research.aarp.org/econ/dd44_wealth.html
References Introduction In February 2000, the Federal Reserve released the latest (1998) Survey o f Consumer Finances (SCF), its triennial survey of household wealth in t he United States.
However, the dis tribution of wealth seems to have become more uneven, with declines at t he bottom and big increases at the top. The picture is also more mixed w hen viewed since the 1990-91 recession. This Data Digest summarizes the most recent SCF findings on household wea lth and places them in the context of trends since 1989, just prior to t he last recession. Increase in Total Net Worth Median family net worth was $71,600 in 1998, compared with $60,900 in 199 5 (both in 1998 dollars), an increase of 176 percent, or an annual aver age real increase of 55 percent. During that time, mean net worth increased from $225,000 to $283,000, an increase of nearly 8 percent per year. Wealth is unequally distributed, with as much as 40 percent of total net worth held by the top 1 percent of the population (Wolff, 2000). Therefore, medians are usually better m easures of typical households than means. Increase in Wealth by Income Class As shown in Table 1, the increase in wealth since 1995 was not equally sh ared among all income groups. Since 1995, median wealth has declined amo ng the two lowest as well as the highest income classes, while increasin g in the middle income ranges. With the exception of those in the below $10,000 range, mean wealth increased for every income group.
Top Table 1 Family Net Worth by Income Class, 1989, 1995, and 1998 (1998 dol lars) Income (1998 dollars) 1989 1995 1998 Median Mean Median Mean Median Mean Under 10,000 1,900 30,500 4,800 46,600 3,600 40,000 10,000-24,999 22,800 72,000 31,000 80,300 24,800 85,600 25,000-49,999 58,100 134,200 56,700 124,000 60,300 135,400 50,000-99,999 131,400 247,400 126,600 258,100 152,000 275,500 100,000 or more 542,100 1,378,300 511,400 1,411,900 510,800 1,727,800 All families 59,700 236,900 60,900 224,800 71,600 282,500 Source: Kennickell et al. Between 1989 and 1998, median net worth grew among all income groups except the highest, which experienced a net reduction of nearly 6 percent over that period, an average of nea rly 07 percent per year. This reduction in median net worth for the hig hest income group seems inconsistent with both the conventional wisdom t hat the "rich get richer," and also at odds with the recent evidence on increasing inequality of wealth. Wealth has beco me more unequal even among the top 10 percent of wealth holders. Kennick ell has shown that, between 1992 and 1995, the net worth of the top 10 p ercent of wealth holders increased from 67 percent of total net worth to 678 percent. However, the top one percent went from 301 percent of to tal net worth to 347 percent, while the 90^th to 99^th percentiles decl ined from 369 to 331 percent of total net worth (Kennickell, 2000b). Table 2 Family Net Worth by Age, 1989, 1995, and 1998 (1998 dollars) Age of Head (years) 1998 1995 1989 Avg.
Top Increase in Wealth by Age Without exception, mean net worth increased substantially among every age group between 1995 and 1998, ranging from just over 4 percent per year in real terms for the oldest age group to nearly 12 percent per year in real dollars for the youngest age group. Families headed by a person aged 65 to 74 saw increases in median net worth of nearly 8 percent per year, an d those headed by a person over age 75 saw median wealth grow by over 8 percent; however, over the same period, those between 45 and 64 years of age realized little growth. Only those aged 35 to 44, whose median net worth grew 49 percent per year, realized increases anywhere close to th ose enjoyed by retirees. Since 1989, the differences by age are, if anything, even more striking. While mean net worth increased over the nine-year period for all age gro ups, the changes in median net worth were negative for all age groups un der 55 and positive for all those above 55. Moreover, the annual average increases in median net worth were substantial only for families headed by a person over age 65-47 percent for those aged 65 to 74, and 35 pe rcent for those aged 75 and older. Impact of Stock Market on Financial Holdings The phenomenal success of the stock market has had a measurable influence on the portfolio allocation of American families in the past three year s With the exception of stocks and mutual funds, virtually all forms of financial assets declined as a share of total financial assets held by all families since 1995. Since 1989, stocks, mutual funds, tax deferred retirement accounts and other managed assets increased from about 48 per cent of all financial assets to over 71 percent of the total. From 1989 to 1998, financial assets increased as a percentage of total household a ssets from just over 30 percent to over 40 percent. During that same per iod, the value of one's primary residence as a percentage of total asset s declined from about 32 percent to about 28 percent. The primary reside nce remained as important among nonfinancial assets in 1998 as it was in 1989, but the overall asset portfolio had shifted in that period from n onfinancial to financial holdings.
In 1998, 484 percent of all families held stock either directly or through mutual funds, retirement accounts, or other managed assets, up from 404 percent in 1995 and 316 percent in 1 989. Among those holding such assets, the median value was $25,000 in 19 98, an increase from $15,400 in 1995 and $10,800 in 1989. In addition, o f those holding stocks in any form, the stock holdings as a share of the ir financial assets was 54 percent in 1998, compared with only 40 percen t in 1995 and 28 percent in 1989.
The Federal Reserve's summary of the SCF provides information on assets b y age that suggests several inferences about the experience of baby boom ers over the past decade. The Fed study reports how those aged 35 to 44 and 45 to 54 have fared as of 1998. These age cohorts represent birth co horts 1954 to 1963 and 1944 to 1953, which together closely correspond t o the birth years of baby boomers (1946-64). Similarly, 1989 data for ag e cohorts 35 to 44 closely align with older boomers (who were born betwe en 1945 and 1954), while data for those under 35 approximate younger boo mers (who were born in 1955 or later).
The older boomers' median net worth increased from $72,000 in 1989 to nea rly $105,000 in 1998, while younger boomers' median net worth grew from $10,000 to $63,000. The much higher values for mean net worth doubled fo r older boomers and tripled among younger boomers over the same period. Table 3 Median and Mean Net Worth of Boomers, 1989 and 1998 (1998 dollars) 1989 1998 Older Boomers Median 71,800 105,500 Mean 188,200 362,700 Younger Boomers Median 9,900 60,500 Mean 63,400 196,200 Source: Kennickell et al. Older boomers that he ld stock either directly or indirectly increased from 39 percent to near ly 60 percent of all older boomer families between 1989 and 1998. The in crease was even larger among younger boomers, 57 percent of whom held st ock in 1998, as compared with only 22 percent of them in 1989. Table 4 Stock Holdings of Boomers, 1989 and 1998 Share of Boomers Holding Stock, Directly or Indirectly Median Value of Stock Holdings ($1998) for Those With Stocks Stocks as Share of Financial Assets 1989 1998 1989 1998 1989 1998 Older Boomers 389 586 6,600 38,000 292 557 Younger Boomers 224 565 3,800 20,000 200 547 Source:Kennickell et al. For both age groups, stocks have soare d to more than fifty percent of total financial assets from less than a third for older boomers and one-fifth for younger boomers in 1989.
Top Conclusion The most recent Federal Reserve wealth survey confirms the large increase in family net worth that has occurred in the past three years, and show s that the biggest winners have been families headed by persons over age 65. Stock holdings have increased markedly overall, with the percentage of families owning stock either directly or indirectly increasing to ne arly 50 percent in 1998 from just over 30 percent in 1989. Well over hal f of all baby boomers now hold stock in some form, com...
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