WSJ on wealth

Doug Henwood dhenwood at
Wed Jan 19 08:15:34 PST 2000

Wall Street Journal - January 19, 2000

Stock Gains Propel U.S. Wealth; More Americans Own Shares



WASHINGTON -- Fueled by stock-market gains, America's wealth grew at a strong pace in the latter half of the 1990s, a new government survey shows. At the same time, a record number of Americans at all income levels now own stock, intertwining their financial well-being with that of the stock market like never before.

The percentage of Americans owning stock surged to 48.8% in 1998, the year the triennial Federal Reserve survey was conducted, up sharply from 40.4% in 1995. And for the first time in the history of the report, stock holdings now account for more than half of Americans' financial assets, up from 40% in 1995.

While more Americans of all income levels began buying stock between 1995 and 1998, most purchased relatively small amounts, meaning that wealthier Americans are benefiting from the continued stock-market surge far more than the middle class. The median value of the stock holdings of Americans making more than $100,000 a year was $150,000 in 1998; that of those making between $25,000 and $50,000 was just $35,700, and was even smaller at lower income levels. Although income levels rose only modestly in recent years, profits from the continuing bull market sparked sharp increases in the net worth of most American families, increases that were "broadly shared by different demographic groups," the report found.

Median household net worth, including home equity, surged 17.6% to $71,600, up from $60,900 in 1995. The "median" figure means half of all households had net worth higher than $71,600, while half were lower.

The gain was much larger than the one recorded between 1992 and 1995, the last time the survey was conducted, when median net worth rose only 7.8%. From 1989 to 1992, as the nation began to feel the pinch of a recession, median net worth dropped 5.4%.

Much of the gain recorded since 1995 stems from Americans' stock portfolios, the median value of which rose from $15,400 in 1995 to $25,000 in 1998. All of the figures are adjusted to account for inflation.

The mean-or average-net worth of American households rose 25.7% over the period, from $224,800 in 1995 to $282,500 in 1998.

The increase in median net worth was particularly noticeable among middle-class Americans. For those earning between $25,000 and $100,000, median net worth rose robustly compared with the 1995 numbers, although it fell for those at the highest and lowest extremes of the income scale.

Wealthy households making more than $100,000 a year actually saw their median net worth decrease slightly, from $511,400 in 1995 to $510,800 in 1998. But the mean net worth of that income level rose sharply, suggesting the wealth of the richest Americans grew more significantly than it did for other high-income Americans.

The report also found the percentage of American families without a checking account fell to 9.8% in 1998, down from 14.9% in 1995. The decrease is part of a wider trend of increasingly broad access by Americans at all income levels to financial instruments and assets, such as checking accounts or stock ownership, that were out of reach even a few years ago.

Not all of the news was good, however. The report, one of the few major efforts to collect statistically reliable information on trends in household assets and liabilities, raised some red flags about the financial well-being of many Americans, particularly those at lower income levels.

According to the report, which will be released Wednesday, fewer Americans remain at lower income levels, but those who do were squeezed. Americans making less than $25,000 a year saw their median income and net worth fall between 1995 and 1998. "Those left behind during this boom may really be feeling the squeeze," a Fed official said during a briefing on the report.

Poorer Americans also are devoting an extremely high percentage of their income to repaying past debts. Nearly a third of all families earning less than $10,000 a year allocate more than 40% of that money toward paying debts. The median American family, by contrast, devoted 17.6% of its yearly income to repaying old debts, up slightly from the 16.1% recorded in 1995.

The figures are part of a general trend toward ever-higher levels of household debt. Among families with debt, the median amount owed rose 42.3% above its 1995 level, to $33,300 from $23,400, and was up 73.3% from its level in 1989.

"A lot of families are still in a fairly precarious financial position and an increasingly aggravated financial position," said Edward N. Wolff, a professor of economics at New York University. "If there's a downturn, people could be in a really tough position due to their high level of indebtedness."

In a separate report released Tuesday, the Consumer Federation of America said many customers have begun paying off credit-card debt more rapidly, helping reduce record-high personal-bankruptcy rates.

The number of Americans filing for bankruptcy protection fell by 112,000 last year, a one-year decline the group labeled as the largest on record. Despite the booming economy, more than 1.3 million people filed for bankruptcy last year, down from a record 1.4 million in 1998. Such numbers led the banking industry to push for legislation making it harder to gain such protections.

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