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Where We Stand

Jonathan Clements  |  October 17, 2020

THIS YEAR’S PANDEMIC has unleashed financial turmoil for many American families, so data from last year might seem irrelevant. Still, there’s one set of 2019 data that deserves our attention—the Federal Reserve’s latest Survey of Consumer Finances, which was released last month.

Conducted every three years, the survey is perhaps the most in-depth look we get at the state of America’s personal finances. For the 2019 survey, 5,783 families (who may be individuals living alone) were interviewed at length about their income, assets and debts, resulting in fascinating insights into how we handle money:

  • As of 2019, 52.6% of families were invested in the stock market, up from 51.9% three years earlier, but below the 53.2% peak recorded in 2007. The survey’s data show we became a nation of stock market investors during the great 1990s bull market, with the percentage of families invested in the market rising from 31.9% in 1989 to 53% in 2001. We’ve remained at around that level ever since, despite the brutal bear markets of 2000-02 and 2007-09. Wall Street “professionals” love to heap scorn on everyday investors, and yet it seems American families have defied their churlish critics and prudently stayed the course.
  • The typical family’s net worth—meaning their assets minus their debts—was $122,000 as of 2019. This $122,000 is what mathematicians call a “median,” meaning it’s the number you get if you array the survey’s findings from highest to lowest and then pick the net worth that’s halfway down the list.

By contrast, the average net worth was $747,000. This average is what mathematicians call a “mean.” You find it by adding up the net worth of the families surveyed and then dividing this sum by the total number of families. Why is the mean so much higher than the median? The mean is skewed higher by a relatively small number of families with great wealth.

There’s been much talk about growing inequality. One indication: The median net worth of American families has climbed an inflation-adjusted 30% over the past 30 years, while the mean has jumped 98%. But over the past three years, mean net worth has grown far slower than median net worth—and mean income actually fell while median income rose—suggesting that wealth and income inequality are lessening.

  • Last year, 64.9% of families reported owning their primary residence, up from 63.7% three years earlier but below 2004’s peak of 69%. That peak was during the housing bubble—and it seems to have been an aberration. Homeownership today is about where it stood 30 years ago. The median value of Americans’ primary residence was $225,000 in 2019, up from $139,000 in 1989. Both figures are calculated in 2019 dollars, and thus the increase isn’t simply a reflection of general price inflation.
  • Among homeowners, 64.8% have a mortgage or other debt that’s secured by their home. Those with home-secured debt owe a median $135,000. Meanwhile, 76.6% of American families have some sort of debt. That includes 45.4% of families who were carrying a credit card balance, up from 38.1% six years earlier. Among those with a balance, the median amount is $2,700, while the mean is $6,270. As with net worth, the mean credit card balance is skewed higher by those with hefty amounts of card debt.

But perhaps the most notable trend is soaring education debt, which is now a burden for 21.4% of families, up from 8.9% three decades ago. Among those under age 35, 41.4% report having education debt, with a median amount owed of $22,000.

  • The Fed’s survey offers a glimpse of America’s retirement readiness. Among households headed by someone age 65 to 74, the median net worth was $266,000. This doesn’t count the value of Social Security benefits or defined benefit pension plans. For this group, homeownership stood at 78.4%, but just 48.2% said they had an IRA or a similar retirement account. Despite the common advice to retire debt-free, 70% of these folks were carrying some form of debt, including 37.6% who had debt secured by their home. The median amount of home-secured debt was $89,000.
  • Ownership of cars and other vehicles has remained fairly steady over the decades, with 85.4% of families owning a vehicle as of 2019. The median value of these vehicles, however, has climbed sharply, from $12,000 in 1992 to $17,000 last year. Both figures are in 2019 dollars.
  • How about a certificate of deposit, a savings bond or cash-value life insurance? It seems more Americans are saying “no” to all three. These products have seen a sharp drop in ownership over the past 30 years.

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HERE ARE THE SIX other articles published by HumbleDollar this week:

  • “After 100 days on the multiple listing service, the missus informed me I could get out of the fetal position,” recounts Mike Flack. “We had just received not one offer, but two.”
  • Want to turn yourself into a more tenacious investor? Check out the seven tips from Dennis Friedman.
  • “I’m told earnings drive share prices,” writes Richard Quinn. “But if I don’t get paid my share of those higher earnings as dividends, why pay more for the stock? Somebody is gambling, I think.”
  • How do you find the right financial advisor? John Yeigh got that question from his family. Here’s what he told them.
  • “If you’ve already set aside the amounts you’ll need for savings and for giving, you can—in theory—freely spend the remainder,” says Adam Grossman. “Many people find this liberating.”
  • Swashbuckling money managers may flaunt their confidence about the likely direction of stocks and bonds—but many of the most celebrated investment experts are far more humble, notes Robin Powell.

Follow Jonathan on Twitter @ClementsMoney and on Facebook. His most recent articles include Game OverPay It Forward and Not Exactly True

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