October 30, 2014

1 Out of Every 25 Households In the United States Has $1 Million or More

The United States wealth figures continue to impress 4 to 5 years after the end of The Great Recession.  Now that last year’s figures are tallied and accounted for, The Boston Consulting Group, using various data sets and government statistics, estimates that as of the end of 2011, wealth held by private American citizens stood at $38,000,000,000,000.  

That is $38 trillion.  It is a staggering amount to comprehend.  Even the richest men in history would be no more than a rounding error in the shadow of that figure.  We live in the most mass affluent society to ever exist on the planet.  A reasonably successful professor today has amenities not dreamed of by the greatest sultans of the past, from climate controlled rooms to advanced health care options (not to mention more free time than any advanced society that has ever seen the light of day).

What about the breakdown into individual households?  As of this year, there are approximately 12,600,000 households in the world that have a net worth exceeding $1,000,000. Of those, 5,100,000 households are in the United States.  The number of households in the United States stands at 114,235,996.  That means the odds that you live in a millionaire household are 4.46%.  Inverting the percentage, this translates into 1 out of every 25 homes.

What happens if we raise the bar higher?  Let’s say $100,000,000 in net worth.  As of the end of 2011, there are 2,928 households in the United States which have net worths of $100,000,000 or more, representing 0.002563115045%.  That is 1 out of every 39,015 households.

And for the most elite club of them all – those who have $1,000,000,000 or more?  There were an estimated 363 billionaire households in the United States, representing 0.000317763238% of households.  That is 1 out of every 314,700 households.

1 Out of 25 Households Millionaires

To summarize, in the United States of America:

1 out of 25 households have $1 million or more
1 out of every 39,015 households have $100 million or more
1 out of every 314,700 households have $1 billion or more 

What is the demographic breakdown of millionaire households in the United States?

  • Virtually all are, on average, college educated
  • A majority of those who are college educated did not attend an Ivy League school, though those institutions are disproportionately represented among these households 
  • Most are headed by men
  • Most fortunes were made outside of finance, music, or movies.  The idea that you have to be a singer, actor, or work on Wall Street to make it big is a lie.  It seems that way because these are the people you see most often in the news.
  • Asians are vastly over represented among the samples as a result of immigrant work ethic and a culture geared toward saving
  • A vast majority are first generation wealth, even among the members of the billionaire club
  • Almost all are married, a vast majority of whom are married to their first spouse
  • Most are in their 50’s or older

For all our flaws, I love this country.  I really do.  Being born here was like winning the genetic lottery.  If you are of reasonable or higher intelligence, have a decently strong work ethic, and self-control, you can make it here.  The only major problem we have is the health care situation, where a single illness can bankrupt an otherwise responsible family; a problem we need to solve as a society.

Income inequality, which is meaningless compared to the absolute standard of living for the poorest members of society (that is what really matters – I’d double the gap between the rich and the poor if it meant no child in America went to bed hungry at night) continues to grow, mostly the result of the knowledge skills gap that is widening due to globalization and technology-driven productivity gains as factories become automated.  We still retained our spot as the number one manufacturer on the planet, producing 1/5th of the entire economic output of the world’s manufacturing base by value.  Our manufacturing base is still as strong as it was in 1960 but only economists know that.

The major problems are the usual suspects: We have a budgetary problem and a trade deficit problem, the latter of which is still entirely caused by the combination of imported oil and foreign cars.  But I already said everything I care to in the 5-part essay on how to solve the trade deficit.

  • http://www.facebook.com/jack.scheible Jack Scheible

    Well, I just went and read you “How to Solve the Trade Deficit” Series. I think you miss the true source of the trade deficit — the budget deficits. No, not the budget deficit of the government, but those of the people.

    If our GDP is $10T and our trade deficit is $1T, we are making $10T in goods and services and buying $11T. So where do we get that extra $1T to spend? We go into debt.

    That is why Japan is running a trade surplus — the Japanese people do not spend as much as they earn. So they MUST export the excess.

    We buy more than we make, so we must IMPORT the excess.

