2007 August 09 Thursday
Net Worths Of Poorest Falling

The poor are getting poorer.

ANN ARBOR, Mich.—The rich really are getting richer and the poor are getting poorer, a new University of Michigan study shows.

The study—the most recent available analysis of long-term wealth trends among U.S. households—is based on data from the Panel Study of Income Dynamics, conducted by the U-M Institute for Social Research (ISR) since 1968.

Over the last 20 years, the net worth of the top two percentile of American families nearly doubled, from $1,071,000 in 1984 to $2,100,500 in 2005. But the poorest quarter of American families lost ground over the same period, with their 2005 net worth below their 1984 net worth, measured in constant 2005 dollars.

The poorest ten percent of families actually had a negative net worth—more liabilities than assets. The poorest 5 percent of American households had a negative net worth of a little more than $1,000 in 1984, compared to nearly $9,000 in 2005.

Does this effect hold up adjusted for race? White poor people are a rapidly dwindling percentage of the poor because blacks and especially Hispanics are increasing their proportions of the set of all poor people.

The average economic position of black householdsfell from 2003 to 2005. Note the shorter time period for this figure.

From 2003 to 2005, the average net worth of American families increased 12 percent, Stafford and Gouskova found. In constant 2005 dollars, overall average net worth, including home equity, rose from $275,600 to $309,600.

But during that period, the average net worth of African American households fell slightly, from $59,900 to $59,500. And the median net worth of households headed by high school drop-outs and by younger people, from ages 20 to 39, also declined.

Both white and black families had lower rates of participation in the stock market, but the rate of decline was stronger among black families. Slightly over six percent of black families owned stocks in 2003, compared with 5.3 percent in 2005—an 18 percent decline. Among white families, the percent owning stocks fell from 32 percent to 28 percent during the same period—a 12 percent drop.

People in their twenties are poorer than they used to be. But the college educated are making big gains.

The researchers also examined net worth dynamics across different age groups and educational levels. They found that the median household net worth of people in their 20s declined by nearly 30 percent, while the net worth of households headed by people in their 30s also fell slightly. The findings provide support for the widespread sense that it is harder than it used to be for younger people to establish themselves financially.

Those with some college education realized the strongest growth in family wealth. Their average net worth rose 31 percent during the period studied, to $341,700. College graduates showed a 10 percent rise in net worth, to $563,100 on average. But high school graduates showed only a modest increase in wealth, while the median wealth of high school drop-outs declined during the two-year period.

The smarter people can use increasingly powerful computers and other brain-enhancing tools to produce more and more. This makes brains more valuable in absolute and relative terms.

Share |      By Randall Parker at 2007 August 09 10:48 PM  Economics Inequality

John S Bolton said at August 10, 2007 12:20 AM:

A lot of this is caused directly by mass immigration of those who are in no position to accumulate wealth. I recall the financial net worth of households a few years ago showed 100-fold gaps between the majority and minorities.

James Bowery said at August 10, 2007 5:45 PM:

Average figures would be more interesting if contrasted with median figures.

Moreover, the big impact of immigration is the economic rent effect. Most obviously land becomes more valuable by virtue of population pressures, but there are other rent seeking benefits in the public choice arena. This economic rent effect is a big reason, even discounting the loss of ethnic genetic interests, that immigration is so unpopular: Rent seeking is essentially socially corrupt and everyone understands this at some visceral level.

John S Bolton said at August 11, 2007 4:21 PM:

" Median black financial wealth was just $200-a mere 1 percent of the $18,000 in median financial wealth for whites.
[...]Median Hispanic financial wealth was actually zero.[...]
United for a Fair Economy" these are figures from the 90's, but the proportions are stable, as one could find the relevant studies searching for median household financial net worth, etc.

John S Bolton said at August 11, 2007 5:03 PM:

Although off-topic, here is an aside for James B.: A Metric for 'Diversity' of the Sort Which is Dishonestly Presented as Value-in-Itself
This measure could be: units of distance between even quite small populations, as a percentage of the 'miles' of genetic distance between them.
Back on to net worths: yes, it is median household net worth, financial and otherwise, but with the group medians compared, so that one could then estimate how much of this is caused directly by the flood of low-literates, by their own poor showing. In general, household per capita incomes of disadvantaged minorities tend to be around half, net worths a tenth, and median household financial net worth 1% or less, those of the majority.
Increase greatly the percentage of these disadvantaged, as immigration has doubled this percentage in 35 years or so,
and the poorest appear to be getting relentlessly crushed out of a chance to accumulate wealth, in comparison to their class counterparts of some decades ago. It might be necessary to compare white low-income household net worth, to its relative standing several decades ago, that is, rich compared to poor, then and now, to isolate this immigration effect.

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