New Scorecard Data Show that Household Net Worth is on the Decline
The most commonly used data point to measure the financial security of low-income families is income poverty. However, the official income poverty rate highlights just one aspect of household finances; namely, the percentage of people with insufficient income to cover their day-to-day expenses. At Prosperity Now, we've been working to expand the dialogue on financial security to include measures like asset poverty, liquid asset poverty and net worth, all of which take into account the resources a household has to meet emergencies and other longer-term needs.
One of the big takeaways from the recently-released 2012 Assets & Opportunity Scorecard is that no matter how you measure it, financial insecurity in the U.S. is on the rise. One of the most interesting ways to understand financial security and opportunity is by examining household net worth.
Net worth equals the sum of assets – like a home, car, business, or money in a bank account – minus any liabilities – like credit card debt, mortgage debt or student loan debt. Below we break down household net worth data from the 2012 Scorecard across multiple spectrums of society. The data tell a story of uneven and inequitable distribution of wealth, especially among low-income households and households of color.
Household Net Worth over Time
In 2009 (the year data were most recently available), the net worth of the median U.S. household was $70,600. This is a significant drop from just three years earlier, when the U.S. household median net worth was $94,502. Part of this drop is likely attributable to the recent economic recession and foreclosure crisis. For the majority of households, the main source of net worth is still their home.
Household Net Worth by State
Median household net worth also varies tremendously by state. The graph below shows states arranged from lowest to highest net worth. The District of Columbia has the lowest net worth ($20,800), while Vermont has the highest net worth ($220,801). All other states fall somewhere in between. Many states in the south and southwest – like Arizona, Oklahoma, Texas, New Mexico and Georgia – have low net worth, compared to smaller and more northeastern states – like Rhode Island, Delaware, Massachusetts, and Maryland.
Household Net Worth by Race
Net worth by race describes how equally assets are distributed between white households and households of color (Black, Asian, Hispanic, and other races). Due to a variety of factors, including different initial wealth endowments and outright discrimination, households of color accumulate – at the median – fewer assets than white households.
The median net worth of white households in the U.S. is $112,647, compared to $8,803 for households of color. This means white households hold almost 13 times the wealth of households of color. Of the five states where data are available, Wisconsin has the largest disparity by race: white households have 28.5 times the net worth of households of color, $124,500 compared to $4,375, respectively.
Household Net Worth by Income
Net worth by income describes the disparity in net worth between rich and poor households. Not surprisingly, rich households have much more wealth than poor households. Nationally, the median net worth of a household in the top income quintile is $271,550, compared to $3,898 for the median household in the bottom income quintile. Of the five states where data are available, the disparity is greatest in Massachusetts, where upper income households have 234.2 times the net worth of lower income households, $408,869 compared to $1,750, respectively.
Part of the explanation for this large disparity relates to how the federal government helps households build wealth. The federal government provides almost $400 billion in incentives to help families save and build financial assets. However, because those incentives are largely available in the form of tax deductions, low-income households with little tax liability cannot benefit from these incentives.
Research shows that the distribution of benefits is highly skewed toward upper-income households over middle- and lower-income households. Prosperity Now's analysis of the 2009 Federal Asset Budget showed that the top fifth of taxpayers in that year received the vast bulk (84%) of asset-building benefits, primarily in the form of tax deductions for mortgage interest and property taxes and preferential rates on capital gains and dividends. In contrast, the lowest 60% of taxpayers (those making $50,000 or less) received only four percent of the benefits, amounting to $5 on average for each taxpayer.
Household Net Worth by Family Structure
Net worth by family structure describes the disparity in net worth between one-parent and two-parent households. Nationally, two-parent households have 28.5 times more wealth than one-parent households. This large disparity exists for two main reasons. First, the resources of two individuals combined are clearly greater than the resources of one individual alone. Second, two-parent households enjoy economic benefits that make it easier to build wealth. For example, the ability to share certain resources – like housing, utility expenses and health insurance – create economies of scale that are not available to one-parent households.
All data on net worth in this blog post is from: Survey of Income and Program Participation, 2008 Panel, Wave 4. Washington, DC: U.S. Department of Commerce, Census Bureau, 2009. Data calculated by the Bay Area Council Economic Institute.