WSJ Online: The Surprising Borrowing Habits of the Rich

[pete_w]

http://finance.yahoo.com/loans/article/102370/the_surprising_borrowing_habits_of_the_rich

According to the Federal Reserve Board's Surveys of Consumer Finance, the nation's richest 1% loaded up on $342 billion in new debt between 1998 and 2004, the latest year for which data are available. (The 1% represents households with net worths, including primary residence, of at least $6 million.) Economists say that debt number has probably continued to grow since 2004, because interest rates remain low by historical standards.

Disproportionate Shares

Just as the rich control a disproportionate share of national wealth, they also account for a disproportionate share of debt. The richest 1% now hold 7% of the nation's debt, with a total of $650 billion in borrowings, up from 5% in 1998.

sehr interessant

 

[lizzie]

but i bet they're not using it for plasma tv's and overseas holidays ... it would be interesting to know the use of the borrowed money. i would suspect it would have been used to fund projects to create more money.

 

[Mr. Fabulous]

Surprising to whom? Who on here thinks it's surprising that in order to create wealth, you need to use debt as a tool?

Mark

 

[The Y-man]

Surprising to whom?
Mark

Obviously to Robert Frank, the author of the article and the title....

Cheers,

The Y-man

 

[Mr. Fabulous]

So it would seem, Y-Man. Maybe he just needs to get himself edumacated.

Mark

 

[The Y-man]

but i bet they're not using it for plasma tv's and overseas holidays ... it would be interesting to know the use of the borrowed money. i would suspect it would have been used to fund projects to create more money.

From the article......

This "strategic debt" involves taking out a loan at, say 7%, and investing the money in the financial markets for a return of, say, 10%. Debt may be a necessity for the middle class, but the wealthy are "making a sophisticated economic decision," says Arthur Kennickell, an economist with the Federal Reserve.

But I find the next bit interesting.....

And on the whole, their balance sheets remain healthy. According to the Fed, the debt held by the top 1% amounted to only 3.7% of their total wealth. That compares with 24% for Americans ranked in the 50%-to-90% groups.

........since I have doggedly kept our portfolio in "growth mode" for the past 6~7 years and our total LVR (loans vs networth) still hovers around 80% (The "do I pay tax, or borrow more to minimize" syndrome)


Cheers,

The Y-man