Decline in Average Family Wealth

[FIREd_2015]

Interesting recent article by the CBO on the trend in average family wealth for different segments. For the group between the median and the top 10 percent, average family wealth was 35 percent higher in 2013 than in 1989. For families in the 26th through 50th percentiles, average wealth was 6 percent less than that of their counterparts in 1989. For those at or below the 25th percentile in the years between 1989 and 2013 held more in debt than they had in assets, on average. In 1989, families in that group were about $1,000 in debt. By 2007, on average, that group was about $2,000 in debt, but by 2013, they were about $13,000 in debt, on average.

Basically the rich are getting richer and the rest aren't doing so well. Wonder if this helps explain some of the political turmoil we're going through?

https://www.cbo.gov/publication/51846

 

[2017ish]

I can't quickly find an analysis of this data that takes family composition into account... I know that in the household income stats, there is a good deal of noise generated by changing household size. Wouldn't be surprised if decrease in marriage rate before having children is having some impact in the average family wealth area....

 

[COcheesehead]

In the summary they have the following:
For this analysis, CBO calculated that measure of wealth as a family’s assets minus its debt. CBO measured wealth as marketable wealth, which consists of assets that are easily tradable and that have value even after the death of their owner. Those assets include home equity, other real estate (net of real estate loans), financial securities, bank deposits, defined contribution pension accounts, and business equity.
For most of these listed, they have appreciated in that time frame, some more than others, so if you had assets, they grew. If you didn't, well the results speak for themselves.

 

[LOL!]

With all the folks on this forum trying to stay not-rich in order to get financial aid for college and ACA credits and later keep their medicare costs low, I am not surprised that average family wealth is going down.

Add to that that millennials don't want to get married, don't want to buy cars, and don't want to buy houses, there is no reason to get rich anymore.

So is it such a bad thing that average family wealth is going down? Probably not.

 

[2017ish]

Very interesting, from page 13 of the CBO's report:

The median wealth of families other than those
headed by someone who was 65 or older was
lower in 2013 than it had been for their
counterpart families in 1989. From 1989 until
2007, median wealth increased for families
headed by someone over age 50, rose somewhat
for families headed by someone between
35 and 49, and stayed much the same for
younger families. After 2007, median wealth
declined for all groups.

The graph (Ex. 10) shows it well: as a class, only families headed by 65+ year olds had increase in wealth from '89 to '13....

 

[Big_Hitter]

Basically the rich are getting richer and the rest aren't doing so well. Wonder if this helps explain some of the political turmoil we're going through?

I'm not sure why everyone is so butthurt.

From my perspective, the economy is killing it and shareholders are being rewarded big time. Old school savers...maybe not so much with the low rates.

 

[Sojourner]

I just looked at the report and was shocked at how big the wealth gap is between higher education groups. Families headed by someone with a graduate degree are over twice as wealthy (based on the median) than those with a bachelors degree. Looks like graduate degree families are a bit over $400K and bachelors degree families are a bit under $200K. Had no idea there was such a large gap between those two. I would guess this is primarily because of medical doctors, dentists, lawyers, pharmacists, etc. But then again, according to The Millionaire Next Door, doctors and lawyers tend to be "underachievers" of building wealth.

 

[DrRoy]

From data that I have seen, for those in the lower half of wealth distribution, most of their wealth is made up from their home equity. The drop in wealth noted in the article is tied to the real estate market decline during the great recession. The end point of the data is 2013. The situation should look better now as real estate prices have generally continued to recover. For those with some assets in the stock market, there should also be improvement since 2013 as US stock indexes are this year making new highs. This is not to say that the situation is rosy, just that a 2013 analysis is getting out of date.

 

[target2019]

Basically the rich are getting richer and the rest aren't doing so well. Wonder if this helps explain some of the political turmoil we're going through?

https://www.cbo.gov/publication/51846

This does not surprise me. It's been discussed, on news, and throughout recent campaigns. Some are not doing well, as always. Some are doing better. Thankfully, we are doing better, and will help others more this year.

I think the political process can handle this. I'll vote my conscience and go on with my life.

 

[target2019]

I just looked at the report and was shocked at how big the wealth gap is between higher education groups. Families headed by someone with a graduate degree are over twice as wealthy (based on the median) than those with a bachelors degree. Looks like graduate degree families are a bit over $400K and bachelors degree families are a bit under $200K. Had no idea there was such a large gap between those two. I would guess this is primarily because of medical doctors, dentists, lawyers, pharmacists, etc. But then again, according to The Millionaire Next Door, doctors and lawyers tend to be "underachievers" of building wealth.

I think we're both looking at Exhibit 11. Two interesting concepts. 1) Those with college degree (but not advanced degree) had a significant downdraft of wealth after Great Recession. 2) The more education you can muster, the better off you tend to be.

