We previously discussed Median Net Worth.
Now we will review the sharp contrast between Median Net Worth and Average Net Worth. First we will define Average Net Worth:
Average net worth. The average net worth is the average obtained by dividing the total net worth of a group by the number of households in that group.
Here is the technical explanation of the difference between average and median:
Comparison of average values and median values of net worth. Average values and median values are measures of central tendency of distributions. For symmetric distributions, the average and the median values are the same. For skewed distributions, however, the average value and the median value differ. The distribution of net worth is skewed with a concentration of households with low values and very few households with high values. In this case, the median is less than the average net worth; the large proportion of values at the low end brings the median down, while less frequent but large values increase the average. Since averages are more sensitive to extremely high values and the data are sparse at the upper end of the distribution, medians are used in the analysis in this report.
Translation of last sentence: “We do not want the general public to know how the rich are getting richer, and the poor are getting poorer.” 🙂
Pessimistic? Perhaps. Statistics are a wonderful thing huh?
However, luckily the Federal Reserve produces a similar report every 3 years. The most recent version is 2007:
Let’s look at the numbers for 2007:
Median Net Worth: $120,300
Average Net Worth: $556,300
The average net worth is over 462% higher than the median! Wealth is certainly concentrated at the top of our society. How has this ratio changed over the years? Let’s look:
Over the last decade between 1998 and 2007 the gap between rich and poor definitely increase substantially. The gap widened about 17%! But it did contract slightly between 2004 and 2007.
Shall we have a pity party for the billionaires?
Unfortunately when you see net worth calculators and comparisons on the internet, they are probably using median values. But it is not necessarily a bad thing to “feel” wealthier is it?