Fort worth new car finance

AFFLUENCE | Our exclusive PROSPERITY INDEX answers the question: Just how rich is America, anyway?

THE AVERAGE American household will greet the new millennium with a grubstake of nearly $480,000, according to the exclusive Kiplinger Prosperity Index. The index, first published in 1986, measures current wealth--household spending and net worth--plus future wealth--the current value of income Americans will collect eventually from pensions and social security.

Odds are, having slow-motion access to a tad less than a half-million dollars doesn't make the average American

FINISHING STRONG

Kiplinger's introduced its prosperity index in 1986 as a way to answer the question, "How are we doing?" At the time, most measures of prosperity concentrated on income-an unsatisfactory yardstick because income doesn't necessarily include government entitlement programs, fringe benefits and capital gains.

Designed by Joel Popkin and Co., an economics-consulting firm in Washington, D.C., the Kiplinger index sidesteps those problems. Instead of income, it measures prosperity by tracking how much U.S. households are spending and how much they have left afterward in financial and real assets-their net worth. The index also takes into account pension funds and future social security benefits-two sizable assets that people usually forget to include when totaling their wealth. household feel all that rich. And because it's an average--total American prosperity of $50 trillion divided by 104 million households--there's no doubt that the household balance sheets of Americans with names like Gates and Buffett are pushing the figure up. But after sorting through the mathematical footnotes built into any such statistical exercise, we're left with this salient fact: America is richer than ever. What's more, a look at the changes in the mix of household assets over the past decade tells a lot about how we got that way.

* More of our wealth is in the stock market. In 1989 stocks and mutual funds accounted for only 16% of the financial assets of a typical household. Today, after a decade-long bull market, that proportion has risen to 30%--or $85,000 per household--not counting stock investments held in 401(k) plans.

* We're better prepared for retirement. The second-biggest chunk of household assets--$87,000--is in pension assets, including 401 (k) plans.

* Home equity has actually declined, even though home prices nationwide appreciated faster than inflation. At $96,000, home equity is still the biggest slice of household assets. But during the '90s households took on a large amount of mortgage debt, either by trading up to bigger homes, making smaller down payments or borrowing against their home equity.

Homeowners who refinanced their mortgages in 1998 increased their mortgage debt by 11% of the value of their homes, on average, according to Freddie Mac--which helps explain why Americans have been able to spend money faster than their incomes were growing.

* We have a growing penchant for plastic. Credit card balances grew by 23% over the decade, after inflation. That doesn't necessarily mean we got deeper in debt. Instead, we replaced cash with credit card purchases, encouraged by rebate offers and just plain convenience. A significant minority of credit card holders--40% to 50%--continue to pay their bills in full each month.

* Prosperity is more evenly spread across the country. Among the four geographic regions, the South and Midwest have traditionally had the lowest levels of prosperity per household. But they grew the fastest over the past decade, closing the gap with the Northeast and West. The Midwest was the only region in which average home equity did not decline.

Who's got it?

WHILE THE NATION as a whole has certainly become wealthier, it's still not clear how different population groups are sharing in that prosperity. Since the end of the 1990 recession, the decade of the '90s has been a carbon copy of the '80s, with a big stock-market boom and low inflation, says John Weicher, an economist at the Hudson Institute. "In the '80s people were ready to believe that the distribution of wealth had become more unequal, but that didn't happen," says Weicher. "Now in the '90s people are ready to believe the same thing. But we should withhold judgment."

New data expected soon from the Fed could shed more light. But over the past 30 years or so, the richest 1% of the population (those with a minimum of $2.5 million in net worth) has owned about 30% to 35% of the nation's wealth, and that hasn't changed much.

There's no question that stock-market gains are enjoyed mostly by the wealthy. Nearly 90% of all stock is owned by the wealthiest 10% of households.

Yet many of America's rich got that way not because they own stock but because they are successful entrepreneurs or own their own businesses or professional practices. "People start out as ordinary workers and become wealthy with their own businesses, and altogether these firms add up to a lot," says Marvin Kosters, director of economic policy studies at the American Enterprise Institute. "They're much more pervasive than the Microsoft workers who made millions on stock options."

The strong labor market has meant healthy income gains for low-skilled workers, too; the unemployment rate for high school dropouts over age 25 is just 6.6%. Couple that with low interest rates, and many of those families have been able to buy homes--the first step in accumulating wealth.

The best hope for the next generation of workers continues to be an investment in education. Thirty years ago a college graduate earned 25% more in his or her lifetime than a high school grad; today that gap is closer to 50%.

Supersize it

WHAT DO YOU get when you cross record levels of prosperity with 78 million baby-boomers in their prime earning and spending years? Big spenders.

"The baby-boom generation will have more money over the next ten years than in the past ten years, and they don't hesitate to spend it," says H.W. Mullins, vice-chairman for Neiman Marcus stores. When Kiplinger's polled readers on our Web site (www.kiplinger.com) about what they plan to do with their money, 22% said they intend to buy a luxury car in the next few years, and 32% want to travel abroad.

But the generation that came of age fighting the Establishment is especially averse to anything that smacks of being stuffy or conventional. So makers of luxury goods are toning down their snooty image. "Our flagship store on Fifth Avenue looks like Fort Knox," says Mark Aaron, vice-president of investor relations for Tiffany's. "But our new stores have a less intimidating format with lots of big windows."

The merchandise the customers are looking at is changing, too. In the 1980s yuppie boomers favored conspicuous consumption. Then, says Matthew Runci, president of Jewelers of America, a Swiss watch with a diamond-encrusted band screamed, "I've arrived." Today the look is more understated: "People are more inclined to buy a fine Swiss watch on a leather strap."

And consumers will buy anything big. Take a yacht, that quintessential symbol of luxury. A 24-foot-long cruiser will set you back a minimum of about $50,000. Yet boat sales have been growing every year since 1993, when Congress repealed the so-called luxury tax on boats. (In the Kiplinger's poll, 6% of respondents said they're in the market for a boat.) Manufacturers have such an unprecedented backlog of orders that buyers find themselves waiting 18 months for delivery.

And it's not just boat sales that are cruising along. The past year was the latest in a string of upbeat years for sales of jewelry, cars and tank-size SUVs, furs and new homes--where buyers want more open space, high ceilings and lots of windows. In the Kiplinger's poll, nearly one-fourth planned a major home renovation in the next few years. (Buyers also want energy efficiency, so builders are adding an extra layer of insulation.)

Provided that the luxury industry's number-one killjoy--a recession--is kept at bay, the decade ahead promises to be even better, largely because of demographics. As baby-boomers age, they're paying off the mortgage, the car and their kids' college education. And they stand to inherit $10 trillion or so from their parents. Even a more modest inheritance would be found money.

In the endless quest for bigger and better, luxury features on appliances, cars and other goods eventually trickle down the product chain, says Robert Frank, an economics professor at Cornell University and author of Luxury Fever. Base models become pricier, and the standard for what's acceptable merchandise also rises. So long, $50 Weber kettle; hello, $4,500 Frontgate stainless-steel outdoor grill.

Prepare for a long life