Skip to content

Tell Congress to Oppose Any Tax Bill That Would Increase Taxes for Seniors! Take Action Now

 

Wealth Distribution in 1998: Findings from the Survey of Consumer Finances

Introduction

In February 2000, the Federal Reserve released the latest (1998) Survey of Consumer Finances (SCF), its triennial survey of household wealth in the United States. Since 1995, when the last SCF was conducted, median household net worth has increased by nearly 18 percent, more than $10,000, aided significantly by the booming stock market. However, the distribution of wealth seems to have become more uneven, with declines at the bottom and big increases at the top. The picture is also more mixed when viewed since the 1990-91 recession.

This Data Digest summarizes the most recent SCF findings on household wealth and places them in the context of trends since 1989, just prior to the last recession.

Increase in Total Net Worth

Median family net worth was $71,600 in 1998, compared with $60,900 in 1995 (both in 1998 dollars), an increase of 17.6 percent, or an annual average real increase of 5.5 percent.

During that time, mean net worth increased from $225,000 to $283,000, an increase of nearly 8 percent per year. Wealth is unequally distributed, with as much as 40 percent of total net worth held by the top 1 percent of the population (Wolff, 2000). Therefore, medians are usually better measures of typical households than means.

Increase in Wealth by Income Class

The increase in wealth since 1995 was not equally shared among all income groups. Since 1995, median wealth has declined among the two lowest as well as the highest income classes, while increasing in the middle income ranges. With the exception of those in the below $10,000 range, mean wealth increased for every income group.

The phenomenon of increasing mean net worth and declining median net worth suggests an increasingly unequal distribution, with wealth increasing faster at the top than at the middle. Between 1989 and 1998, median net worth grew among all income groups except the highest, which experienced a net reduction of nearly 6 percent over that period, an average of nearly 0.7 percent per year. This reduction in median net worth for the highest income group seems inconsistent with both the conventional wisdom that the "rich get richer," and also at odds with the recent evidence on increasing inequality of wealth.

However, note that mean net worth grew from $1.38 to $1.73 million (25 percent) among the most affluent since 1989 (2.5 percent per year), while median net worth in that class declined by over $30,000. Wealth has become more unequal even among the top 10 percent of wealth holders. Kennickell has shown that, between 1992 and 1995, the net worth of the top 10 percent of wealth holders increased from 67 percent of total net worth to 67.8 percent. However, the top one percent went from 30.1 percent of total net worth to 34.7 percent, while the 90th to 99th percentiles declined from 36.9 to 33.1 percent of total net worth (Kennickell, 2000b).

Increase in Wealth by Age

Without exception, mean net worth increased substantially among every age group between 1995 and 1998, ranging from just over 4 percent per year in real terms for the oldest age group to nearly 12 percent per year in real dollars for the youngest age group. (See Table 2) How-ever, median wealth increased only modestly for most age groups with the exception of the oldest families (over age 65). Families headed by a person aged 65 to 74 saw increases in median net worth of nearly 8 percent per year, and those headed by a person over age 75 saw median wealth grow by over 8 percent; however, over the same period, those between 45 and 64 years of age realized little growth. Only those aged 35 to 44, whose median net worth grew 4.9 percent per year, realized increases anywhere close to those enjoyed by retirees.

Since 1989, the differences by age are, if anything, even more striking. While mean net worth increased over the nine-year period for all age groups, the changes in median net worth were negative for all age groups under 55 and positive for all those above 55. Moreover, the annual average increases in median net worth were substantial only for families headed by a person over age 65-4.7 percent for those aged 65 to 74, and 3.5 percent for those aged 75 and older.

Impact of Stock Market on Financial Holdings

The phenomenal success of the stock market has had a measurable influence on the portfolio allocation of American families in the past three years. With the exception of stocks and mutual funds, virtually all forms of financial assets declined as a share of total financial assets held by all families since 1995. Since 1989, stocks, mutual funds, tax deferred retirement accounts and other managed assets increased from about 48 percent of all financial assets to over 71 percent of the total. From 1989 to 1998, financial assets increased as a percentage of total household assets from just over 30 percent to over 40 percent. During that same period, the value of one's primary residence as a percentage of total assets declined from about 32 percent to about 28 percent. The primary residence remained as important among nonfinancial assets in 1998 as it was in 1989, but the overall asset portfolio had shifted in that period from nonfinancial to financial holdings.

A different picture emerges if we examine those families that held any stock, whether in direct holdings, in mutual funds, retirement accounts, or other managed assets. In 1998, 48.4 percent of all families held stock either directly or through mutual funds, retirement accounts, or other managed assets, up from 40.4 percent in 1995 and 31.6 percent in 1989. Among those holding such assets, the median value was $25,000 in 1998, an increase from $15,400 in 1995 and $10,800 in 1989. In addition, of those holding stocks in any form, the stock holdings as a share of their financial assets was 54 percent in 1998, compared with only 40 percent in 1995 and 28 percent in 1989.

