Opinion

Felix Salmon

Chart of the day: Median net worth, 1962-2010

By Felix Salmon
June 12, 2012

The big news from the Fed this week is, in the words of the NYT headline, that Family Net Worth Drops to Level of Early ’90s. But if you look at the actual report, there isn’t any data in there on family net worth before 2001. So many thanks to Peter Coy, who actually went ahead and ran the numbers.

Now these are Coy’s numbers, not the Fed’s. But Coy uses the Fed’s data, and here’s what he comes up with:

worth.png

According to these numbers, the median family net worth in 2010, $77,300, is lower than it was in 1989, when it was $79,600. And it might well even be lower than in 1983, when, according to a different methodology, it was $88,000.

The 1962 and 1983 numbers can be compared to each other but not directly to the rest, because the methodology changed. But the fact is that they’re just as likely to be too low as they are to be too high. And as a general guide to household net worth, I think it’s fair to say that the median US household is no richer now than it was 30 years ago.

And in case you’re wondering whether things might have gotten better since 2010, the answer is almost certainly no. In 2007, median household net worth was $126,400, while the median amount of home equity was $110,000; in 2010 net worth had dropped to $77,300, while home equity had dropped to $75,000. These days, home equity is net worth. And since house prices haven’t recovered since 2010, it’s safe to assume that net worth hasn’t recovered either.

The fact is that household net worth was pretty inadequate even at the top of the housing bubble in 2007. Families need a place to live, and if you strip out the housing component of the net-worth calculation, the median US family has barely any net worth at all. Certainly nothing they can retire on. This of course is why Social Security is so important: with the recent drop in net worth, there’s no realistic chance that the median US family will ever save up enough to live on when they’re no longer earning money.

Comments
17 comments so far | RSS Comments RSS

Interestingly these figures seem to be correlated with military spending. The rise in wealth from 1992 to 2001 corresponded with the Clinton era of “swords into ploughshares” after the collapse of the Soviet Union. Military spending then increased under Bush, with the subsequent fall off in wealth as treasure was expended in wars.

Posted by FifthDecade | Report as abusive
 

I don’t like seeing median – it’s too susceptible to outliers. I’d like to see the middle 80% of historical data.

Posted by robert_t | Report as abusive
 

American workers (of which I am one) are absurdly overpaid in global terms. A tiny group of leaders and innovators earn millions or billions. A small group of corporate managers, small business owners, and ultra skill workers like doctors, or engineers earn upper class wages.

Below that level nearly everything can be outsourced to the lowest paid worker who can get the job done. In the 80′s it was Japan, in the 90′s it was Korea. Thiland, Vietnam and Brazil are comming on strong today. All of those economies are closing the gap with the U.S. All of those economies out learn us in STEMS which Tom Friedman rightly harps about like a broken record.

Tomorrow is my daughters last day of school. She’s 13 gets straight A’s and has not mastered fractions, percentages, or even the scale of very large numbers. We do summer enrichment out of our own pocket but it’s a losing battle vs any other 1st world nation and most 2nd world nations.

Only our massive wealth of natural resources and 100 year head start with capitalism have allowed us to tread water the last 30 years. The next 30 will be harder on the US so I hope we don’s solve the innaquality problem because I think my work ethic and saving will allow my family to be on the right side of the rich vs poor divide.

Posted by y2kurtus | Report as abusive
 

robert_t, how is the median susceptible to outliers?

It *is* susceptible to structural change in the definition or composition of a “household”, but those changes happen gradually.

As for the data, it obscures a simple story. The median house rose $50k and the owners borrowed/spent half of that. The median house then declined $50k.

It is absolutely shocking that the median net worth failed to skyrocket between 2001 and 2007, given what housing prices were doing over that period. The median family owns their home, and the median home increased far more than $20k in value.

A certain bank here is heavily advertising their home equity loans (remodeling, vacations, parties, new clothes). We are told that a “good bank helps make the equity in your home work for you”. I grit my teeth…

Posted by TFF | Report as abusive
 

A very real problem with such numbers is that they are always in terms of dollars (the medium of exchange and account) and NOT in terms of “objective material wealth.”

