Something to live for

What makes people invest is the idea that they’ll have something to spend the money on later in life. Or that there will actually be a later in life for them in the first place.

Unfortunately, there are people struggling so much in the present that the whole concept of later in life has to wait. We see this play out in the abysmal stats about the incredibly large amount of US adults who don’t have even a thousand dollars in savings, juxtaposed with the fact that the average 401(k) balance is now in the neighborhood of $100,000.

Gains for the capital markets and the “knowledge economy” have led to a separation of Americans into a sort of two-track system, where people are either in the game or they aren’t. Those who are (the people in the top 20% of income earners) are living almost a decade longer than those who are not (the bottom 20%).

And, perversely, there is a large and growing gap between these cohorts in the ownership of life insurance policies – those who most need one due to shorter life span probabilities and a lack of savings are significantly less likely to have one.

Peter Orszag has some surprising statistics at his Bloomberg View column:

In 1965, Americans purchased 27 million policies, individually or through employers. In 2016, a population that was more than 50 percent larger still bought only 27 million policies. The share of Americans with life insurance has fallen to less than 60 percent, from 77 percent in 1989.

and…

In 1989, 76 percent of Americans with a high school diploma owned any kind of life insurance. By 2013, that share had declined to 55 percent. For those with a college degree, ownership fell only to 73 percent, from 88 percent. Similarly, among people in the top 20 percent of the income distribution, life insurance ownership fell to 85 percent from 94 percent, while it dropped to 27 percent, from 44 percent, among those in the bottom 20 percent of income.

Orszag goes on to note that while there’s been a drop-off in the amount of people with a policy, there has been an increase in the average value of each policy, thus widening the gap even further between those who will have peace of mind in retirement and those who will not.

This has societal and political ramifications that we will feel for decades to come, as the resentment turns into Oppositional Defiant Disorder and lays waste to any chance at civil discourse between the income distributions.

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