 

[Danmar]

I just looked at the report and was shocked at how big the wealth gap is between higher education groups. Families headed by someone with a graduate degree are over twice as wealthy (based on the median) than those with a bachelors degree. Looks like graduate degree families are a bit over $400K and bachelors degree families are a bit under $200K. Had no idea there was such a large gap between those two.

Yes, agree. Every study confirms the importance of education. Generally the more education the better. Especially if it is relevant to our economy. It's important to adjust this data for other factors though, like your parents education, wealth, etc. If you do this the results are generally the same, but not as "dramatic".

It is my firmly held belief that education is by far the most effective tool a person can use to improve over his parents socio-economic position. Certainly was in my case.

 

[6miths]

Education is obviously a very important correlate. It is unfortunate that the cost of getting a useful education are becoming prohibitive for some and leaving many others with a very significant debt burden right out of the gate. My recollection is that the US is near the bottom in social mobility for OECD countries. The increasing barriers to education aren't likely to make this better. For the average Joe, wages have been stagnant for many years, expenses not so much.

 

[Big_Hitter]

The increasing barriers to education aren't likely to make this better.

what barriers? service academies are still "free"

 

[Philliefan33]

what barriers? service academies are still "free"

Service academies are very selective. Very few students have the qualifications for admittance.

 

[Big_Hitter]

then go ROTC - I didn't think it was that difficult to get in the AFA

 

[MichaelB]

Are service academies really relevant to the thread topic?

 

[REWahoo]

I didn't think it was that difficult to get in the AFA

Is that where you got your degree?

 

[Sarah in SC]

Is that where you got your degree?

If I had to guess, it would have been Dale Carnegie.

 

[COcheesehead]

I went to a state school. Paid for the first three years on my own. Big parts of the last year were covered by academic scholarships because of my good grades. I left school without any debt. At least in my case I think I leveraged a "good" education into a great lifetime of income. I have seen lots and lots of others do it as well. You don't need to get into debt to get educated and by all means get a degree in something marketable.

 

[Big_Hitter]

Is that where you got your degree?

nope

 

[Big_Hitter]

If I had to guess, it would have been Dale Carnegie.

0-2

 

[MichaelB]

You don't need to get into debt to get educated and by all means get a degree in something marketable.

So very true. Some people, though, including many college eligible teens and their parents, need some help to find that path.

 

[gerntz]

With all the folks on this forum trying to stay not-rich in order to get financial aid for college and ACA credits and later keep their medicare costs low, I am not surprised that average family wealth is going down.

I don't believe for a second that very many people here are trying not to be rich. They're trying to keep the income down. Big difference.

 

[Sojourner]

2) The more education you can muster, the better off you tend to be.

Yes, agree. Every study confirms the importance of education. Generally the more education the better. Especially if it is relevant to our economy. It's important to adjust this data for other factors though, like your parents education, wealth, etc. If you do this the results are generally the same, but not as "dramatic".

It is my firmly held belief that education is by far the most effective tool a person can use to improve over his parents socio-economic position. Certainly was in my case.

And it certainly seems like the hard data in Exhibit 11 of the report backs up these sentiments. Stands in stark contrast to that whole "drop out of college and start a tech company" advice that some Silicon Valley entrepreneurs were offering a few years back. Seems like for the vast majority of people, getting a bachelor's degree (and a graduate degree, if possible) will pay off far better in the long run.

 

[2017ish]

And it certainly seems like the hard data in Exhibit 11 of the report backs up these sentiments. Stands in stark contrast to that whole "drop out of college and start a tech company" advice that some Silicon Valley entrepreneurs were offering a few years back. Seems like for the vast majority of people, getting a bachelor's degree (and a graduate degree, if possible) will pay off far better in the long run.

The problem is that the degrees are a filtering/signalling mechanism that enables companies to not worry about running afoul of Griggs v. Duke Power. It is hard to disentangle what value is actually added by [most] degrees apart from the signalling.

So, the more people that get college degrees, the less they signal and the less valuable they become (hence, grad degrees, choice of major, highly selective schools, or plain old GPA to the extent it still means anything at a given school become more important). Exhibit 11 is consistent with that.

I doubt that the vast majority of people would benefit from a bachelors in the long run--see the latest stats on college readiness from the ACT testing people. This past cycle, about 2/3 of high school seniors took the test, and of that cohort, only 38% did well enough to be deemed "college ready" in any 3 of the 4 testing areas.

Tough, tough questions in this area.

_______
P.S.--full disclosure, notwithstanding the foregoing, we expected from prior to conception that our kids would at least get a BA or BS--and the one that lacks a post-grad credential (so far) did engineering at a door-opening school.