Median Net Worth $57K

[target2019]

As michaelb points out, there are problems with the data. Where the brackets begin and end are not aligned with current tax brackets. And those brackets changed during the last two decades.

 

[growing_older]

I think there may be a problem with the data used for this "study" The median income cited is 26K, but many other sources have the median income in the US in the 40's. This is a huge disparity and makes me concerned that either incorrect data was used to make these conclusions, or the data has been misinterpreted to make more eye-catching claims in the interest of greater circulation. Nothing in the study indicates they used some novel way to calculate which would account for the differences. Knowing that this key figure is off by a large amount makes me suspect other figures may be similarly ungrounded.

 

[MichaelB]

I'm not saying there are problems with the data. The sources are legitimate:

Three other data sources are used in the study. The first of these is the 1962 Survey of Financial Characteristics of Consumers (SFCC).
./.
The second is the so-called 1969 MESP database, a synthetic dataset constructed from income tax returns and information provided in the 1970 Census of Population.
./.
The third dataset is the Panel Study of Income Dynamics (PSID), which spans the years from 1984 to 2007.

 

[pb4uski]

I just looked at the table and what jumped out at me was the decline in median and mean net worth from 2007 to 2010. I wonder if a lot of that decline is due to people panicking and bailing on equities in 2008 and being in "safe" investments and missing the 2009-2012 rally.

I know at least one person who did this and suspect a couple others based on random comments I have heard, all despite widely disseminated advice for people to stay the course and stick to their AA. In fact, I can see in hindsight that I missed an opportunity to make out like a bandit by not having the courage to sell bonds and buy equities in 2008 when my AA was screaming at me to do so.

 

[GrayHare]

IMO inflation is largely responsible for the average increasing while the median does not. I'm wondering if a balloon can be a useful analogy.

Imagine a balloon that represents the total wealth of all citizens. Paint one half of the balloon red and the other black. Half the citizens are in the red (below median wealth), and half are in the black (above mediam wealth). As years pass inflate the balloon. Since the balloon is now larger, everyone's average wealth is higher, but the median remains unchanged with half the citizens still in the red and half in the black.

 

[brewer12345]

I just looked at the table and what jumped out at me was the decline in median and mean net worth from 2007 to 2010. I wonder if a lot of that decline is due to people panicking and bailing on equities in 2008 and being in "safe" investments and missing the 2009-2012 rally.

I know at least one person who did this and suspect a couple others based on random comments I have heard, all despite widely disseminated advice for people to stay the course and stick to their AA. In fact, I can see in hindsight that I missed an opportunity to make out like a bandit by not having the courage to sell bonds and buy equities in 2008 when my AA was screaming at me to do so.

Could be, but housing is/was the far more important asset class for the average Merkin, so I would guess the plunge in home values accounted for most of it.

 

[ERD50]

... I drive through some of the most depressed areas in Philadelphia a couple of times each month. There is no way out for people born into those environments which have been declining for more than 50 years.

I take issue with the "no way out" comment. ...

Is it impossible? Clearly not. There are no legal barriers and there are always outlier-type people. ...

I really have a problem with this 'no way out' comment.

I personally know a couple people who risked life and limb to escape from occupied countries. If evading armed guards, hiking over the Alps with no supplies, digging up root crops from farm fields as you go to avoid starvation, risking arrest on the way, which meant return and probably torture and death - or sailing a home-made boat from Cambodia and making your way to the US and making it to an engineering grade at a MegaCorp is possible, then certainly leaving a 'disadvantaged' area in the US is achievable.

Or, as the Eagles sing: "So often times it happens that we live our lives in chains, And we never even know we have the key".

-ERD50

 

[brewer12345]

I really have a problem with this 'no way out' comment.

I personally know a couple people who risked life and limb to escape from occupied countries. If evading armed guards, hiking over the Alps with no supplies, digging up root crops from farm fields as you go to avoid starvation, risking arrest on the way, which meant return and probably torture and death - or sailing a home-made boat from Cambodia and making your way to the US and making it to an engineering grade at a MegaCorp is possible, then certainly leaving a 'disadvantaged' area in the US is achievable.

