Monday, February 3, 2020

Middle Class Wealth - 2020 Update

When I saw CBS's video on how America's wealth was divided between quintiles, the five groupings that each hold 20% of all households, I remembered that it had been over five years since I'd written a post outlining how much wealth each quintile had.

How had things changed?

Unfortunately, the Census Bureau stopped providing wealth data in a quintile format right after I'd written that post in 2015.

So without access to the raw data for future years (and let's be honest, I'm no data scientist so I'm not sure what good I could do even if I had those figures) I just was not going to be able to provide the same breakdown from the Census Bureau's data.

Luckily, the Census Bureau did provide something approaching quintiles: showing how much of the population had various ranges of net worths. We can do something with that, so let's dive in.

*Net Worth figures include home equity.
Looking at these figures, roughly 20% of all households (what we might think of as the top quintile) had a net worth over half a million in 2016, the most recent year available for Census Bureau data in 2020. That is higher than what I would have expected. (And for those wondering, that is also the group that the Done by Forty household is in.)

However, over fifteen percent of all households have a net worth that is at or below zero. When we look at the net worth figures for the groups just above zero, we can see just how much of the country barely has a positive net worth, even when including home equity.

While I'm sad the Census Bureau no longer has data available for quintiles, I'm going to try to approximate the best I can. Below is another representation of how each group fits into something close to a quintile, or at least as close as this English major could manage.

Almost-Kinda Wealth Quintiles for 2016
"Lower Class", representing 24.5% of households: Negative to $4,999
"Lower Middle Class", representing 26.4% of households: $5,000 to $99,999
"Middle Class", representing 17.1% of households: $100k to 249,000
"Upper Middle Class", representing $12.5% of households: $250k to $499,999
"Upper Class", representing 19.4% of households: above $500k

To be honest, I kind of hate representing the data this way. I'm trying to force the Census figures into a quintile format that just isn't there.

A blogger who actually understands data, PK from, analyzed at a different data set from the Federal Reserve Survey of Consumer Finances, and broke those down into deciles. I highly recommend going and checking out PK's excellent article for a detailed breakdown of net worth in the US. Here are how his top line numbers would translate to true quintiles, each containing 20% of US households:

Wealth Quintiles for 2017
First Quintile, "Lower Class": Negative to $4,798 net worth
Second Quintile, "Lower Middle Class": $4,798 to $49,932 net worth
Middle Quintile, "Middle Class" $49,932 to $169,951 net worth
Fourth Quintile, "Upper Middle Class": $169,951 to $499,264 net worth
Upper Quintile, "Upper Class": above $499,264 net worth

Some early takeaways:
  • Twenty percent of U.S. households have a net worth below five thousand dollars. More than ten percent of U.S. households have a negative net worth: their debt exceeds the value of their assets.
  • Forty percent of U.S. households have a total net worth below fifty thousand dollars. When we look at income quintiles, this becomes less surprising: forty percent of U.S. households had income below $47,111 in 2017. With nearly half the country bringing in less than $48k a year, it's not all that shocking that the lowest two quintiles also have a low net worth. It bears mentioning: you need a surplus to build your net worth, and you can only cut so much.
  • When we add in the middle quintile, we can see that sixty percent of U.S. households have a net worth below $169,952. When we consider that these figures include home equity, I find that a bit depressing. A majority of households seem to have total assets at levels that seem insufficient to fully fund retirement.
  • Twenty percent of all US households have a net worth approaching half a million. My gut says this is where a majority of FIRE households already live, or are on their way to: the upper quintile, or what I would call the upper class. 
While I love quintiles, a limitation with this framing is that that it really only says what the lower boundary is for the upper quintile, and completely understates the truly shocking wealth held by those at the very top of that group.

That is to say, the quintiles somewhat clumsily lump in a family that has a $500k net worth with a family that has a $60B net worth, like presidential candidate Michael Bloomberg's. They exist in the same quintile, even though Bloomberg's family has a net worth that is over 120,000 times greater than that of the family with $500k.