So, such a chart should be compared with the percentages of households with more than 1 car, a dishwasher, broadband, more than x square feet of space per person, access to a boat or camper, or so on. (Those numbers have all surely gotten worse in the recession.)

A second problem is that “net worth” misses the “living on borrowed time and money until I die” trick. That is, people actually get away with a fairly high standard of living, associated with high debt. When they die, the debt is no longer their problem. So, in some sense, “net worth” isn’t actually a number they care about.

Posted by BryanWillman | Report as abusive
 

I’ve always thought that people to save for their own retirement was pointless. Since saving money is really just a claim on future resources 30+ years in the future (that may be worth more or less depending on macroeconomic conditions completely out of the control of the individual), it’s much more efficient for the government to just say “We’ll devote x percent of our GDP to retired people and tax people during their working lives to achieve that” and leave it at that.

Posted by santcugat | Report as abusive
 

Gov’t policy seems to have been to see increases in wealth due to rising asset prices and not increases in incomes. Basically the whole real estate market has been a big pyramid scheme orchestrated by the gov’t policy. So the big reversal just illustrates how the bubble created a false perception of wealth. Oh well, looks like the Fed is trying for version 2.0 and reflate.

Posted by Sechel | Report as abusive
 

It’s quite shocking how closely this chart tracks with our family’s experience (apart from not being alive in 1962).

I think those of you who want to separate assets like homes from income are wrong. Income and asset price are actually tied together. Our income rose rapidly throughout the late 90s and early to mid-2000s; so too did our net worth. And it was not just home values: investment portfolios and 401ks also soared.

Then in 08 the stuffing got knocked out of all three in short order: job loss, underwater mortgage/foreclosure, investment portfolio decimated. The house is gone. The income has come back about 60%. Investments about 70%.

Again, this is an average so you need to remember that some lost much more, others have actually gained nicely. Overall though the losses are steep and real, not “paper.”

Posted by LadyGodiva | Report as abusive
 

LadyG, I believe the situation is more nuanced than that.

In the first half of the decade, incomes were okay (though most of the gains flowed to the top 10%) but asset prices were strong. Those people in the middle whose incomes WEREN’T rising borrowed heavily against their home equity to support their rising expenses. In the second half of the decade, both incomes and asset prices fell sharply.

Factor out the asset bubbles and you would see a steady slide from the 90s to the present. (Especially if the official inflation rate reflected the reality for middle class families.) The early half of the decade wasn’t an example of a healthy economy — it was a badly diseased economy obscured by a series of asset bubbles.

Posted by TFF | Report as abusive
 

Important piece of the analysis is missing, and that is…demographics.

For example, if a population is aging, net worth declines because people are selling their financial assets to fund their retirement. If the population is shifting to younger people, then net worth is also low because they are not in the “wealth accumulation” stage of their life. If the 30-60 yr age population is increasing, net worth should also increase.

These are just some examples and I really don’t know if the conclusions – that US households are not getting richer – would change, but it is still an important piece of the analysis that is ignored.

Also, net worth doesn’t include pension credit. As people work, they accumulate pension benefits that adds to their retirement income stream, so just because net worth is flat doesn’t necessarily mean that people are no better off than they used to be in terms of their overall living standard.

Other posters have made some good comments as well. Actually, I find the reteurs comment contributors an order of magnitude more intelligent than those on other news websites.

Thanks for the discussion,

“Pablo” from Canada.

Posted by Pablo_III | Report as abusive
 

I think how you ended your piece is the most important observation. Adam Smith (no, not THAT Adam Smith) in his book “Paper Money” from the late ’70s when we were having serious financial problems resulting from the huge hike in the price of oil, observed that your home is not an asset – it’s where you live. From my perspective it’s like the assumption of an on-going business made by an auditor, you’re staying together as a family and so you’re not going to liquidate your home. So how much equity you have in your home is meaningless – it’s not going to earn you anything (yes, you can borrow against it but borrowing is not earning). So if you don’t have squat after you strip out the equity in your home, you’re a poor person with a place to live which is better than being a poor person without a place to live but a far cry from being “rich”.

Posted by majkmushrm | Report as abusive
 

Good points, Pablo, but the boomers are only just beginning retirement (except for those who were forced into it early by job loss in the recession). Their net worth is at their lifetime maximum.

