Monday, August 10, 2020

A Deeper Dive Into US Household Wealth Distribution & The Wealth Gap

It's election time once again and as always, the economy will probably be the biggest issue in most voters minds. This year will be extra challenging for voters to assess because the US intentionally shut down the bulk of its economy for a period of time in response to the virus pandemic. As of this writing, various parts of the economy all over the US are still fully or partially restricted. As expected, all this has sent national GDP downward and unemployment upward at historic levels. Voters will have make their own judgements about all that.

Setting that aside, one issue that has moved more into the mainstream of public debate is the issue of a perceived inequality of wealth distribution in the United States. Some refer to this as the "wealth gap". We try to avoid any political agenda here, so we will just try to focus on providing an accurate data base of information for those who wish to debate this issue. 

This leads us to this interesting set of graphs published by the Federal Reserve - Distribution of Wealth in the US Since 1989. These graphs are current up to the first quarter of 2020 which of course is just before the pandemic/economic fallout hit the economy. It will be interesting to see how that fallout may impact these statistics, but this is what we have available at this time. Below, I have listed some statistical facts based on these graphs that may or may not surprise you depending upon your perception of the "wealth gap".


These stats just below are based on the graph showing distribution by % of wealth owned. We are comparing numbers based on three touch points in time (Q1 2004, Q1 2012, and Q1 2020):

2004 (Q1)

Top 1% owned 27.8% of total wealth (14.27 trillion over total of 51.40 trillion)
Top 10% owned 63.4% of total wealth (32.62 trillion over total of 51.40 trillion)

2012 (Q1)

Top 1% owned 29.3% of total wealth (19.38 trillion over total of 66.09 trillion)
Top 10% owned 68.8% of total wealth (45.47 trillion over total of 66.09 trillion)

2020 (Q1)

Top 1% owned 31.2% of total wealth (32.55 trillion over total of 104.30 trillion)
Top 10% owned 68.7% of total wealth (71.71 trillion over total of 104.30 trillion)

Some bullet point observations of the above statistical data:

- If we look at the Top 1%, they have had a steady increase over time of % of total wealth owned. However, they have dropped over a half of 1% since Q1 Jan 2017 when they held 31.8% of the total wealth at that time. 

- If we look at the Top 10%, we get a slightly different picture. They took a big jump up from 2004 to 2012 and then stayed somewhat flat with an increasing decline over the last three years. The Top10% have actually declined a full 1% since Q1 Jan 2017.

- Total wealth only increased about 30% from 2004  to 2012, but then soared from 66 trillion to 104 trillion the next 8 years (58%). It is worth noting that all of the latter eight year time period falls after the 2008 financial crisis and the expansive monetary policies (QE, asset purchases, etc) of the central banks were very active during this last 8 year segment of time. It is unknown how much of that monetary expansion may have contributed to the increase in total wealth.

- Contrary to what may be a common public perception, the wealth gap (if measured here by the % of wealth owned by the Top 10%) has not expanded much if any in recent years. In fact, over the last three years it has actually fallen a bit. Their total dollar amount of wealth has soared higher, but not their % share of the total wealth.

This last fact raises an interesting thought question. Is the public perception that the wealth gap is currently getting bigger based more on just the fact that their total dollar wealth continues to soar higher rather than on their actual share of total wealth? Beyond that, what will the gigantic further monetary expansion starting in Q2 2020 do to these numbers? Who will get all that newly created money?

Now let's switch focus to some stats on wealth distribution by generation looking at two touch points in time (Q1 2010 vs. Q1 2020). Let's look at how millennials have fared over that ten year time period since we have focused on millennials here lately. We will compare them with the Gen X generation.

2010 (Q1)

Millennials owned about one half of 1% of total wealth (.42 trillion over total of 60.81 trillion)
Gen X owned 9% of total wealth (5.48 trillion over total of 60.81 trillion)

2020 (Q1)

Millennials owned 3.4% of total wealth (3.55 trillion over total of 104.29 trillion)
Gen X owned 15.8% of total wealth (16.45 trillion over total of 104.29 trillion)

Some bullet point observations of the above statistical data:

- the oldest generations still own over 80% of all the wealth, but their share has dropped from over 90% since 2010

- It's not hard to see why many millennials may feel the present system has failed them looking at these statistics. Some will say it's natural for younger people to own less of the total wealth, but these numbers are eye opening. Millennials are 25% of the population, but only hold 3.4% of the total wealth. Also, while the youngest of millennials are in their mid 20's, the oldest are approaching 40 (see estimated population for each generation below). This seems like the biggest "gap" of all in this data because so many people are dividing up such a small slice of the total pie.

- Millennials have seen some bit of improvement vs. Gen X in the very last quarter reported on these graphs. The share of wealth owned by Gen X actually went down from 18.21 trillion to 16.45 trillion while the share of wealth owned by millennials went up from 3.19 trillion to 3.55 trillion. 

side note of interest: there are millions more Millennials in the US than were born in the US due to high immigration levels in that age group. It is projected that this will continue for awhile longer.

How many people are there in each generation you may ask? Here is that info:

Gen Z (2000-2020) - estimated 86.4 million (too young to own much wealth yet)
Millennials (1981-1999) - estimated 82.2 million
Gen X (1966-1981)- estimated 65.1 million
Boomers (1947-1965) - 71.2 million
Silent (1929-1946) - 23 million 
Greatest (1916-1928) - 1.75 million

My added comments: Between now and November politicians and political operatives of all kinds will be arguing over this issue of wealth distribution and the perceived "wealth gap" as well as how to "fix" this problem. It is probably useful to have some idea of what the actual numbers are (per the Federal Reserve) while listening to these debates. Now you have them.                                       

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