Home is Where the Worth Is

The latest triennial snapshot of consumer finances shows that Americans are ill-prepared for retirement and had better start saving fast

Normally, markets aren't very interested in data from 2004, but the triennial Federal Reserve Survey of Consumer Finances (SCF) is our only good measure of the distribution of wealth. Yes, the 2004 survey captures what was going on two years ago, but that's better than the five year lag we've had up until now.

The data reveal a period of sluggish growth in both income and wealth, only 1.5% per household over the period -- in 2004 terms. Americans appear ill-prepared for retirement, and have gained virtually no ground over the three years measured. Low saving rates and weaker returns in the stock market held back wealth, in spite of strong gains in housing. With baby-boomers rapidly approaching retirement, we need to start saving fast, but we're showing no signs of doing so.

Housing was the major source of wealth gain from 2001 to 2004. The average home worth was $160,000 in 2004, up 22% over three years. According to the SCF, home ownership rose to 69.1% from 67.7% in 2001. Average net worth, excluding housing, was down. (see BW, 12/26/05,

"Why More Households are Feeling Flush").


  The percentage of families holding stock actually declined in 2004, for the first time in the history of the survey. In 2004, only 48.6% of households held stock directly or indirectly (through mutual funds), vs. 51.9% in 2001. The median value of stock holdings fell to $24,300 from $36,700. The S&P 500 was down only slightly over the period, to 1,131 from 1,192. Stock holdings were actually down from 1998, when the S&P was at a mere 1,084. Of households owning stock, 78.2% owned them through a tax-deferred plan (401k, IRA).

The distribution of income did not change much during the three years examined. Median income rose from $42,500 to $43,200. Average incomes were essentially unchanged except for the top 10% of the population, where mean income fell 6.3%. The decline reflects the high asset income at the very top of the population pyramid. In a somewhat related change, only 9.3% of families reported having received stock options, down from 11.4% in 2001.

Most families reported saving some money, but the percentage dropped to 56.1% from 59.2%. Even that percentage seems too high given the 1.7% saving rate in 2004, but people don't count savings the same way statisticians do. Not suprisingly, many more homeowners than renters saved (62.3% vs. 42.3%), and the rich saved more than the poor (80.6% of the top 10% of income earners vs. 34.0% of the bottom 20%). There was little difference in saving by age, except for the 75-and-up group, who were less likely to save. (see BW Online, 1/11/06, "To Borrow or Not to Borrow")


  While the increase in assets was limited, the rise in debt was much stronger. The number of households to report owing money stood at 76.4%, up from 75.1% three years earlier. Median debt for those households rose to $55,300 from $41,300. Most of the increase was in mortgage debt. The percentage of households with mortgages rose to 47.9% from 44.6% -- tracking the rise in home ownership. The median mortgage increased to $95,000 from $74,600. The percentage of homeowners holding mortgages rose to 69.4% from 66.0%.

Other forms of debt were also up, however, as 46.2% of households reported credit card debt (up from 44.4%) and 46.0% reported installment loans (up from 45.2%). Interestingly, the rise in credit card loans was primarily among the wealthier households, reversing the trend of the 1990s, when below-median households accounted for all the increase. In the top 10%, 38.5% reported credit card debt, compared to 33.1% in 2001.

The other major demographic change in debt was the increase in debt among elderly Americans. The percentage holding debt among those aged 75 or greater was 40.3%, and 58.8% in the 65-74 age group. In 2001, the percentages were 29.2% and 56.8%, respectively. The percentage of 75 and older households owing mortgages nearly doubled, to 18.7% from 9.5%, as the elderly are tapping home equity (increasingly through reverse mortgages) to finance living expenses.


  One fact remains clear -- the biggest division in wealth is home ownership. Homeowner assets averaged $624,900, and were up 5.1% over the three years. Renters' assets averaged $54,100, and fell 7.5%. Homeowner income averaged $87,300 (down 3.6%), while renter income averaged $33,700 (down 1.7%). (Note that a higher percentage were homeowners in 2004.)

Another unfortunate fact that came to light is that most people aren't going to retire rich. Although net worth peaks in the 55 to 64 age group, as would be expected, the median household has a net worth of only $248,700 (up 28.7%). Net worth was flat or down in all other age groups (except for the low-net-worth under 35's), with the overall median at $93,100 (up 1.5%). Although this age group is doing much better than their elders (the median is $190,100 for the 65-74 group), their assets won't support a comfortable retirement, especially since most of it is in housing.

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