Financial portrait of the average American household: grim and grimmer
By Lee Russ
Sunday, March 05, 2006 at 08:07 AM
Peter Speros, managing director of Sullivan, Bruyette, Speros & Blayney Inc., a wealth-management firm in McLean, VA:
These numbers are just so much worse than I would have thought. It's a real eye-opener.
What horrible thing had this man just encountered? the Federal Reserve Board's 2004 Survey of Consumer Finances.
Seems the Washington Post "asked a half-dozen financial planners to review the Fed data about what different groups of Americans own and what they owe. We asked them what advice they would give someone confronting the financial situation faced by the average American, using median numbers..."
The median American household that the experts reviewed looks like this:
It has about $3,800 in the bank. No one has a retirement account, and the neighbors who do only have about $35,000 in theirs. Mutual funds? Stocks? Bonds? Nope. The house is worth $160,000, but the family owes $95,000 on it to the bank. The breadwinners make more than $43,000 a year but can't manage to pay off a $2,200 credit card balance.
Ownership society personified, wouldn't you say?
As part of its survey efforts, the FRB also publishes an analysis of "Changes in U.S. Family Finances" since the previous Survey. The changes over the 2001-2004 period included:
The survey shows that, over the 2001-04 period, the median value of real (inflation-adjusted) family income before taxes continued to trend up, rising 1.6 percent, whereas the mean value fell 2.3 percent. Patterns of change were mixed across demographic groups. These results stand in contrast to the strong and broad gains seen for the period between the 1998 and 2001 surveys and to the smaller but similarly broad gains between the 1995 and 1998 surveys (figure 1).Much like median income, median real family net worth in the 2001−04 period increased 1.5 percent, but mean net worth rose 6.3 percent. The increase in wealth appears to have been clearest in the middle income group. Over many other demographic groups, the data show a complex pattern of mixed increases and decreases in wealth; in some instances, median and mean values moved in opposite directions, a pattern that signals distributional changes within groups. In contrast, the growth in wealth between the 1998 and 2001 surveys and between the 1995 and 1998 surveys was stronger both in the mean and in the median, and the growth was shared by most demographic groups (figure 2).
In plain English, increases in both income and wealth are no longer shared by all, or most. The economic world within the U.S. borders is getting more segmented, with people in some segments rising quickly, people in other segments falling.
The analysis also found that the changes in net worth in the 2001-04 period rested on three key factors (emphasis added):
- The strong appreciation of house values and a rise in the rate of homeownership, which produced a substantial gain in the value of residential real estate holdings.
- A decline in the portion of households with direct and indirect ownership of stocks, and in the amounts held, despite the general recovery of prices in equity markets since 2001.
- A marked increase in the amount of debt relative to total assets, with the largest part of that increase attributable to debt secured by real estate; as debt rose over the period, families devoted more of their incomes to servicing their debts, despite a general decline in interest rates. There was also a slight rise in the fraction of families with large required debt service payments relative to their incomes, and a substantially greater increase in the fraction of families that were sixty or more days late in their payments during the year preceding the survey. These increases affected mainly the bottom 80 percent of the income distribution.
Just things to keep in mind as the Bush administration continues to try to distract people from its myriad problems by trumpeting the health of the economy and the wealth of the citizenry.