How Have Boomers Done?

The Federal Reserve's summary of the SCF provides 
information on assets by age that suggests several inferences about the experience of baby boomers over the past decade. The Fed study reports how those aged 35 to 44 and 45 to 54 have fared as of 1998. These age cohorts represent birth cohorts 1954 to 1963 and 1944 to 1953, which together closely correspond to the birth years of baby boomers (1946-64). Similarly, 1989 data for age cohorts 35 to 44 closely align with older boomers (who were born between 1945 and 1954), while data for those under 35 approximate younger boomers (who were born in 1955 or later). By comparing these sets of cohorts in 1998 and 1989, we can assess boomers' performance at two points nearly a decade apart. Table 1 shows this comparison.

The older boomers' median net worth increased from $72,000 in 1989 to nearly $105,000 in 1998, while younger boomers' median net worth grew from $10,000 to $63,000. The much higher values for mean net worth doubled for older boomers and tripled among younger boomers over the same period.

Table 1. Median and Mean Net Worth of
Boomers, 1989 and 1998

(1998 dollars)

1989

1998

Older Boomers
Median 71,800 105,500
Mean 188,200 362,700
Younger Boomers
Median 9,900 60,500
Mean 63,400 196,200
Source: Kennickell et al. (2000a)

As shown in Table 2, the increased stock holding that occurred among the entire population is also true of boomer families. Older boomers that held stock either directly or indirectly increased from 39 percent to nearly 60 percent of all older boomer families between 1989 and 1998. The increase was even larger among younger boomers, 57 percent of whom held stock in 1998, as compared with only 22 percent of them in 1989.

Table 2. Stock Holdings of Boomers, 1989 and 1998

 

Share of Boomers
Holding Stock,
Directly or Indirectly

Median Value of
Stock Holdings
($1998) for Those
With Stocks

Stocks as Share of
Financial Assets

 

1989

1998

1989

1998

1989

1998

Older Boomers

38.9

58.6

6,600

38,000

29.2

55.7

Younger Boomers

22.4

56.5

3,800

20,000

20.0

54.7

Source:Kennickell et al. (2000a)

Since 1989, the median value of stock holdings for boomers holding stocks has multiplied by an average of over 20 percent per year in inflation-adjusted dollars-from $6,600 to $38,000 for older boomers, and from $3,800 to $20,000 for younger boomers. For both age groups, stocks have soared to more than fifty percent of total financial assets from less than a third for older boomers and one-fifth for younger boomers in 1989.

Conclusion

The most recent Federal Reserve wealth survey confirms the large increase in family net worth that has occurred in the past three years, and shows that the biggest winners have been families headed by persons over age 65. Stock holdings have increased markedly overall, with the percentage of families owning stock either directly or indirectly increasing to nearly 50 percent in 1998 from just over 30 percent in 1989. Well over half of all baby boomers now hold stock in some form, compared with less than one third in 1989, and their wealth in stock has grown by over 20 percent per year since 1989.

References

Kennickell, A., et al. (2000a). "Recent Changes in U.S. Family Finances: Results from the 1998 Survey of Consumer Finances," Federal Reserve Bulletin, January 2000.

Kennickell, A. (2000b). "An Examination of Changes in the Distribution of Wealth from 1989 to 1998: Evidence from the Survey of Consumer Finances," AEI Seminar on Economic Inequality, February 9, 2000.

Wolff, E. (2000). "Reconciling Alternative Estimates of Wealth Inequality from the Survey of Consumer Finances," AEI Seminar on Economic Inequality, February 9, 2000.

Footnotes

  • Net worth is defined as total assets minus liabilities. The terms "net worth" and "wealth" will be used synonymously in this paper.
  • It is important to note here that the Survey of Consumer Finances does not include any defined benefit pensions, so that families with such pensions may benefit from the return on stocks held by pension trusts without holding any stock directly or indirectly themselves.
  • Since few family heads under age 25 would have been included in the SCF, the under-35 age group in 1989 reflects mostly families with heads born between 1954 and 1964.

Written by John R. Gist, AARP Public Policy Institute

April 2000

©2000 AARP

May be copied only for noncommercial purposes and with attribution; permission required for all other purposes.

Public Policy Institute, AARP, 601 E Street, NW, Washington, DC 20049 

As shown in Table 2, the increased stock holding that occurred among the entire population is also true of boomer families. Older boomers that held stock either directly or indirectly increased from 39 percent to nearly 60 percent of all older boomer families between 1989 and 1998. The increase was even larger among younger boomers, 57 percent of whom held stock in 1998, as compared with only 22 percent of them in 1989.

Join the Discussion

0 | Add Yours

Please leave your comment below.

You must be logged in to leave a comment.

Next Article

Read This