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.

Published 02/27/06 (Modified 05/07/12)