inequality wealth

Overview of Household Wealth Composition

  • Examined by researchers and sourced from the US Federal Reserve.

  • Excludes consumer durables from primary data but acknowledges their importance (e.g., car ownership).

Key Components of Household Wealth

  • Composition of Household Wealth:

    • Major components identified include housing (without accounting for housing debt or mortgages), equity (stocks), cash, bonds, and pensions.

    • Historical trend shows a decreasing share of wealth from sole proprietorships and company ownerships.

    • Increase in pension assets over time, with individuals investing through vehicles like 401(k) plans.

Wealth Distribution Among Households

  • Focus on Bottom 90% of Wealth Holders:

    • Predominantly comprised of pensions and housing wealth.

    • Minor portions attributed to equities and business assets.

Accumulation of Wealth

  • Wealth Accumulation Mechanism:

    • Accumulating wealth requires saving income.

    • The correlation: larger amounts of wealth lead to a greater flow of income, which in turn allows for more savings.

    • Wealthier individuals can save more significantly, both in absolute terms and as a percentage of their income.

Rationale for Percentage Savings Disparity

  • Wealthier individuals typically have higher disposable incomes.

  • A smaller percentage of their income is spending on basic necessities (housing, food, clothing).

  • Major living costs affect the savings ability of poorer individuals.

Trends in Savings Rates

  • Notable patterns observed over decades:

    • Top 1% demonstrating higher savings rates relative to the bottom 90%.
      – Savings rates of the bottom 90% have been negative, indicating consumption exceeding income.

Causes of Negative Savings

  • Individuals are accumulating debts to finance needs—consumer credit and mortgage debt contribute to negative savings.

  • Historical healthy savings rates were between 5% and 10% for the bottom 90%, which have significantly declined.

Wealth Distribution Data

  • Top Wealth Shares in the U.S.:

    • Data indicates similar patterns as income distribution.

    • Estimations show a U-shaped increase in wealth shares for top percentiles, particularly noted since the 1990s.

Financial Accounts and Inequality Data

  • Introduction to Distributional Financial National Accounts by the Bureau of Economic Analysis.

    • Unlike income data, comprehensive distribution of financial accounts initiated by the Federal Reserve in 2019.

    • Historical data available since 1989 concerning household wealth.

Types of Wealth Included

  • Inclusion of Consumer Durables and Unfunded Pensions:

    • Consumer Durables: Tangible goods such as cars or furniture included in household wealth measurement.

    • Unfunded Pensions: Consideration of promised pension benefits from government or businesses that are not yet realized as actual funds.

Differentiating Funded vs. Unfunded Pensions

  • Funded pensions are observable assets held by individuals (e.g., 401(k), IRAs).

  • Unfunded pensions highlight a disparity, as they are commitments that may not be fulfilled in the future.

Utilization of Wealth Data

  • Demonstration on how to explore wealth distribution through the Federal Reserve's website.

    • Users can examine wealth distribution trends over time, focusing on percentiles and the share of wealth held across populations.

    • Examination includes comparative analysis of the different asset types by wealth percentile, illustrating the disparity in wealth accumulation rates across groups.

  • Conclusion: Analyzing wealth accumulation patterns offers insights into economic inequalities within society, accentuating the need for comprehensive data on wealth distribution. Further explorations in practical exercises utilizing the Federal Reserve data are recommended for practical understanding.