Or, as the Eagles sing: "So often times it happens that we live our lives in chains, And we never even know we have the key".

-ERD50

Did you miss the word "outlier?" Yep there are millionaire boat people, but Pol Pot still killed millions of Cambodians.

 

[pb4uski]

Could be, but housing is/was the far more important asset class for the average Merkin, so I would guess the plunge in home values accounted for most of it.

I was thinking that initially as well, but then I noticed that non-home wealth had precipitous declines as well, so I suspect it is a combination of both.

 

[ERD50]

I haven't churned through all the data, but whenever I see these 'income disparity' articles, I wonder if the right thing is being measured.

I guess I'd be more interested in some kind of measure of "Quality of Life" or "Standard of Living" for each group. If the Standard of Living is increasing for the lowest, then I'm not that concerned about the rest. I don't know if that's the case, but I don't think 'disparity' numbers tell us anything about that.

And to the extent that some of this is due to jobs going oversees to third-world countries - aren't we reducing the 'global disparity of income'? Maybe that is more important, if we are all 'brothers and sisters'?

And certainly a group of low income people don't have the resources to set up manufacturing, import and sales to provide jobs to third world people. That takes wealthy people with resources.

I'm not saying that is the case, I don't have the data to prove one way or the other - I'm just raising the questions.

-ERD50

 

[ERD50]

Did you miss the word "outlier?" Yep there are millionaire boat people, but Pol Pot still killed millions of Cambodians.

I caught that, but the OP said "no way out" - that is what I was responding to.

Being near Chicago, we get the reports almost daily of the shootings and deaths, mainly concentrated in certain areas of the city. Sometimes you see what appears to be an intelligent, well spoken, caring family member in front of the camera, crying about another senseless loss in their family or neighborhood. It's heartbreaking.

I always wonder - there is shooting in your neighborhood everyday - why don't you move? I'm not naive, I know it's not easy to pick up and move - but compared to living among gunshots, in an area with little hope of getting a job, or an education?

-ERD50

 

[nun]

Looking at the size of financial accounts is only part of the story as the fall in median networth isn't just because of stock values. The fundamental reasons are the stagnation of wages and increase in costs associated with college, medical insurance etc.

IMHO the greatest loss of networth suffered by the middle class in the last 30 years came from the move away form non-contributory DB plans to the largely employee funded 401k type plans. Couple that with wage stagnation and it's hardly surprising that the average American feels squeezed.

 

[ERD50]

IMHO the greatest loss of networth suffered by the middle class in the last 30 years came from the move away form non-contributory DB plans to the largely employee funded 401k type plans.

How does that work? It seems that these various studies include a 401K balance as part of 'net worth', but rarely include the present value of a future pension income stream (a 'phantom asset').

-ERD50

 

[nun]

How does that work? It seems that these various studies include a 401K balance as part of 'net worth', but rarely include the present value of a future pension income stream (a 'phantom asset').

-ERD50

My point that the replacement of non contributory DB plans by 401ks has greatly reduced the actual net worth of the middle class as most 401k balances are worth far less the the DB plans they replaced and they are also funded mostly by the employee. If DB plans were not included in the net worth figures and they were more common 30 years ago the fall in real net worth is even worse.

 

[imoldernu]

I posted the article, as I thought it was timely, given the the current level of interest in the economy, and particularly the fiscal cliff. As all sides turn up the heat, much of the back and forth has been reduced to talking points, leaving many Americans confused and likely to follow whatever party, or news broadcast, or leader that has obtained their confidence.

Admittedly, the numbers, from whatever source, can be confusing, and I'm not sure that the article shed a spotlight on the answers. For those who might be interested in things like "What does it take to make it into the top 1%... or 2, or 5 or 10 or 20 percent... Here's a challenging article that tries to explain that...
How Much Money Does It Take To Be In The Top 1% of Wealth and Net Worth in the United States

As I struggled with the Wolff study, one thing came through to me... the part about the effect on the economy as a whole that comes from the consumption base of the middle class. The middle three quintiles.