This is why the video from CBS was so telling. Here it is, in case you have not seen it yet.

Rather than just pointing out the amount of wealth required to break into the top 20%, it shows just how much of the wealth is concentrated in the top 20%, as well as how much is held by those just in the top 1%.

CBS pulled its data from a National Bureau of Economics Research paper that showed how the share of wealth has shifted more and more to the top quintile since the 1960s. In fact, only the top quintile has seen a net gain in its share of total wealth since 1962: all other quintiles have seen their share decline over that period.

I could create a pie chart showing how the top quintile has 90% of all the wealth, but why do that when CBS has illustrated that using actual pie?

See that plate on the right? The top 20% has nearly a whole damn pie.

And within that top quintile, the tiny group of people who make up the top 1% amazingly has 40% of all the net worth: four times more than the bottom 80% of all U.S. households have...combined.

At the heart of these figures is a question: whether you, dear reader, find any of this problematic or not. For conservatives and libertarians, perhaps they don't think this inequality is much of a problem. America's brand of capitalism is not only the system we have, but the best economic system possible. And if they believe we live in a meritocracy, then the people in the top 1% have worked hard and earned it. We are living in a system which rewards innovation and effort, so anyone can hypothetically move up to the top 1% with enough skills and motivation, right?

For those who lean left, they might see this sort of distribution as a drastic problem for the majority of US workers. Yes, we believe in a capitalist system, but does that mean so much of the capital should be held by so few?

Normally I would try to persuade you good readers at this point. I'd explain some common sense reforms that would level out the distribution of capital, even a bit, and that they would be of huge benefits to US workers and the economy as a whole. Then I'd pitch that we vote for politicians pursuing those sorts of policies, and call it a day.

Instead, today I'd just like to ask that we try to deal from the same sets of facts. Because the thing I found most striking in the CBS video was not the top-heavy distribution of pie-wealth itself but, rather, how nearly every person interviewed thought our system gave far, far more to the middle quintiles than it actually did.

No one understood that 90% of the wealth was already in the hands of the upper class.

Regardless of how you feel our economy ought to be run or which way you lean politically, none of us are well served if we believe we hold more of the economic pie than we actually do. And we don't benefit by believing the 1% have a smaller fraction of the wealth they truly hold.

While we'll probably never all agree on politics or policy, I'd like to believe we could agree on the facts.

*Photo is from slgckgc at Flickr Creative Commons.


  1. That was a pretty good video. I'm not a big fan of wealth taxes. The 1% probably will figure out a way around it or move.
    I like healthcare for all better. Everyone should have access to healthcare. That's a big issue.
    Anyway, the top 1% should spend a lot more money. Why are they hoarding it so much? That's the real solution. We just need to convince them to spend more and redistribute the money organically.

    1. Hi, Joe.

      I agree that if the wealthy spent more that could help quite a bit. The rub is that we're at a fairly historic level of wealth inequality, to the point that the wealth likely can't reasonably be spent at a fast enough rate to actually reverse the trend of growing inequality.

      Take Michael Bloomberg as an example. If we assume the 4% rule, he would have to spend materially MORE than $2,400,000,000, every year: otherwise, his wealth would simply grow larger each year.

      That means even if he spends $6.5M every day, then he's still not spending enough to reduce the wealth: it will continue to grow larger (and thus widen the gap) unless he spends something like $7M every day.

      Put simply, I don't think they can spend their way to any sort of redistribution. Good idea in theory, but it's not going to happen in practice.

  2. The upper class or rich aren't 20% of the population. More like the top 1-2% and the rest are upper middle class. In other words you need to at least be able to live an upper middle class lifestyle without working to be "rich".

