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MERRILL LYNCH & Co.
JUNE 1, 1998 THE WEALTH OF U.S. FAMILIES IN 1995 THE WEALTH 0F U.S. FAMILIES IN 1995 EXECUTIVE SUMMARY The average(median)U.S. family in 1995 had net financial assets of only about $1,000. This is the value of money in the bank, stocks, bonds, and other securities, after subtracting loans, credit card debt and other unsecured debt. Average gross financial assets were about $2,700, before subtracting unsecured debt. Family financial assets vary by age of the head of family and by family income. Families with heads age 45–54 have median net financial assets of $l,700. Those with heads age 55–64 have median financial assets of $4,800. Families with heads age 65–74 have the highest median net financial assets among age groups, $12,500. Most families with income below $25,000 have negligible financial assets. Median net financial assets for families with income below $10,000 is zero, and median net financial assets for families with income of $10,000–$25,000 is $200. Families with income of $25,000–$50,000 have median net financial assets of $1,600, and those with income of $50,000–$75,000 have median net financial assets of $8,000. Families with income greater than $100,000 have median net financial assets of $51,000. Median net worth of all families – the value of all real and financial assets, including equity in the home, other real estate, vehicles, own businesses, as well as financial assets – was about $35,500. For the average family, the majority of net worth is equity in their home. After subtracting home equity, the remaining net worth of the median family was $10,000. Wealth is very unevenly distributed. The lowest 30 percent of families, ranked by the size of their net financial assets, have zero or negative net financial assets, that is, their unsecured debts equal or exceed their gross financial assets. The lowest 20 percent have negative net financial assets (net debts) of $800 or greater. The median net financial assets of the bottom fifth is $-4,700. Families in the top fifth have median net financial assets of about $85,000. The bottom fifth of families have median net worth of $7,600, while the top fifth have median net worth of $202,000. THE WEALTH OF U.S. FAMILIES IN 1995 Introduction - Data Sources This report presents the results of analysis of data on the real and financial wealth of U.S. persons and families in 1995. These data were collected by the U.S. Bureau of the Census in the Survey of Income and Program Participation (SIPP) for January through April of 1995. The SIPP provides data on the income, assets, and demographic characteristics of large representative samples of the non-institutionalized population of the United States. These are the most recent data on household and personal wealth released by the Census Bureau*.
*The 1995 family wealth and income data are from the Survey of Income and Program Participation (SIPP) 1993 Panel Wave 7 Topical Module and from the core interviews for the twelve month period ending in the month of the topical module, contained in the 1993 SIPP Longitudinal Microdata File. The 1993 Wave 7 Topical Module sample included 17,138 households headed by persons age 25 or older, and 18,470 families headed by persons age 25 or older randomly selected to be representative of the entire U.S non-institutional population. The l993 Panel Wave 7 data on assets and liabilities were collected in detailed interviews conducted in February, March, April, and May 1995, and refer to asset and liability balances on the last day of the month that preceded the interview. Thus, the data in this report are averages of balances held and owed at thc end of January, February, March, and April 1995. Each person's income was calculated by summing the income from all sources over each of the 12 months ending with the reference month for the assets data. Family income was calculated as the sum of the income of all of the persons in the family. The unit of analysis of this study is the family. The definition of family used in this study corresponds to the notion of the nuclear family – a married couple and their natural and adoptive children, if any. A single person living alone or unrelated to other persons in the household is considered to be a one-person family. Related persons living in the same household but not part of the same nuclear family are in separate families. Thus, in a household containing a married couple and their minor children, and one spouse's parent(s), the couple and children would be one family, and the parent(s) would be a separate family. An adult child age 25 or older and spouse, if any, living with his/her parents are a separate family. The concept of family used in this study is the unit which singly or jointly owns assets, makes decisions concerning their accumulation and disposition, and shares in their long-term (life cycle) value, e.g. for retirement income. This definition of family differs from the definition usually used by the U.S. Census Bureau. The family is defined by the Census Bureau as two or more persons who are living together and related by blood, marriage, or adoption. Wealth and other economic variables are sometimes studied using the household as the unit of analysis. A household is a person or group of persons living at the same address. A household may consist of one person living by himself or herself, a group of unrelated individuals, or one or more families. A study of wealth, similar to the one in this report, but using the household as the unit of analysis, is available from the author. Financial Assets by Age Group Table 1 shows mean and median** family financial assets*** in 1995, classifying families by the age of the family head The median level of gross financial assets over all U.S. families in 1995 was about $2,700.**** After subtracting unsecured debt, the median level of net financial assets for all families was $1,000. For U.S families with head age 45–54, median gross financial assets were about $4,200, and median net financial assets were about $l,700 in 1995. Families with head age 55–64 had median gross financial assets of about $6,900 and median net financial assets of about $4,800. Median financial assets are greater for older age groups, peaking in the age group 65–74 at about $12,500 of net financial assets, then declining to about $10,300 for families with heads age 75 and older.