Although the sourced base of the study necessarily came from existing data that does not include the past two years, even a moderate increase would not begin to provide a floor for the the 3 to 5% growth rate needed for a strong recovery.

As I watch the people in the media trying to frame the political picture, it looks to me as if the answer has to be a return of the lost wealth to the middle class... I cannot see any way in which investment in business can, by itself, create jobs or increased profits, without a consumer base to buy product or services.

The way this takes place 'or not' ...(getting more spending money into the hands of the buying public)...will be deciding factor that will be important to our neartime future, in my opinion... Getting any results at all will be a delicate balancing act.

My opinion only... Am willing to be convinced otherwise... Whatever happens, won't likely affect DW and me, so I don't have a vested interest.
My concern is for the future of the country, and shouldn't like to see the wealth inequality continue on the current path.

 

[ERD50]

My point that the replacement of non contributory DB plans by 401ks has greatly reduced the actual net worth of the middle class as most 401k balances are worth far less the the DB plans they replaced and they are also funded mostly by the employee. If DB plans were not included in the net worth figures and they were more common 30 years ago the fall in real net worth is even worse.

OK, but I don't think it is cause and effect.

Due to global competition and other factors, I think US employers are able to cut total compensation (or slow the growth, however you want to look at it). IMO, if a company is going to cut 'total compensation', cutting 'promises', or converting them to DC plans (even if a lesser value) is the best place to start.

But I think my original comment still holds - was the value of the DB plans measured as 'net worth'? I'd guess that it wasn't. They may have not counted retirement plans either, sometimes those are excluded.

-ERD50

 

[imoldernu]

How does that work? It seems that these various studies include a 401K balance as part of 'net worth', but rarely include the present value of a future pension income stream (a 'phantom asset').

-ERD50

That subject is tackled in the link from my above post... Tackled... but I'm not sure it was answered...

 

[MichaelB]

Let's all keep the discussion lively but friendly.

 

[youbet]

As long as the author is clear in the definitions I don't have a problem with that. One good thing about the financial crisis is that it highligthed systemic problems in the economy: income disparity, the cost of health care, education and the reduction in retirement benefits with the change over from non-contributory pension plans to 401ks have all contributed to the falling networth of the middle and working class. The paradox of individual thrift and consumer driven growth is also important.

I think you meant to say "the reduction in retirement benefits with the change over from defined benefit plans to 401k's."

 

[Purron]

As I watch the people in the media trying to frame the political picture, it looks to me as if the answer has to be a return of the lost wealth to the middle class... I cannot see any way in which investment in business can, by itself, create jobs or increased profits, without a consumer base to buy product or services.

I've heard similiar comments in the media. We need the middle class to spend more to boost the economy. Yet, the middle class needs to cut spending and increase savings to boost their net worth.

 

[HFWR]

I really have a problem with this 'no way out' comment.

I personally know a couple people who risked life and limb to escape from occupied countries. If evading armed guards, hiking over the Alps with no supplies, digging up root crops from farm fields as you go to avoid starvation, risking arrest on the way, which meant return and probably torture and death - or sailing a home-made boat from Cambodia and making your way to the US and making it to an engineering grade at a MegaCorp is possible, then certainly leaving a 'disadvantaged' area in the US is achievable.

Or, as the Eagles sing: "So often times it happens that we live our lives in chains, And we never even know we have the key".

-ERD50

NSFW...

Sam Kinison on World Hunger - YouTube

 

[imoldernu]

I've heard similiar comments in the media. We need the middle class to spend more to boost the economy. Yet, the middle class needs to cut spending and increase savings to boost their net worth.

Yeah... exactly... I don't have the answer, except to ask why the wealth has decreased for the middle class, and increased in the 1%.
Does it reflect a lack of effort , or does some of the difference have to do with the tax differential changes that occurred over the period.