    • Joshua Kennon

      Yes and no. You are committing a logical fallacy in that, though it is necessary for households to run deficits in some capacity to have a trade deficit, a trade deficit does not necessarily have to be solved by requiring households to live within their means. That is, there is correlation but not causation.

      Stated in a logic equation:

      A = Aggregate Household Deficits of a Country
      B = Trade Deficits of a Country

      We know that, simplifying here in a grand scale and generally speaking:

      – B cannot exist without A
      – A can exist in the absence of B

      You are concluding that, as a result of this formula, B cannot be solved without solving A. However, that does not follow. It is a logical error. B is a dependent condition, but A is not a causal factor.

      An illustration would probably make it clearer. Keep in mind, I am not saying this is a good idea, just building an economic scenario:

      Imagine Congress decides to do two things 1.) to take a trillion dollars or so in government money and roll out nuclear power plants across the United States, banning all foreign energy sources, and 2.) simultaneously ban the import of all foreign owned automobiles (let’s ignore the inevitable trade wars that would erupt as a consequence for now).

      In this situation, American households could continue to run deficits in the aggregate, but we would have no trade deficit, merely an increase in the overall money supply as some form of credit was extended somewhere along the system (credit cards, student loans, and mortgages being the most likely culprits). That is still a problem that is parallel, though not entirely related, to the trade deficit.

      Also, running deficits on a household basis does not mean living beyond your means, it is a term that describes expending more cash than you brought in. For poor families, that results in debt. For rich families, it results in tapping into past savings, which is perfectly acceptable. For example, the “Walton 4″, owners of Wal-Mart Stores, have a net worth of $107 billion. They could easily spend $500 million more than they earn every year for the rest of their lives and still not touch their productive net worth. Deficit spending does not inevitably lead to debt. Most retirees are on plans to spend through their retirement savings around the time they reach mortality.

      Getting into all of that would turn a 5-part post into a 10-part post. Then, I probably would have gotten into how the savings rate in the United Sates is horribly mis-calculated. It’s possible, under the right circumstances, for someone like Bill Gates, with $66+ billion, to never have had that money be counted in the national savings figure. Yet, if he spent his money, it would appear as deficits. Now, we’d be up to a 15 or 20-part post. I had to draw the line somewhere.

      • http://www.facebook.com/jack.scheible Jack Scheible

        I disagree with your scenario. You say, “American households could continue to run deficits in the aggregate, but we would have no trade deficit….” How could they run a deficit if there were nothing more for them to buy? In the aggregate, we (the world) cannot buy more than we produce — there is simply nothing left to buy. The World cannot have a trade deficit because we are not trading with other planets. If we cease trade with other nations, we will cease to have a trade deficit, AND it will be impossible to have aggregate household deficits.

        We produce 1 GDP of goods and services, and we purchase 1.1 GDP. We can only buy 1 GDP of goods from the proceeds of the 1 GDP we produce. To buy the other 0.1 GDP of goods and services, we must run deficits.

        And dipping into principal is still running a deficit.

        • http://twitter.com/SMcTwelve Scott McCarthy

          You’re effectively assuming that all goods produced are consumable. This is incorrect. If you doubt this, take a visit to an antiques store or used car dealership some time. An item may only be produced (and count towards GDP) once, but there is theoretically no limit to the number of times it may be bought and sold.

  • Gilvus

    Asians don’t really have a “culture of saving” as much as a “hard times mentality.” They grew up during the turmoil of the Korean/Vietnam Wars and the Cultural Revolution in the 50s, 60s, and 70s. Times have changed, though. My parents’ generation have a term for their their increasingly prodigal children and grandchildren: “啃老族”, literally translated “gnawing the old generation,” evocative of how a dog gnaws scraps off a bone. But the best translation is “parasite generation.”

    My prediction: in another generation or two, the proportion of Asians in the high-wealth echelons will decrease relative to the U.S. Asian population. I think the most current data show that Asians are three times more likely to be millionaires compared to other races; that number will slowly drop.

    • Joshua Kennon

      I think you’re exactly right.

