The Rich Get Richer: Ownership Drives Net Worth

Diverging Trends in Median and Mean Net Worth

Key indicators associated with household wealth might give the impression that balance sheets should be in much better shape than they actually are. Home prices, for example, are at or near their pre-recession peak in many markets. Stock prices are more than 80 percent above their prerecession peak. Yet, in inflation-adjusted terms, median household net worth is still about 30 percent below where it was back in 2007 (Figure 1). Only the wealthiest American families have fully recovered from the financial crisis (Figure 2).

The outsized wealth gains recorded in recent years by high-net-worth families are reflected in the disparity between median and mean net worth, which have de-coupled since 2007. This is because “mean” net worth is calculated by taking the average net worth of all families, and is pulled up by very high values at the top of the distribution. Meanwhile, “median” net worth is that of the middle family (50th percentile), and is therefore not lifted by extreme values at the top of the net worth distribution, or impacted by changes isolated at either end of the distribution.

What Figure 1 shows is that before the financial crisis, net worth for the median American family was growing on a similar trend as net worth across all families. However, after 2007, high-networth families experienced much larger gains (0r smaller declines) in net worth than middlewealth families. As a result, the mean – pulled up by wealthy families – did not show the same precipitous decline as median net worth post-financial crisis.

In this report, we explore the reasons behind divergence in net worth growth between the median family and the wealthiest American families. Our analysis uses data from the triennial Survey of Consumer Finances (SCF), released most recently for 2016 by the Federal Reserve Board. This publication reports on debts and assets by net worth percentile groups, or buckets within the net worth distribution. The same families do not necessarily fall in the same buckets from year to year, so the data does not track net worth growth of individual families. Rather, data from the SCF reflects how the distribution debt and asset ownership changes across society over time. Fewer and Smaller Mortgages Reduces Debt Changes in net worth occur because of growth (or decline) in debt and asset values. In the years after the Great Recession, middle- and high-net-worth families have reduced the quantity of debt on their balance sheets, contributing positively to net worth (Figure 3). The median family with debt owed $59,800 in 2016, which is $18,200 less than in 2007 in real dollars. Mean family debt has similarly declined, down $22,500 since 2007 to $123,400.

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