Income Stagnant, Debt Up, Says Federal Reserve

Income
Stagnant, Debt Up, Says Federal Reserve
Confirming statistically what most Americans already knew, the
Federal Reserve Board reported that income barely budged while
debt rose in the period from 2001 to 2004. This contrasted sharply
with the Board’s two previous surveys in 2001 and 1998.
The
Fed’s triennial (every three years) Survey of Consumer Finances
found that average income fell 2.3% and average wages fell 3.6%
from 2001 to 2004. The only bright spot in the news was that
median income increased 1.6% during the period. (Median income
equals the income of the person at the absolute middle of all
survey respondents — median income is sometimes a better gauge
of the overall picture, especially in economic surveys where
income distribution is heavily weighted toward those on the
high end.) With wages having fallen, the increase (or offset
of loss) in income was largely due to increases in real estate
income. Those in higher income brackets helped pull down the
average income, perhaps due to downturns in the stock market.
Similar
to income, the average net worth was down 6.3%, while the median
net worth actually increased 1.5%. Again, an increase in real
estate values helped those in the middle, while decreases in
stock values hurt those in the higher income groups.
While
income and net worth were stagnant, debt was on the move. The
average ratio of debts to assets reached 15%, up from 12.1%
in the 2001 survey. (To understand this statistic better, a
family with $100,000 in assets and $15,000 in outstanding debt
would have a 15% ratio of debts to assets.) Much of the increase
was debt on real estate property.
In
the 2004 survey, 74.9% of respondents reported having at least
one credit card. Of those with credit cards, 58% reported carrying
balances on their cards, with an average debt of $5,100. The
median credit card debt, however, was just $2,200, suggesting
that a small percentage of people with extremely high debt are
responsible for making overall credit card debt look worse than
it may be.
While
the findings of the Survey of Consumer Finances was just released
last week, the actual surveys took place in 2004, so no data
from the past year is included. However, considering there have
been no major events to signify a change in the country’s economic
welfare, it is safe to assume that these numbers still paint
a fairly accurate picture of the American financial landscape.
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