An unfolding financial trend that has caught my attention lately is the decline of tangible household wealth. Now, when I talk about tangible household wealth in this context, I am not referring to houses or other real estate. Instead, I am referring specifically to portable tangible assets - basically anything found in a household that can be picked up and moved.
This includes items such as furniture, antiques, jewelry, fine art, etc. But I'm intentionally excluding vehicles, like cars, pickup trucks, RVs and heavy equipment because they are outside the boundaries of this discussion. Now that we have the ground rules out of the way we can plow into the heart of the topic.
Most middle class households have become progressively poorer from a portable tangible asset perspective over the last couple decades. If you were to take an inventory of the average person's home today, you would find precious few items worth more than $100. And if we were to ignore rapidly depreciating electronics and appliances, the amount of tangible household wealth would be embarrassingly small.
Let me give you an example. A few months ago I helped clean out my grandmother-in-law's house as she transitioned into a long-term care facility. Her home was a modest two-story colonial with three bedrooms and one bathroom. She is a typical middle class woman who lived a typically middle class lifestyle.
But the tangible household wealth contained in her physical estate was surprisingly small. Nearly all her tangible net worth was tied up in her house and car. Once we exclude these two items, there was precious little left over, even after a lifetime of accumulation.
The family ended up hiring an auctioneer to sell everything in the house. The results of the auction amounted to a meager $1,100. And that sum is before the auction company took its cut. Although I don't know exactly how much the auction netted after fees, $500 or $600 would be a reasonable guess.
Just imagine! All the physical objects this 90 year old woman (and her now deceased husband) accumulated over her entire lifetime (with the exception of her house and car) were worth a grand total of $500 after fees. That is a shockingly small amount of money!
Of course the whole story is a little more complicated. Relatives did go through her house first, taking anything that had sentimental (and occasionally monetary) value. A few pieces of furniture, a handful of jewelry and some Christmas ornaments comprised the bulk of stuff that was removed. But honestly, I doubt these items in aggregate were worth more than $500 to $1,000. A total portable physical estate with a gross value of $1,500 or $2,000 still isn't very much.
I suspect that many other middle class households across the United States are in a similar situation. And that possibility should be deeply troubling. After all, portable tangible household wealth has acted as a traditional buffer against financial misfortune for centuries. But after peaking sometime in the 1990s, U.S. tangible household wealth has been in decline.
This de-emphasis of portable tangible assets in the net worth of average people has taken on renewed importance due to today's rampant asset bubbles. Many people have been seduced into keeping their entire net worth tied up in paper assets like stocks and bonds. In addition to outsized appreciation during recent financial bubbles, paper assets are also perceived as efficient and trouble-free.
But the problem with bubbles is that they always burst eventually, leading to devastating financial losses. Even investors who try hard to avoid buying bubble assets might find themselves caught in the economic fallout via a job loss or other unforeseen event. A few gold coins or pieces of valuable jewelry could act as a welcome portfolio counterweight in these circumstances, offsetting some of the unavoidable risks associated with traditional asset markets.
But I also think it is important to ask why tangible household wealth has declined. Although I more fully explore this topic in an article I wrote titled "Society’s Tangible Wealth Building Escalator Is Broken", I will hit the highlights here.
First, cultural trends over the last few decades have de-emphasized portable hard assets in favor of financial assets like stocks and bonds. In particular, the rise of the internet and its associated technologies has absolutely dazzled modern society. The resulting rise of digital assets, most notably crypto-currencies, has prompted some people to ask why they need to hold any tangible assets at all.
I also believe that intense economic pressure due to the fall-out from our serial boom-bust economy has negatively impacted tangible wealth accumulation. Simply put, many people don't have the means to purchase high value physical goods anymore. High quality jewelry, sterling silverware or a nice painting to hang over the fireplace are simply too luxurious when the mortgage or car payment come due.
Millennials have it even worse. They are laboring under the burden of onerous student loans, poor job prospects and near zero-interest rates on savings. None of these factors is conducive to being able to afford fine antiques or any other valuable tangible assets. You're simply not interested in buying a late 18th century, curly-maple, slant front desk when you are struggling to pay off your student loans.
Unfortunately, I fear that the decline of tangible household wealth is far advanced by this point. We have collectively, as a society, spent the past 25 years slowly liquidating our physical inheritance. I believe this is a trend we will come to bitterly rue the next time the financial markets crash.
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