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March 1996, Vol. 119, No. 3
Ann C. Foster
Household 's financial position at a given point in time. An increase in net worth over time indicates progress toward meeting goals such as a comfortable retirement or funding a child's education. Active saving (not consuming all of one's income) contributes to increased net worth. Examples of active saving include investing in financial assets, such as savings accounts, stocks, bonds, and mutual funds; acquiring real property, such as a home; and investing in a business. Another factor contributing to household net worth is passive (inadvertent) saving, such as an increase in the market value of a home or in stock holdings over time or the receipt of an inheritance.
Data from the Federal Reserve Board's Survey of Consumer Finances show that between 1989 and 1992, mean real family net worth rose 11.7 percent (from $197,200 to $220,300), while median family net worth remained about the same (around $52,000).1 The composition of assets held by families also changed during the 1989-92 period. The proportion of families owning retirement accounts, which include individual retirement accounts (IRA's), Keogh accounts, and employer-sponsored defined contribution plans, increased from 35.4 percent to 39.3 percent. The median value of these accounts (in 1992 dollars) went from $11,200 to $15,000, an increase of nearly 34 percent. These changes reflect, in part, a shift in employer-provided plans from traditional defined benefit plans to defined contribution plans.2
While income has been found to have a positive effect on active saving and change in net worth, pension coverage also appears to be important. Research using data from the Panel Study of Income Dynamics found that, even after controlling for the effects of other factors, the number of company pensions reported by heads of households and their spouses was positively associated with active saving and increase in net worth.3
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1 The Survey of Consumer Finances' definition of "family" is close to the Census Bureau's definition of "household." Both definitions include married couples and single individuals. (See Arthur Kennickell and Martha Starr-McCluer, "Changes in family finances from 1989 to 1992: Evidence from the Survey of Consumer Finances," Federal Reserve Bulletin, vol. 80, no. 10, October 1994, pp. 861-82.)
2 Among surveyed families with at least one worker, the proportion having any type of pension from both current and previous jobs was similar in both years (55.9 percent in 1989 and 56.5 percent in 1992). The proportion having defined contribution plans, however, rose from 26.5 percent to 30.7 percent. By contrast, coverage of worker families by traditional defined benefit plans declined from 48.8 percent to 45.1 percent. (See Kennickell and Starr-McCluer, "Changes in family finances."
3 For additional information, see James N. Morgan and F. Thomas Juster, " The saving behavior of American families, 1984-1989," in Robert N. Mayer, ed., Enhancing Consumer Choice: Proceedings of the Second International Conference on Research in the Consumer Interest (Columbia, MO, American Council on Consumer interests, 1990), pp. 289-304.
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