Archive for the ‘Wealth’ Category

What is the average American Worth?

July 17, 2011 1 comment

This blog is a little side note on the average wealth of Americans before we continue to delve into who owns stocks in the US some more.  The average worth of an American family in 2007 was $557,800 according to the Survey of Consumer Finance (SCF).  So, what is the average American family’s net worth in 2011?  Let’s assume that the US Gross Domestic Product (GDP) is a good indicator of the worth of the country and therefore can be used as a guide to adjust the average American Family’s worth.  The US GDP at the end of 2007 was 14.3 Trillion and at the end of the 1st quarter in 2011 was $15.  Therefore a good multiplier for wealth would be 15/14.3 = 1.0489.  This means that the average family net worth today would be about $585,000.

Before looking at the statistics, we have to talk about what type of statistics we are going to look at and what they are used for.  The mean or average is calculated by taking the total wealth of all families and dividing it by the number of families.  Another useful statistical figure is the concept of median.  The median family wealth measure would mean that half the families have more than this amount and half the families have less than this amount of wealth.  While, mean value of family wealth is $585,000, the median value is quite different at $126,000.  How do we interpret this?  It means that most families have significantly less than the $585,000 and a greater proportion of the wealth is held by the wealthiest individuals.  The following table for Median and Mean Income and Wealth I derived from the underlying data in the Survey.  Income is what you make in a year and Wealth is what you are worth in terms of all the assets you have (home, savings, cars, investments, etc).

There are a lot of interesting conclusions that you can come to by looking at the above table.

  • Income for the bottom 90% of the people tends to be fairly evenly spread inside their wealth bands (median is close to the mean).  This means that salary is spread evenly within the band and not skewed towards the high or low ends.
  • Income in the top band is not evenly distributed as the mean is almost twice as much as the median.  This means that a few individuals in this band make considerably more than others in the band.
  • Wealth is not directly related to income.  The more income you make the more wealth you can have as a percent of our income.  For example, the Lowest 20% of income have a Median Wealth of 8,500 for a Mean Wealth to Income Ratio of .65.  The wealthiest 10% by comparison have a Mean Wealth to Income Ratio of 5.4.  This makes sense, as the more money you earn, the more things you can accumulate.  Rather than spend all your money on things you immediately consume like food, gas, electricity, etc, you can spend it on assets that have an on-going value like houses.  Also, you have more income you don’t need to user right away that you can obviously invest in stocks, bonds ,etc.
  • The total wealth of the nation is concentrated at the very top.  The top 10% owns nearly 60% of the wealth.

Now how does this knowledge of unequal wealth distribution apply to who owns stocks. That will be the next blog subject.

Categories: Wealth