BY RUSSELL TURNER
GROSS OR NET
Being from the business sector I learned a long time ago that you can have a huge income and still be bankrupt. Sadly many people don’t understand the concept of the difference in gross income and net income. A few years ago I was talking to a local dairy farmer and he told me that he had made over 70 thousand dollars selling milk in that particular year; while I wasn’t wanting to call him a liar, I had some doubts that he was able to generate that much income from his size of operation. I politely asked him if that number was his gross or his net; he just said that was on his year end statement from the company that purchased his milk. In reality he did sell 70K of his milk product and it did sound impressive, but I have found from experience your expenses can chip away from that amount and even run you into negative territory. Recently I read a report that should open we Americans’ eyes when our elected officials tell that we are the richest country on the planet.
In a recent Global Wealth Report by Credit Suisse, the big headline story was the finding that 1% of the world’s population owned 50% of the wealth of the world. While a headline like that does grab your attention, it also said that as a percentage of the world’s population, there are now more poor people in the United States and Europe than there are in China. While we Americans do have, for the most part, higher incomes than the people in much of the world, that is not how they came to their conclusions. They define poor as lacking ‘wealth’, i.e. taking into account assets and liabilities like cash and debt. According to the report, half of the world has a net worth less than $3,210. And a large chunk of Americans and Europeans can’t make that cut because their net worth is negative. Too many Americans do not understand what real wealth is. We may be bringing in a huge salary and living a lavish lifestyle, but if we owe more than we are bringing in, by their standard we are poor because we don’t actually have any wealth.
Many Americans have become addicted to debt. We buy too much stuff that we really don’t need just to impress people we don’t know, simply because everyone is doing it. Sadly our government promotes that kind of insanity by running the interest rate down to near zero; many people think that money is too cheap not to get into the game. According to the report, 25% of Americans are in this situation of having a negative net-worth. I am not the kind of person that tries to keep up with the Jones, I may drive an older auto and live in a more modest home but I do not owe anyone for it. In reality I have more actual wealth than the people driving fancy cars who owe more than they are worth.
Our government is engaging in the same insane behavior and, just like the average citizen, they are spending all of their tax revenues and borrowing more. Our national debt is larger than the GDP; evidently many elected officials also don’t understand the concept of gross and net. Instead of pandering to people about taking wealth from the rich they should be promoting ways to create more wealth.
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