Chapter Summary

Often, the only financial details that people grasp are their own, and much of society doesn’t even understand much about their own personal financial circumstances.  People in very different financial circumstances think that their economic situations are typical, and this assumption can distort our understanding of household finances in general.

This chapter examines data from the Federal Reserve Bank’s 2013 Survey of Consumer Finances.  It strives to give the reader a sense of where they and their families sit on America’s economic hierarchy, and the economic  circumstances under which those on other rungs of the ladder live.  Its analyses describe the basics of household finances, parses out how household finances differ across major U.S. demographic groups, and attempts to flesh out a more detailed picture of the U.S. economic hierarchy.

Some Findings

Remember, these figures describe household finances, which combine the incomes, assets, and debts of all adults living together as a single economic unit.

  • Half of America’s households earned total incomes of less than $47,000 in 2013.  One quarter earned less than about $24,000, and one quarter earned more than about $90,000.
  • Wages and payments from the government are the most common income sources.  Self-employment income is less common, and wealthy people are the beneficiaries of financial income.
  • Education, age, labor force status, and pairing status are the strongest predictors of income.
  • The typical household had a net worth of about $81,000 in 2013.  One quarter had net worth below $9,000, and one quarter above $315,000.
  • Most households have invested most of their wealth in their homes.  Poorer people tend to store their wealth in assets that generally depreciate, like cars, consumer durables, or cash accounts.  Wealthier people have proportionally more wealth in income-generating assets, which helps compound their relative wealth over time.
  • Age and education are the strongest predictors of wealth differentials.
  • Drawing the line between the “wealthy” and non-wealthy is difficult.  I argue that a net worth of $1.4 million should be considered wealthy because it can easily secure a median income into perpetuity without having to get a job.  The problem is that most people with this much wealth would likely find a median households’ living standards to be personally unacceptable for them.
  • The dividing line between the working class and poor can be a matter of avoiding economic shocks, like job loss, health problems, or separation.
  • Married college graduates are over-represented in the upper-middle class.

Tables and Figures