Wednesday, July 11, 2012

1%... Of What?

The Occupy movement may not be as active as it was last fall, but the theme of inequality features prominently in the U.S. Presidential Election. It has often been asserted in the media that the top 1% (in the U.S.) are those with incomes above around $350,000. However, income is probably not the right measure here: while for most of the population, purchasing power is mainly dictated by income - most people don't have much savings outside their home and their retirement account - for the rich, wealth matters much more. Unfortunately, statistics on wealth are much harder to come by than statistics on income since wealth is not directly taxed in North America.

The Survey of Consumer Finances (SCF) by the Federal Reserve is probably the best source of information about the wealth of Americans. It is conducted every three years, and the latest survey was done in 2010, with its data released last month. 6,492 families were interviewed; because means are very sensitive to the financial situation of the richest families, these were oversampled and weighed accordingly.

(By the way, there is a Canadian version of the SCF called the Survey of Financial Security (SFS). It is not conducted regularly; the most recent SFS was in 2005, and the previous one was in 1999. Given that the current government does not value data, we might have a long time to wait before the next SFS.)

You can read the Fed's summary of the results here. We learn, for example, that the median family net worth in the U.S. was $77,300. For financial assets alone, which excludes real estate, vehicles, business equity, but also all liabilities, the median (among the 94% of families that have any financial assets) was just $21,500. This includes not just one's bank accounts and CDs, but also retirement accounts, stocks, bonds, mutual funds, etc.

So what about the top 1%? This hasn't been widely reported since the Fed's writeup doesn't include the information, but since the SCF's data is (mostly) publicly available, I decided to take a look. It turns out that the threshold to be in the top 1% of U.S. families by net worth is about $6.82 million. (The average family has 2.7 people, so that would be about $2.5 million per person.)

If you're curious, here are thresholds for other levels:
Top 50% - $77,300, as mentioned above
Top 25% - $301,700 (can be found in Fed's report)
Top 10% - $952,500 (ditto)
Top 5% - $1.86 million (ditto)
Top 4% - $2.20 million
Top 3% - $2.85 million
Top 2% - $4.28 million
Top 1% - $6.82 million
Top 0.5% - $11.2 million
Top 0.2% - $19 million
Top 0.1% - $27 million

At the other end of the spectrum, about 11% of families have negative net worth, and another 2% have zero net worth.

Now, the above data is for all families. A family with $7 million that includes a couple, three kids and two grandparents would certainly be rich, but few would call it better off than a 30-year-old bachelor with $5 million. So rather than a single threshold of $6.82 million for labeling a household "1%," it would be more appropriate to have different thresholds for different types of families. Here are some examples (all in millions of dollars):

- Singles age 25-30 (my group!): 0.43
- Couples with 2 kids, head age 40-45: 6.6
- All couples (with or without kids), head age 60-65: 13.5

(If you're curious, the medians for these groups are, respectively, $13,000, $130,000 and $310,000.)