Was it all due to greed on the part of people who took equity out of their homes? Or those who wanted to get in on the home ownership? Or who thought that they were deserving of a better way of life, and that they could live beyond their means forever?

Here's an excerpt that points out the direction of wealth accumulation. That's the part that I wonder about... and also wonder if it's the way it will continue over the coming 5, 10, or 20 years. Think progressive tax rates.

17
for the next highest ten percent. The fourth quintile of the income distribution experienced only a
3 percent growth in income, while the middle quintile and the bottom 40 percent had absolute
declines in mean income. Of the total growth in real income between 1982 and 2009, 39 percent
accrued to the top one percent and over 100 percent to the top quintile. These figures are very
close to those for net worth and non-home wealth.
These results indicate rather dramatically that the growth in the economy during the
period from 1983 to 2010 was concentrated in a surprisingly small part of the population -- the
top 20 percent and particularly the top one percent. The pattern of results is similar for non-home wealth. The average non-home wealth of
the richest one percent climbed by 83 percent, that of the next richest four percent rose by 120
percent, and that of the next richest 15 percent increased by about 90 percent. Altogether, the
non-home wealth of the top quintile gained 95 percent. As in the case of net worth, the fourth
quintile showed a positive gain while the third quintile and bottom 40 percent had absolute
declines. Of the total growth in non-home wealth between 1983 and 2007, 41 percent accrued to
the top one percent and fully 100 percent to the top quintile, while the bottom 80 percent
collectively again accounted for none.
A similar calculation using the SCF income data reveals that the greatest gains in real
income over the period from 1982 to 2009 were made by households in the top one percent of
the income distribution, who saw their incomes grow by 59 percent. Mean incomes increased by
almost half for the next 4 percent, over a quarter for the next highest 5 percent and by 13 percent

 

[Texas Proud]

Yeah... exactly... I don't have the answer, except to ask why the wealth has decreased for the middle class, and increased in the 1%.
Does it reflect a lack of effort , or does some of the difference have to do with the tax differential changes that occurred over the period.

Was it all due to greed on the part of people who took equity out of their homes? Or those who wanted to get in on the home ownership? Or who thought that they were deserving of a better way of life, and that they could live beyond their means forever?

Here's an excerpt that points out the direction of wealth accumulation. That's the part that I wonder about... and also wonder if it's the way it will continue over the coming 5, 10, or 20 years. Think progressive tax rates.

This is just me.... and a small quip at some of the problem.... but there has to be a reason that Apple is the largest cap company in the US (World?).... and I can not see a reason that you HAVE to have any of their products...

I think that the reason is that there is not any desire to save... or LBYM by the very vast majority....

 

[nun]

I think you meant to say "the reduction in retirement benefits with the change over from defined benefit plans to 401k's."

Back in the day DB plans were often "non-contrinutory pension plans"; the employee paid nothing in, but got a pension calculated from the length of service and final salary. I actually have one of those. Today many of the DB plans that still exist are funded much like 401ks. As an example the MA state employees' pension plan is a DB plan, but it is funded by 11% employee contributions and 5% from the state. That might sound like a lot, but remember MA state employees don't pay the SS portion of FICA and so don't get SS.

I mentioned the non-contributory nature of many old DB plans to highlight the shift in retirement funding from the employer to the employee and the double whammy on household income when coupled with wage stagnation.

 

[bld999]

imoldernu said:

"I cannot see any way in which investment in business can, by itself, create jobs or increased profits, without a consumer base to buy product or services."

The Richmond Fed discusses this:

"In a 2011 paper, Karl E. Case of Wellesley College,
John M. Quigley of the University of California at
Berkeley, and Robert J. Shiller of Yale find a large
wealth effect on consumption from rising house
prices and an equally significant effect from falling
house prices."

http://www.richmondfed.org/publications/research/economic_brief/2012/pdf/eb_12-01.pdf

So according to Shiller, who is a keen observer of housing markets, when house prices move up, so will consumption spending.