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Income Stagnant, Debt Up, Says Federal Reserve

by Peter Andrew
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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