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How Are Family Finances Really Doing?

By November 30, 2023Commentary

A recent post discusses the dubious nature of supposed high economic growth in the US.  In this post I look at recent data on family finances, data which suggests that most families are struggling, while a few at the top of the income pyramid are doing just fine.  The data comes from the survey of family finances by the Federal Reserve Board.  On the surface, things look kind of okay.  Real median (50th percentile) family income rose 3%, while real average income increased a whopping 15%.  This indicates substantially greater growth at the upper end of the income spectrum.  Median net worth rose 37%, while average net worth increased 23%, suggesting greater gains at the lower end of the spectrum.  Almost all of this, however, is likely in house value, which has risen substantially in the last few years.  Not exactly a liquid asset.  And housing affordability is at its lowest recorded.      (FRB Report)

As you might expect, families in the top half of the income distribution have substantially more participation in the stocks and experienced large increases in net worth as stock markets rose substantially in the last few years.  Families that own private businesses also saw large gains in net worth.  Two-thirds of working age families participate in some retirement plan, mostly 401k type plans.  The average balance for those above the median income rose but fell for those below it, suggesting that people are borrowing against those plans to meet expenses.  While debt to asset ratios were steady or declined across the income spectrum, this is again largely due to house value increases, which is not a liquid asset available to pay current expenses.

What is really apparent when you look at the detailed tables is that the top 20% of families by income are doing very well and the rest are experiencing stagnant financial conditions at best.  And white and Asian ethnicities saw far higher gains than minorities, largely because those groups doing well tend to get more education and display other indicia of personal responsibility.  Overall the report gives the impression that the wealthy and high-income groups are doing very well, and people in the bottom half of the income spectrum are likely struggling.


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