Pensions have been on the decline for decades. I don’t believe that rising pensions would balance the above changes. If anything, the shift exacerbates the downward trend.

Posted by TFF | Report as abusive
 

Excellent observation, majkmushrm, and very well put.

For the last decade, in our household net worth calculation, we’ve been including our mortgage but NOT including the value of the home itself. The one is a financial obligation, the other is an illiquid asset.

Nothing wrong with having a negative net worth by that measure, at least when you are young. At least you know where you stand.

Posted by TFF | Report as abusive
 

Home value = Net Worth, eh?

And yet, and yet: 20 years ago all those nice young boys and girls with designer glasses came to our offices and told us about this great deal called the “401k.” If only we all put 10 percent of our pretax earnings in that, why, we’d be millionaires by the time we were ready to retire, and, and everything!

And 10 years before that–30 years ago, right after a period of hyper-inflation and in the trough of a double-dip recession–when the median family had the same (or higher) inflation-adjusted net worth as we lucky 401k hoarders have today?

Back then, lots of them just had cranky old defined benefit pension plans. Boo!

Those didn’t count toward their net worth at all.

Posted by Eericsonjr | Report as abusive
 

OBAMA SELLS BANK BAILOUT TO DEMOCRATS: http://www.youtube.com/watch?v=ipLUYRdDD T8&feature=relmfu

OBAMA VOTES FOR HIS FINANCIERS BEFORE ELECTION: http://www.politico.com/news/stories/100 8/14196.html

Posted by JosephAMungai | Report as abusive
 

It just doesn’t get any

better than seeing the gorgeous “Mrs. Anita Pelaez” over at her and her

husband “Captain Kutchie’s” place..Some Folks Also Call Him..”The

KutchMan!”….(Anita and Kutchie’s Key West, Key Lime Pie Factory and

Grill)…Just watching the lovely couple baking together all those Yummy

Key Lime Pies at their Key Lime Pie Factory and Grill in Asheville.

…It’s always worth the trip to visit them in they’re Historic Key Lime

Pie Factory and Grill…It should be on everyone’s bucket list for

sure..And The World’s Best Key Lime Pies!..YUM-YUM-YUM…..”Talk About

World Class” What An Understatement!…….AAHHHHH!….The Magic Of The

Lovely..”Mrs. Anita Pelaez” And Her Delicious Key Lime Pies Baked With

Pure Love…Always……40 Years And They’re Still Going Strong….

….May GOD Continue Blessing “Anita And Kutchie Pelaez” and They’re World

Famous Key Lime Pie Factory And Grill Where The Personalities, Ovens And

Smiles Are Always Warm And Inviting. “Kutcharitaville” We Love You!…..

…Now You Know Who Is The Hottest!…And Baby Let Me Tell You, Mrs. Anita Is No Act…She’s The Real Thing Baby!…

Posted by JakeCarson | Report as abusive
 

It just doesn’t get any

better than seeing the gorgeous “Mrs. Anita Pelaez” over at her and her

husband “Captain Kutchie’s” place..Some Folks Also Call Him..”The

KutchMan!”….(Anita and Kutchie’s Key West, Key Lime Pie Factory and

Grill)…Just watching the lovely couple baking together all those Yummy

Key Lime Pies at their Key Lime Pie Factory and Grill in Asheville.

…It’s always worth the trip to visit them in they’re Historic Key Lime

Pie Factory and Grill…It should be on everyone’s bucket list for

sure..And The World’s Best Key Lime Pies!..YUM-YUM-YUM…..”Talk About

World Class” What An Understatement!…….AAHHHHH!….The Magic Of The

Lovely..”Mrs. Anita Pelaez” And Her Delicious Key Lime Pies Baked With

Pure Love…Always……40 Years And They’re Still Going Strong….

….May GOD Continue Blessing “Anita And Kutchie Pelaez” and They’re World

Famous Key Lime Pie Factory And Grill Where The Personalities, Ovens And

Smiles Are Always Warm And Inviting. “Kutcharitaville” We Love You!…..

…Now You Know Who Is The Hottest!…And Baby Let Me Tell You, Mrs. Anita Is No Act…She’s The Real Thing Baby!…

Posted by JakeCarson | Report as abusive
 

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