Every three years, the Federal Reserve Board conducts a survey on finances of U.S. families.  The survey includes information on income, assets, net worth, pensions, etc.  Being curious, I decided to see what the last survey had to say.  What exactly ~is~ the status of U.S. families?  How are they faring?

First, for those who don’t know or have forgotten, let’s cover what is meant by “mean” and “median”.  “Mean” is an average, while “median” means the middle. 

You have a list of numbers: 1,2,3,4,5,6,7.  The mean (or average) would be: 4.  The median is: 4. 
But suppose you replaced the 7 with 29: 1,2,3,4,5,6,29.  The mean (or average) would be: 7.  The median is still: 4.

What does this show? 

Consider you have 10 people in the room.  The mean (average) income for those 10 people is $50,000 per year.  The median income is also $50,000 per year.  Suppose one of those people is replaced by Bill Gates.  The median income remains $50,000 per year, but the mean income goes to $50 million.  You could now say that the average income is $50 million per year, but how accurate is that?  The deviation between the median and mean give you a better glimpse of the ~reality~ of things.

The 2004 “Recent Changes in U.S. Family Finances” Summary shows:

• Family income during the 2001-2004 period
• - Median increase 1.6 percent
• - Mean decrease 2.3 percent
• Family net worth during the 2001-2004 period
• - Median increase 1.5 percent
• - Mean increase 6.3 percent
• Median wealth declined for families in the bottom 40 percent of the income distribution and rose for those higher in the distribution
• Mean wealth stayed about the same for all income groups

In the three years after the 2001 survey, interest rates moved generally lower; indexes of equity market performance trended generally downward over the early part of the period but made up the losses with gains in 2004; and residential real estate appreciated strongly.

However…

The overall share of financial assets in families’ portfolios… declined despite substantial gains in holdings for some groups.  Of particular note, the share of families that held stocks either directly or indirectly through an account type retirement plan or another type of managed asset account fell to about 49 percent in 2004 after having reached an SCF high of almost 52 percent in 2001.

This decline is explained due to the rise in non-financial assets; strictly, real estate.  Homeownership went up by 1.4 percent, while ownership for other residential real estate (2nd homes, investment properties) went up by 1.2 percent.  So basically, people transferred their financial assets over to real estate (home ownership).  It will be curious to see what happens in the 2007 Survey, seeing that we’ve had such a problem with the housing market recently.

To further underscore this point, the proportion of families assets offset by debt rose from about 12 percent in 2001 to 15 percent in 2004.  Banks own alot of homes :|  And sadly, we’re seeing a huge climb in the number of foreclosures (See Homes Facing Foreclosure Doubles).

Hand in hand with this, the 2004 period also saw a rise in the proportion of families that had been delinquent with their debt payments, along with an increase in the median ratio of loan payments to family income.

Again, I’ll be very curious to see where we stand in the 2007 survey.  From the 2004, it would appear that the adage, “the rich get richer, while the poor get poorer” does indeed apply.