Wednesday, March 01, 2006
Growing Wealthy and Old
Last week, I saw a number of news article with ledes or themes about a decline in growth of family earnings and net worth based on the just released triennial Survey of Consumer Finances by the Federal Reserve. Some articles, like this one, were well-balanced and informative about the differences between mean and median figures, referring to median as capturing the "typical" family and to mean as "average", although even that is mis-leading to most people. The measure, "average wealth", includes the fortunes of everyone from a pauper to Bill Gates, which tends to produce a high "average" number that does not represent any real "average" family.
Most news articles had a negative tone about the economy. None discussed how much positive growth, in both income and net worth, there has been for real people. To do that, you need to compare the wealth of today's 50 year old family head to the wealth of a 40 year old family head ten years ago. Real people get older; so you can't just look at static statistical snapshots if you want to see the trends for real families over their lifetimes.
Michael Barone has done that analysis and reports in this blog post on The wealth of the nation:
"Last week, the Federal Reserve released a report on family finances and household net worth. As usual, press accounts focused on the fact that most Americans don't have significant wealth. The Fed report typically leads off by discussing the differences between the top and bottom income groups—though no one is locked into these groups over time—and pays relatively little attention to the differences in wealth between age groups. But of course this misses the biggest part of the story. Wealth accumulation is a lifetime project. In no society known to man do young people, aside from a handful of heirs, have significant net worth."
He provides a sound analytic discussion on economic trends and offers two conclusions:
"Conclusion 1: Most Americans do accumulate significant wealth during the course of their lifetime. Americans 55 to 64 in 2004 had median wealth of $248,700. In other words, the ordinary person accumulated a quarter of a million dollars. That's not enough wealth to live on. But it doesn't include the present value of Social Security benefits or defined benefit pension plans.
Conclusion 2: Most Americans are continuing to enjoy significant wealth increases over time. The following table compares the wealth of people by age group in 2004 with the wealth of people in the age group 10 years younger in 1995. (These are not precisely the same people, because 2004 is only nine years after 1995, but the fit is pretty close.) I'll classify them by birth years from the 2004 groups.
Birth year Wealth '95 Wealth '04 Increase Percent increase
1960–69 $14,800 $69,400 $54,600 367%
1950–59 $64,200 $144,700 $80,500 125%
1940-49 $116,800 $248,700 $131,900 113%
1930-39 $141,900 $190,100 $48,200 34%
1900-29 $136,600 $163,100 $26,500 19%
The two oldest age groups have the lowest dollar increases in net worth—but they show increases in net worth, even though by 2004 they had all passed the traditional retirement age of 65, beyond which people tend to draw down net worth. Those born in the 1940s showed a whopping increase in net worth, in both dollar and percentage terms.
As for the two youngest age groups, those born in the 1950s had a lower percentage increase in net worth, but in dollar terms their increase was greater than that of those born in the 1960s. And those people—of the age when home equity starts rising and college debts are paid off—showed a huge percentage increase and a rise in net worth from the negligible to something starting to be considerable."
Read it all; you'll learn a lot and never look at static statistics the same again.
Most news articles had a negative tone about the economy. None discussed how much positive growth, in both income and net worth, there has been for real people. To do that, you need to compare the wealth of today's 50 year old family head to the wealth of a 40 year old family head ten years ago. Real people get older; so you can't just look at static statistical snapshots if you want to see the trends for real families over their lifetimes.
Michael Barone has done that analysis and reports in this blog post on The wealth of the nation:
"Last week, the Federal Reserve released a report on family finances and household net worth. As usual, press accounts focused on the fact that most Americans don't have significant wealth. The Fed report typically leads off by discussing the differences between the top and bottom income groups—though no one is locked into these groups over time—and pays relatively little attention to the differences in wealth between age groups. But of course this misses the biggest part of the story. Wealth accumulation is a lifetime project. In no society known to man do young people, aside from a handful of heirs, have significant net worth."
He provides a sound analytic discussion on economic trends and offers two conclusions:
"Conclusion 1: Most Americans do accumulate significant wealth during the course of their lifetime. Americans 55 to 64 in 2004 had median wealth of $248,700. In other words, the ordinary person accumulated a quarter of a million dollars. That's not enough wealth to live on. But it doesn't include the present value of Social Security benefits or defined benefit pension plans.
Conclusion 2: Most Americans are continuing to enjoy significant wealth increases over time. The following table compares the wealth of people by age group in 2004 with the wealth of people in the age group 10 years younger in 1995. (These are not precisely the same people, because 2004 is only nine years after 1995, but the fit is pretty close.) I'll classify them by birth years from the 2004 groups.
Birth year Wealth '95 Wealth '04 Increase Percent increase
1960–69 $14,800 $69,400 $54,600 367%
1950–59 $64,200 $144,700 $80,500 125%
1940-49 $116,800 $248,700 $131,900 113%
1930-39 $141,900 $190,100 $48,200 34%
1900-29 $136,600 $163,100 $26,500 19%
The two oldest age groups have the lowest dollar increases in net worth—but they show increases in net worth, even though by 2004 they had all passed the traditional retirement age of 65, beyond which people tend to draw down net worth. Those born in the 1940s showed a whopping increase in net worth, in both dollar and percentage terms.
As for the two youngest age groups, those born in the 1950s had a lower percentage increase in net worth, but in dollar terms their increase was greater than that of those born in the 1960s. And those people—of the age when home equity starts rising and college debts are paid off—showed a huge percentage increase and a rise in net worth from the negligible to something starting to be considerable."
Read it all; you'll learn a lot and never look at static statistics the same again.