** The median is the level of assets held by the family at the mid-point of the distribution – i.e., half of the families have more and half have less. The mean equals the total level of assets held by all families divided by the number of families. *** Family gross financial assets include checking accounts, savings accounts, money market deposit accounts, certificates of deposit, money market funds, government securities, corporate and municipal bonds, stocks and mutual fund shares, IRA and Keogh accounts, mortgages held from sale of real estate, money owed to members of the family by others, unit trusts, and other financial investments, less debt secured by financial assets (such as stock margin debt). Net financial assets equal gross financial assets less unsecured debt (such as unpaid bills, bank debt, credit card balances). Employer pension fund and other benefit accruals, including defined contribution pension balances and 401(k) account balances, defined benefit pension accruals, and ESOPs, are not included in family net financial assets data collected by the Census Bureau. ****Only families headed by persons age 25 or older are included in this study. Individuals and families headed by persons younger than 25 are often students or persons in transition between education and work and may not be representative of the wealth holdings of the general population TABLE I
The mean net financial assets of all families was about $27,500, and the mean gross financial assets was about $31,000. The mean level of net financial assets of families with head age 45–54 was about $30,000, and the mean level for families with head age 55–64 about $47,700.
***** Since financial asset holdings are highly skewed, the means may be sensitive to "outliers," or extreme values. That is, the existence of one or a small number of families with very high wealth in the sample may influence the value of the mean. The median is not sensitive to extreme values. Net Worth and Home Equity by Age Group Table 2 shows mean and median levels of total family wealth (net worth), the amount of family wealth in the form of housing equity and family wealth excluding housing equity. TABLE 2
Table 2 also shows the mean levels of total family wealth, family wealth in the form of home equity, and family wealth excluding home equity. Mean net worth of all families is about $89,600 of which housing equity accounts for about 47 percent. Excluding home equity, mean wealth is about $47,300. As is the case with financial wealth, the distributions of housing wealth and non-housing wealth are skewed, so the mean wealth exceeds the median. For housing equity the mean is closer to the median than for other forms of wealth suggesting that it is more evenly distributed than other forms of wealth. Size Distribution of Financial Assets Table 3 shows the size distribution of net financial assets over all families by quintile and the median and mean levels of family net financial assets and net worth for each quintile of families classified by level of net financial assets. TABLE 3
Financial Assets by Income Class Wealth is unevenly distributed over income classes. Families with low incomes typically have very low levels of assets. Table 4 shows mean and median total net assets and net financial assets of families in 1995 classified by family income class. Median net financial assets of families with income less than $10,000 are negligible, and median total net worth of families in this income class is $2,200. Median financial assets of families with income of $25,000–$50,000 (33 percent of total families) is $1,600, and median net worth of families in this income class is $40,000. For families with income of $50,000–$75,000 (15 percent of families), median financial assets is $8,000, and median net worth is $82,000. For families with income greater than $l00,000 (3.3 percent) median financial assets is $51,000 and median net worth is $235,000. TABLE 4
Table 5 shows mean and median family net worth, home equity, and net worth less home equity by family income class. Median home equity for families with income of $25,000–$50,000 was $18,600, and median net worth less home equity was $12,700. For families with income $50,000–$75,000, median home equity was $41,000, and net worth less home equity, was $26,700. TABLE 5
According to the SIPP data, in 1995 about 52 percent of families had income of less than $30,000. As Table 4 shows, the median financial assets of families with income less than $30,000 are small. Excluding families with income less than $30,000, the median net worth of the 48 percent of families with income of $30,000 or more was about $73,400, and the median net financial assets were about $6,000. Table 6 reports the average wealth of only those families with income of $30,000 or greater, classified by age of head. Even among the 48 percent of families with income of $30,000 or more, median financial assets are relatively modest. Families with head age 45–54 had median net financial assets of $7,500 (compared to $l,700 for all families of this age group – see Table 1). Families with head age 55–64 had median net financial assets of about $23,700 (compared to $4,800 for all families in this age group).****** These data indicate that, even among families with relatively higher incomes, in the age groups where workers are near the peaks of their earning careers and may be saving for retirement, the financial wealth of the median family would provide by itself only a modest supplement to other sources of retirement income.
****** Table 6 shows that among families with heads age 65 or older, those with incomes of $30,000 or more have net financial assets of considerably greater than all families of the same age groups (shown in Table 1). For ages 65–74, families with income of $30,000 or more (34 percent of the families in this age group)have median net financial assets of $62,100, vs. $12,500 for all families of this age group (Table 1). For families with head age 75 or older, those with income of $30,000 or more (17 percent of the families of this age group) had median net financial assets of $100,000, vs. $10,300 for all families with head age 75 or older. Most persons in these age groups are retired, with zero or negligible earned income, so families with income greater than $30,000 are considerably above the average in income and wealth. TABLE 6
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