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How the hell is the median wealth of Americans 77k?! Does this not factor in debt?

by debacle 14y ago

adventureful 14y ago
The Fed tags American wealth at around $58 trillion total, last I recall. I suspect the median is a bizarre way to calculate American wealth. That includes equities, real estate, precious metals, homes, bonds, etc. The stock market rebounding back upward nearly 100% added trillions to that no doubt. I would think it'd be far better to take the middle 80% of Americans and find an average wealth value (lop off the top 10% and bottom 10%). That would give you a perspective on how most of the nation is doing, especially since the very top radically skews the data upward. http://en.wikipedia.org/wiki/Wealth_in_the_United_States http://en.wikipedia.org/wiki/Wealth_in_the_United_States Interesting data point on the top 1% wealth wise: "They [the 1%] controlled nearly a third of the nation’s financial assets (investment holdings) and about 28 percent of nonfinancial assets (the value of property, cars, jewelry, etc.). These measures will be particularly interesting to revisit when the new, post-recession data arrives." "The Times had estimated the threshold for being in the top 1 percent in household income at about $380,000, 7.5 times median household income, using census data from 2008 through 2010. But for net worth, the 1 percent threshold for net worth in the Fed data was nearly $8.4 million, or 69 times the median household’s net holdings of $121,000." http://economix.blogs.nytimes.com/2012/01/17/measuring-the-top-1-by-wealth-not-income/ http://economix.blogs.nytimes.com/2012/01/17/measuring-the-t...
- debacle 14y ago
  The 1% has a very limited ability to drive change in the median wealth. The average wealth is very likely much much higher (probably closer to a half million) than the median, signaling vast income inequality. The median is a much more useful statistic when dealing with this kind of distribution, as it applies to a much larger population than the average, which is useless for ~80% of the population as an indicator.
  - aggronn 14y ago
    I'll be even more bold and declare that the top 1% has no more ability to effect the median than any other 1% of the population. Using the median isn't strange at all for this kind of calculation.
    - adventureful 14y ago
      It's worse than strange, I don't think it works at all. Wealth increases from the bottom 1% to the top 1% at an ever accelerating clip. If you take the median, you have absolutely no clue what the health of the groups above or below look like. For example: if the median wealth is $77,000 --- you can't use that to then calculate how much actual wealth is in the middle 80% of the country (not even close in fact), because that $77k figure is radically off base for the massive skew that the top 10% in that 80% group is going to contain. But you have no means to derive how much wealth you're talking about being contained by that 10% group in the top of the 80% bracket (no means to figure out the skew at the top or bottom). If you had 1 million data points, and your median is $77k, what does that tell you about the total wealth in the 1 million? It tells you almost nothing. What's the increasing skew like for the top 10,000 in that million? Because that probably contains 30% of all the wealth in the million set.
    - planetguy 14y ago
      I would suggest that the median is taken, in this case, because it provides the biggest and sexiest headline number. The average (and by extension the total) wealth has gone down by a much smaller percentage since 2007. The fluctuations just happened to have hit the people around the middle particularly hard. The people at the bottom haven't seen their net wealth decline at all, because they never had any. The people at the top have seen their net wealth decline substantially, but since it was largely in other asset classes less so [percentage-wise] than the people right in the middle, whose net wealth was dominated by home equity. Bottom line: recessions suck. They happen every decade or so. Plan with this in mind.
  - adventureful 14y ago
    That's the point of removing the top 10% and bottom 10% from the equation. Which I noted in the comment you replied to. The top 10% radically skews the picture. Calculating wealth by a median, in a nation of 300 million people, only barely kinda-sorta works if you have a very large number of data points, otherwise you get a completely useless data point. Also, medians don't work very well due to population bunches when it comes to wealth, it's not smooth. So if your middle numerical just misses a wealth spike a few points up above the median how useful is your information? If it just misses a big wealth plunge a few points down, what does it tell you about the health of the people in the bottom 40%?
- Permit 14y ago
  >I would think it'd be far better to take the middle 80% of Americans and find an average wealth value (lop off the top 10% and bottom 10%). That would give you a perspective on how most of the nation is doing, especially since the very top radically skews the data upward. How does the enormous wealth of the top 1% skew the median wealth upwards or downwards? I think you might be confusing median with average.
dpark 14y ago
I'm sure it does. But most debt is taken in order to acquire an asset. If you take out a loan for $20,000 to buy a car and $300,000 to buy a house, you've got $320,000 in debt, but you've also got assets in the same amount, meaning that your net worth is unchanged. Fluctuations in the market value of your assets can still drive your net worth down (or up), of course.
- tomp 14y ago
  not if the house is overpriced - how do you otherwise explain that your net wealth has fallen 40%, when in reality it hasn't changed at all?!? (you still own the same house!)
  - dpark 14y ago
    This would be covered under the "market fluctuations" I mentioned. You may own the same house, but it's only worth what someone else will pay for it. If the market value of your house drops 40%, then your net worth will take a proportional hit.
jandrewrogers 14y ago
If you look at other values (total assets in US, household net worth, etc) then a median wealth of $77k is in line with all of the other measures. It is not difficult to accumulate a net worth of $77k in the US. You can do it on a pretty mediocre income with a modicum of discipline. My net worth continuously increased (very modestly) even when I was poor.
planetguy 14y ago
Why would it not be? Sounds about right. Even post-bubble, the median house is still worth a couple of hundred grand, and people do pay off their mortgages eventually. The scary part is how little other wealth people have socked away for their retirement. I was brought up to believe that you'll need at least a few million dollars in investments (in today's money) in order to retire comfortably, so you damn well better start socking that away as early as possible.
mcnees287 14y ago
Net-worth =Assets-Liabilities

How the hell is the median wealth of Americans 77k?! Does this not factor in debt?

by debacle 14y ago

How the hell is the median wealth of Americans 77k?! Does this not factor in debt?

