The other day, in response to my article about average net worth values, a reader named ‘g‘ left a fascinating comment. As I pointed out in “Lessons Learned From Average Net Worth Values, ” there is currently a huge disparity between the median and mean net worth values in the United States.
For those that need a statistics refresher, the median is the value separating the higher half of the sample from the lower half, whereas the mean is the plain old arithmetic average. So what this disparity indicates is that some fraction of those individual in the upper half of the sample are way, way, way above the median, thereby dramatically inflating the mean. In other words, the distribution of wealth in this country is highly skewed.
While this might not come as a surprise, it’s interesting to look at these same values over time. This is where the aforementioned comment comes in… According to ‘g‘, this is what the numbers look like based on historical data from the Federal Reserve:
1960: Median = $8, 690; Mean = $10, 420 (Median is 83% of mean.)
1976: Median = $13, 549; Mean = $16, 893 (Median is 80% of mean.)
1982: Median = $19, 446; Mean = $26, 259 (Median is 74% mean.)
2004: Median = $93, 100; Mean = $448, 200 (Median is 21% mean.)
As you can see, the numbers have become increasingly skewed over the years. In fact, since 1960, the median household net worth in the United States has increased 10.7-fold, whereas the mean has increased 43-fold.
Any thoughts as to why this is the case?