  3. "...the thing I found most striking in the CBS video was not the top-heavy distribution of pie-wealth itself but, rather, how nearly every person interviewed thought our system gave far, far more to the middle quintiles than it actually did"

    This has been bothering me for a long, long time. I'm in the 1%. (I'm probably in the Top 0.5-0.7%, which is actually significantly less wealthy than the 0.1% and the 0.01%, but that is a different post). I see first hand (and I take advantage of, because they are there) the incredible ways the system is skewed on my behalf and against the middle class, and when I try to explain it to not so wealthy friends and relatives, I can see their eyes glaze and the Trump voters among them keep on believing the system is working as it should. For the most part, it seems their eyes have been averted to resent those poorer than they are, rather than to direct their attention to the real systemic problem, which is the top.

    I've said before I should start a blog on all of this (particularly leading up to the election, the TCJA just made things much, much worse for the middleman overall, while faking the appearance that it is helping), but I'm just so damned lazy and my work is about all I'm up to doing each day. Still, it's an election year and I need to be able to tell my kid someday I did all I could to help his generation...

    1. Agreed, Tin, I would love to read that blog. Let me know when you get it off the ground and it's immediately going into the blogroll.

      Can I just say that I love how you are in the 1% but are willing to point out that the system that got you there is broken, and for the sake of people who truly need it? That's the attitude I wish was prevalent throughout the FI community. Sure, we've done well: but that doesn't mean the system works.

      My hope is that by laying out the data in a clear way, as the CBS story has done, that people will at least have a better understanding of just how lopsided the playing field is.

  4. As always, thought-provoking post.

    Random comment: I've tended to think about lower class, middle class, etc. more in terms of income than net worth. Like, according to this, we're in the lower middle class quintile, but I feel like our level of perceived financial security is more middle class.

    1. I agree, friend. That's why I've written more about income quintiles than the wealth quintiles: for almost everyone, understanding where they are compared to the rest of the populace re: income is more telling.

      The one big limitation with framing with income though is that it misses the absolutely shocking amount of wealth that exists at the top, and how the 1% has nearly all of the wealth. If we looked at their income, it would drastically understate just how vastly different their financial situation is to nearly everyone else's.

      I think both tell a pretty telling story, just in a different way. But no matter how we look at it, the lower quintiles (and the middle, too) are not doing as well as they ought to given the overall level of wealth in this country.

  5. Thank you for this great post - I so enjoyed your presentation of the numbers. And, I applaud your emphasis on just simply, as a society, grasping the actual facts. Square one is the facts, and we can't seem, as a society, to get to square one.

    1. Thanks for the kind words, Ride the Dollar, and for stopping by and commenting.

      It is kind of amazing that we have gotten to a place where everyone can have their own facts. Such a weird time. Anyway, I am hopeful and somewhat confident we can get back to some sort of objective place.

  6. The ghost of Adam Smith lingers on... Great write up. How anyone can feel good about living wealthy in a society where so many suffer is beyond me. I'm probably relying too much on my vote to change this when I could be taking more real action.

    1. Good point about voting being only one part of the solution, Cubert. I personally lean more towards systemic change than via actions from individuals (i.e. - the philanthropy of billionaires isn't going to solve wealth inequality) and I do have a lot of faith in the power of taxation. But there's certainly a lot more I personally could do, too.

  7. Before we advocate that our system change to mirror that of some other more seemingly socially equitable system, we should fairly compare the size of the pie being divided. If a group’s share is twice as big but the pie is half the size, have we really accomplished anything? Comparisons breed discontent. Spending breeds less wealth. Spend less, save more ... It’s kind of like weight loss. I think it’s u1-1"@"”@@–nfair that somebody looks great and healthy, but I am unwilling to exercise an hour a day or limit my caloric intake. Who’s fault is it? Mine.

    1. I suspect we wouldn't agree very much on how to change our system, but that wasn't really the point of the post.

      Rather, I was just trying to address the fact that people drastically overestimate how big a slice of the pie they have in the first place: people consistently think that the American economic system is far more equitable than the data say it is.

      Before any conversation can be had on what ought to be done to improve that, people need to come to terms with just how unequal a society we truly have.