What It Measures
This indicator measures the percentage of total U.S. household wealth (assets minus liabilities) held by the top 1% of households ranked by net worth. It is calculated from the Federal Reserve's Distributional Financial Accounts (DFA).
- Net worth includes:
- Real estate and housing equity
- Corporate equities and mutual funds
- Private business interests
- Pension entitlements
- Consumer durables and other assets
- Minus: mortgages, consumer credit, and other liabilities
Why It Matters
Wealth Inequality Gauge: Provides a direct measure of how concentrated wealth is at the top of the distribution.Economic Policy Debate: Informs discussions about tax policy, estate taxes, and wealth redistribution.Consumer Spending Implications: Wealth concentration affects aggregate consumption patterns since wealthy households have lower marginal propensity to consume.Social Stability Indicator: Extreme wealth concentration has historically correlated with social and political tensions.
How to Interpret
Rising Share: Indicates wealth is becoming more concentrated among the top 1%—often driven by stock market gains, as the wealthy hold a disproportionate share of equities.Falling Share: Suggests wealth is becoming more broadly distributed—can occur during market downturns or housing booms that benefit the middle class.Market Correlation: The top 1% share tends to rise when stock markets surge because equities are concentrated among wealthy households.Long-Term Trends: Look at multi-year trends rather than quarter-to-quarter changes, which can be volatile.
Key Levels to Watch
| Level | Interpretation |
|---|---|
| Above 35% | High wealth concentration at historical extremes |
| 30-35% | Elevated wealth concentration |
| 25-30% | Moderate wealth concentration |
| Below 25% | Lower concentration (pre-1990s typical) |
Historical Context
The top 1% share of wealth was around 23% in the late 1970s, fell to a low of 22% in 1976, and has risen substantially since. By 2021, it reached over 32%, the highest level since the Federal Reserve began tracking in 1989. Stock market rallies in 2020-2021 drove significant gains for the top 1%.
Limitations
- This measure has some limitations:
- Quarterly data can be volatile, especially around market swings
- Net worth estimates depend on asset valuations which can be imprecise
- Does not capture income inequality, only wealth
- Pension wealth is difficult to value accurately