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Thursday, August 2, 2012

An Analysis of the Distribution of Wealth Across Households, 1989-2010

Linda Levine
Specialist in Labor Economics

The distribution of wealth (net worth) across households has been an underlying consideration in congressional deliberations on various issues, including taxation and social welfare. This report analyzes the change over time in the concentration of net worth (assets minus liabilities) to help inform those policy deliberations.

According to data from the Federal Reserve’s latest Survey of Consumer Finances (SCF), mean household net worth was $498,800 and median household net worth was $77,300 in 2010.The median is the value at which one-half of wealth-owners have lower values and one-half have higher values of wealth. It is a better indication of the wealth of the “typical” household than is the mean which, because of the way in which it is calculated, is greatly affected by the small number of households with high values of wealth. A mean over six times a median suggests substantial concentration of wealth among households at the upper end of the wealth distribution.

The change over time in the relationship between the mean and median provides an indication of how the distribution of wealth has changed across households. Both mean and median net worth increased from 1989 to 2007, with the mean typically increasing to a greater extent than the median. This suggests that in recent decades wealth became more concentrated among households at the upper end of the distribution. Both measures fell between 2007 (the outset of the December 2007-June 2009 recession) and 2010 (the first full year of recovery). The relatively greater decline in the median than in the mean between 2007 and 2010 suggests that the recession and slow recovery more adversely affected the households in the bottom half of the wealth distribution than those further up the distribution.

According to a June 2012 article in the Federal Reserve Bulletin, which presents data from the 2010 SCF, “a broad collapse in house prices” was the main reason for the overall decrease in median household wealth between 2007 and 2010. A decline in the value of financial assets (e.g., stocks) played a considerable but lesser role. Unlike house prices, the prices of stocks (which are less widely owned than principal residences) have broadly recovered from their lows.

Date of Report: July 17, 2012
Number of Pages: 11
Order Number: RL33433
Price: $29.95

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