazine by Neal Gabler, a well-established writer and film critic now in his sixties who confesses that he, too, couldn’t come up with $400 in an emergency.

It’s well worth a read, because looking over Gabler's biography, most would conclude he's sitting pretty.

Yet, after a lifetime of opting to live in houses he couldn’t afford, and sending his kids to good schools and paying for expensive weddings, he and his wife find themselves pretty much penniless.

You can read his article, here.

It’s a cautionary tale about how what seem are logical decisions when you are younger, can have serious consequences down the road.

Here's One Decision That Might Help Build Net Worth

Much of the advice about building net worth falls under the purview of financial advice columnists (How to Cut Your Credit Card Debt Overnight!), so I won’t go there.

However, I will mention a big one. If you live in a high tax state such as New York or California (or Vermont) you are throwing serious money down the government rat hole.

For example, if you live in a median household in San Francisco, you’ll spend 45.56% of your income on state, local and federal income taxes.

In sharp contrast, were you to slide your residence north, to Seattle, the total government take would drop to 23.80%. That’s a huge swing in how much you can save.

If you are looking for better weather, Nevada, Texas or Florida are also much, much cheaper than SFO, New York, New Jersey, etc.

The middle of nowhere Argentina is also pretty inexpensive.

However, maybe there's a silver lining or two on the horizon.

For example, with all the baby boomers retiring, won’t the millennials increasingly find plenty of jobs to choose from?

We know unemployment has been falling pretty steadily of late. What if it’s not just a reaction to tax cuts and an improving economy, but a demographic trend that will continue for a couple of decades?

If that’s the case, won’t the jobs that require people -- as opposed to those where humans can be replaced by machines -- have to pay more to attract qualified candidates?

Speaking of technology, perhaps the rise in the disruptive technologies will make things cheaper, so people will be able to get by on less?

Looking at the latest data, however, so far lower prices are nowhere in sight.

Social Implications

While it is hard to predict the timing of these things, the financial struggles of so many people has to have consequences.

For example, in Japan, young people have stopped getting married. That trend is also in force here in the United States.

And, faced with pretty dim prospects, it's almost a certainty the millennials will turn even more strongly to the government for relief.

How else to explain the surprise surge in popularity for the aging socialist Muppet Bernie Sanders in the last presidential election?

One recent poll showed almost 40% of the citizenry favoring socialism over capitalism, with another showing 58% of millennials preferring socialism or communism over capitalism. Scary.

Then we have the newest darling of the “progressive” set, Alexandria Ocasio-Cortez, who despite her 28 years, is already being talked about as a presidential candidate.

In her stump speech, she calls for guaranteed federal jobs for anyone who wants one, free university and free healthcare. And that’s just for starters.

Given the rising importance of millennials in the voting booth, the power to shift the political landscape hard left and on to the proven path towards an even deeper level of economic ruin is very real.

Even though millennials now outnumber baby boomers, in the last US presidential election, only 46% of eligible millennial voters bothered to cast their vote, versus 69% of baby boomers.

Closing that gap by even half would have given Clinton the presidency.

Given the unabashed and unhesitating media onslaught against anything Trump, as long as the democrats run anyone other than a donkey or Hillary Clinton in the next election, the odds are good the millennials will finally exert their political muscle.

Unless, perhaps, Trump can manage to reform the economy enough to keep things humming along, in which case he might squeak through for another term.

But sooner or later, and probably sooner, the country will fall back into recession. And then comes the deluge.

That’s because the average person isn’t making ends meet, at least not without government help.

Therefore, a serious unwinding of the economy, accompanied by a return to earth of the elevated stock market, has the potential to be devastating, especially for those closest to what used to be considered retirement age.

A look at the latest bankruptcy stats, even in what is supposed to be an increasingly robust economy, reveals an unhealthy trend.

A Parting Thought

When I asked myself how the average person gets by, I had no idea how far down the rabbit hole I would go chasing the answers.

In the end, it is hard to come to any conclusion other than that the average person is in trouble.

They may keep their head above water for awhile longer, while the current economic mini-boom continues, but it can’t last.

That doesn’t mean the nation will devolve into some sort of dystopian nightmare. Rather, it means that the government - which is already running astronomical deficits - will have to turn on the afterburners and hope for the best.

As we can’t predict the future, and our ability as individuals to influence various outcomes is almost non-existent (especially when you’re on the wrong side of the demographics), in the end we need to look after ourselves.

If you are already a wealthy person, you have a lot of options available to you, including moving to a greener pasture.

On the other hand, if you are one of those folks who feels wealthy thanks only to your ability to access credit, but fall short in the net worth department, now would be a good time to start tightening up.

As for the rest of it, if you are overweight, now is also a good time to starting getting back into shape.

That alone will improve the quality of your life, and maybe even help you outrun the angry mobs. :)

Best of all, getting in shape requires no money at all, just a bit of determination.

That’s all I have to offer on the topic, though it doesn’t feel like of much help at all.

At the end of the day, at least when it comes to financial security, average sucks.

One Last Thing

Last week I mentioned RiskHedge, and referenced a recent article about the small company that was stealing ad revenue from Google and Facebook.

Not sure if you saw it, but last Friday, a couple days after I wrote you, the shares in that company - TradeDesk - went up by 37%.

RiskHedge comes out every Thursday, with the issue coming out this week offering surprising insights on the topic of self-driving cars.

To sign up as part of our beta testing group, and to receive the weekly e-letters for free, just pop over to www.RiskHedge.com and sign up there.

You’ll be glad you did.

Until next time, when I promise I’ll write less… happy trails to you and yours.


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