The Fed tags American wealth at around $58 trillion total, last I recall. I suspect the median is a bizarre way to calculate American wealth. That includes equities, real estate, precious metals, homes, bonds, etc. The stock market rebounding back upward nearly 100% added trillions to that no doubt. I would think it'd be far better to take the middle 80% of Americans and find an average wealth value (lop off the top 10% and bottom 10%). That would give you a perspective on how most of the nation is doing, especially since the very top radically skews the data upward. http://en.wikipedia.org/wiki/Wealth_in_the_United_States http://en.wikipedia.org/wiki/Wealth_in_the_United_States Interesting data point on the top 1% wealth wise: "They [the 1%] controlled nearly a third of the nation’s financial assets (investment holdings) and about 28 percent of nonfinancial assets (the value of property, cars, jewelry, etc.). These measures will be particularly interesting to revisit when the new, post-recession data arrives." "The Times had estimated the threshold for being in the top 1 percent in household income at about $380,000, 7.5 times median household income, using census data from 2008 through 2010. But for net worth, the 1 percent threshold for net worth in the Fed data was nearly $8.4 million, or 69 times the median household’s net holdings of $121,000." http://economix.blogs.nytimes.com/2012/01/17/measuring-the-top-1-by-wealth-not-income/ http://economix.blogs.nytimes.com/2012/01/17/measuring-the-t...

debacle 14y ago
The 1% has a very limited ability to drive change in the median wealth. The average wealth is very likely much much higher (probably closer to a half million) than the median, signaling vast income inequality. The median is a much more useful statistic when dealing with this kind of distribution, as it applies to a much larger population than the average, which is useless for ~80% of the population as an indicator.
- aggronn 14y ago
  I'll be even more bold and declare that the top 1% has no more ability to effect the median than any other 1% of the population. Using the median isn't strange at all for this kind of calculation.
  - adventureful 14y ago
    It's worse than strange, I don't think it works at all. Wealth increases from the bottom 1% to the top 1% at an ever accelerating clip. If you take the median, you have absolutely no clue what the health of the groups above or below look like. For example: if the median wealth is $77,000 --- you can't use that to then calculate how much actual wealth is in the middle 80% of the country (not even close in fact), because that $77k figure is radically off base for the massive skew that the top 10% in that 80% group is going to contain. But you have no means to derive how much wealth you're talking about being contained by that 10% group in the top of the 80% bracket (no means to figure out the skew at the top or bottom). If you had 1 million data points, and your median is $77k, what does that tell you about the total wealth in the 1 million? It tells you almost nothing. What's the increasing skew like for the top 10,000 in that million? Because that probably contains 30% of all the wealth in the million set.
  - planetguy 14y ago
    I would suggest that the median is taken, in this case, because it provides the biggest and sexiest headline number. The average (and by extension the total) wealth has gone down by a much smaller percentage since 2007. The fluctuations just happened to have hit the people around the middle particularly hard. The people at the bottom haven't seen their net wealth decline at all, because they never had any. The people at the top have seen their net wealth decline substantially, but since it was largely in other asset classes less so [percentage-wise] than the people right in the middle, whose net wealth was dominated by home equity. Bottom line: recessions suck. They happen every decade or so. Plan with this in mind.
- adventureful 14y ago
  That's the point of removing the top 10% and bottom 10% from the equation. Which I noted in the comment you replied to. The top 10% radically skews the picture. Calculating wealth by a median, in a nation of 300 million people, only barely kinda-sorta works if you have a very large number of data points, otherwise you get a completely useless data point. Also, medians don't work very well due to population bunches when it comes to wealth, it's not smooth. So if your middle numerical just misses a wealth spike a few points up above the median how useful is your information? If it just misses a big wealth plunge a few points down, what does it tell you about the health of the people in the bottom 40%?
Permit 14y ago
>I would think it'd be far better to take the middle 80% of Americans and find an average wealth value (lop off the top 10% and bottom 10%). That would give you a perspective on how most of the nation is doing, especially since the very top radically skews the data upward. How does the enormous wealth of the top 1% skew the median wealth upwards or downwards? I think you might be confusing median with average.

dpark 14y ago

I'm sure it does. But most debt is taken in order to acquire an asset. If you take out a loan for $20,000 to buy a car and $300,000 to buy a house, you've got $320,000 in debt, but you've also got assets in the same amount, meaning that your net worth is unchanged. Fluctuations in the market value of your assets can still drive your net worth down (or up), of course.

tomp 14y ago
not if the house is overpriced - how do you otherwise explain that your net wealth has fallen 40%, when in reality it hasn't changed at all?!? (you still own the same house!)
- dpark 14y ago
  This would be covered under the "market fluctuations" I mentioned. You may own the same house, but it's only worth what someone else will pay for it. If the market value of your house drops 40%, then your net worth will take a proportional hit.

jandrewrogers 14y ago

If you look at other values (total assets in US, household net worth, etc) then a median wealth of $77k is in line with all of the other measures. It is not difficult to accumulate a net worth of $77k in the US. You can do it on a pretty mediocre income with a modicum of discipline. My net worth continuously increased (very modestly) even when I was poor.

planetguy 14y ago

Why would it not be? Sounds about right. Even post-bubble, the median house is still worth a couple of hundred grand, and people do pay off their mortgages eventually. The scary part is how little other wealth people have socked away for their retirement. I was brought up to believe that you'll need at least a few million dollars in investments (in today's money) in order to retire comfortably, so you damn well better start socking that away as early as possible.

mcnees287 14y ago

Net-worth =Assets-Liabilities