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Today in Statistics: People Have Stuff (Had, Anyway)

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The Atlantic points out a chart in Bernanke's report to Congress showing the mean ratio of Americans' net worth to annual income. After bouncing around 5x for much of the early '90s, it went well above 6x during the tech boom, dipped briefly, and then soared to 6.3x-ish in 2007 before plummeting to around 5x again today. The Fed report, and Daniel Indiviglio at the Atlantic, point to this as a key restraint on consumer spending, as consumer confidence won't rebound until people have repaired their balance sheets.

Here at Dealbreaker we were more surprised that the ratio was so high, since we assumed that the average American didn't have much in the way of net worth beyond a 47 inch flat screen, a Wendy's Baconator Deluxe and an underwater mortgage. So we looked around for median data, assuming that the mean was dominated by the top and fluctuations are driven mostly by Tiger Woods's property tax bills. And we put together a somewhat different chart, based on the Fed's Chartbook, which is triennial and only goes through 2007 (and measures slightly different things from the report to Congress):

This shows ratios of mean and median net worth to pretax income, in 2007 dollars, for (1) all families and (2) the top 10% of the income distribution. The median ratio rose from 1.8x in 1989 to 2.5x in 2007, before presumably falling in 2008. That's a 2007 median net worth of $120k, by the way, which caused a range of emotions at the (intensely competitive) Dealbreaker HQ.

But while, yes, the mean data is largely driven by the top end (mean net worth of households in the top 10% of income was $3.3mm in 2007), the median family net worth still went up from 1989 to 2007 at a rate well outpacing income. Any guesses why? We're going to go out on a limb and blame housing - and guess (without data) that the median ratio therefore fell a lot faster than the mean in 2008 and beyond. Likely making this chart even worse for the typical family than the Fed and the Atlantic suggest.

Chart of the Day: Why Americans Feel So Poor [The Atlantic]

Monetary Policy Report to the Congress

2007 SCF Chartbook



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