Last week I wrote about how The collective net worth of Americans is at a new all-time high..
A reader asked a fair follow-up question:
I'd be interested to see the concentration of that net worth though... I'm guessing it's a reverse direction.
Just because many households are wealthier than ever doesn't mean all are. Unfortunately, wealth inequality is still a problem (and probably always will be).
The Federal Reserve Break this data down by wealth percentile:
The richest 10% own more than two-thirds of the wealth in this country. The bottom 50% own less than 3% of the wealth.1
That's not cool.
If we look at the cumulative gains by wealth cohort since 1989, we can see that the biggest growth has gone to the top 1% (and the top 1% of the top 1%):
Of course, households in these groups are not static over time. There is some rotation where people fall along the wealth spectrum over time.
But we live in a country where the rich have only gotten richer for some time.
Surprisingly, the pandemic has improved things at the margins. Here is the growth by wealth segment since the beginning of 2020:
The greatest relative growth has occurred in the bottom 50% over this time. That growth starts from a low base, but you have to start somewhere.
We can take advantage of this.
Let's hope this trend continues.
The Fed also breaks down the data by different types of financial assets.
The most obvious inequality exists in the stock market:
The top 10% own almost 90% of the stocks in the United States. The bottom 50% own a little more than 1%.
Again, not great.
I maintain my opinion that we should open a Roth IRA for every baby born in the United States and put the money in index funds. We need more people participating in the stock market.
There is not as much inequality in the real estate market as in the stock market:
The top 10% still control a good portion of these assets, but things are more evenly distributed relative to overall net worth and stock market ownership. The bottom 90% own 56% of the real estate market, compared to just 13% of the stock market.
This is one of the reasons why the real estate market is so important in the United States. For most households, a home is by far their largest financial asset.2
I don't think we will ever solve wealth inequality with our current system. Sure, there are policies that could redistribute wealthier wealth, but it's probably a feature we're never going to get rid of.
So if you're one of the households with net worth at all-time highs, consider yourself lucky.
Not everyone is in the same boat.
Other readings:
How to become a millionaire
1It's pretty crazy that the top 0.1% have almost as much wealth as the rest of the top 10%. They control 14% of the total wealth.
2This is also one of the reasons why housing affordability is such a pressing issue: if more of the middle class is locked out of the housing market, inequality will only increase.
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