    • TheLonelyHumanist

      I am skeptical that the percentage of millionaires who are Asian will ever quite make it down to the percentage of the population that is Asian. As an example, that never happened to the Jews…

      • Joshua Kennon

        Isn’t the Jewish population a unique exception because it can refer to three separate possible connections (race, religion, and shared cultural nationality)? Each of those, in some capacity, represents a mechanism for passing certain values down to the next generation so that there is a connection to the fathers and fore fathers of the past.

        If the Asian population continues to be disproportionately represented among the ranks of the millionaires in the United States, the only explanatory model I could see making sense would be the high priority placed on certain education programs and careers, which, by definition, result in households that enter the top 5% of income in the late 20’s or early 30’s. That would be consistent because the greatest indicator of whether a child goes to college or not is whether his or her parents also went to college. That is, doctors begat doctors and lawyers begat lawyers, so you could have a cultural inertia influence.

        • TheLonelyHumanist

          All people and all their behavior are, by definition, examples of human nature. Human nature is as much expressed in the construction of the Burj Dubai as in the destruction of the WTC.

          There is no reason to assume that people who evolved on one continent will, on average, perform exactly the same as people from another continent. First, no matter how arbitrarily you define it, every population is unique: if you compared “all the people who live above the third floor on Fifth Ave” to “all the people who live above the 18th floor,” you would probably find some differences. And given the many thousands of years and diverse geography separating the development of Asians from Africans or Europeans, I would expect to see some measurable differences in human capital. Barring a fresh wave of discrimination and given the number of different studies that have found advantages in the favor of Asians, I would be very comfortable putting money on Asian success never falling to population representative levels.

          The Ashkenazim are a fascinating case. One tiny ethnic group with little more than the population of NYC holds a quarter of the Nobel Prizes in science. From Marx, Freud, and Einstein to Pinker, Sapolksy, and Chomsky… it is impossible to discuss any topic in intellectualism for more than a few minutes without referencing an Ashkenazi Jew. And this has been the case for many generations–this is their human nature. The Ashkenazim are an example of a population with more human capital than others.

        • Joshua Kennon

          The Ashkenazi Jewish population has fascinated me since we were required to study it back in my genetics class in college. One hypothesis was that the severe oppression, racism, and threat of violence the group faced was responsible for an evolutionary adaptation that involved intelligence, thus improving survival odds. Another posited that it was partially due to certain cultural adaptations and expectations. In your reading, have you encountered any other theories that account for the disproportionate success of the group? I have yet to form an opinion as to the causation.

        • TheLonelyHumanist

          Those are the two that I am familiar with. They are very good theories. Probably both of them have been at work over the centuries. I don’t know of any good data on the subject other than the historical fact that the trend is at least centuries old. In my own personal experience I have felt a sense of wonder at how comfortable the Jews I have known seem to be with modern life. It strikes me as very plausible that the Ashkenazim are indeed a case of a people who faced very real consequences of natural selection at the hands of the European social environment. Working out the details of the circular role of the genes and the environments will take much more research than has been done in this case.

  • http://pulse.yahoo.com/_BSKKXHJN5ZUKQWBKXLFQJCGDOY Mike

    Isn’t this data — 1 in 25 are millionaires — somewhat at odds with the other blog post about the Top 1% wealth debate (IRS vs. Federal Reserve) ?

    • Joshua Kennon

      This data set uses the Federal Reserve approach; e.g., if you have a $300,000 IRA and a $700,000 house, you have $1,000,000. It’s more liberal than the IRS estate multiplier technique I prefer (which, I’m guessing you already knew by your reference) but this is closer to how average people think about money.

      My approach is to think of it as a nice, though somewhat imprecise, augment; you can combine the figures to paint a broader picture of capital holdings in the United States. One of the big takeaway of doing that is the realization that, especially in the lower ranks of wealth, a significant portion of capital consist of home equity in a primary residence. That probably explains how you can have someone who is a millionaire on paper still complain about money and not being able to pay bills; a house they bought on the coast in California 50 years ago represents nearly all of their money, which is far different than having the same amount of capital in a portfolio or blue chip stocks yielding 4% or real estate throwing off 8% liquid cash.

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