Huge Average Net Worth Round Up with Uncommon Money News
|September 28, 2010||Posted by Roshawn Watson under Uncategorized|
By: Roshawn Watson
Every now and then, you just have to call foul when reading something because the data is wrong, misleading, or incomplete. That’s how I feel about a new figure.
When Sam (Financial Samurai) read this WSJ article, he saw that the average net worth for 2009 was $182,000. Since this number was significantly higher than expected, he was initially doubtful but then changed his tune. He sent out some really fun tweets (here and here), published a post saying the average net worth is huge and every detractor is sipping on “haterade,” and the rest is history.
From reading, Sam is jokingly arguing that 1) the average isn’t skewed by the wealthy because the sample is sufficiently large, 2) the WSJ wouldn’t lie, 3) most of us are way too biased because of Schadenfreude.I thought we would just deconstruct his points a little for fun (not at all because he is wrong).
- The Average Isn’t Skewed Upward – This is untrue (I’ll get to that later), but to see whether a distribution is skewed, all someone would need to perform is an outlier test and look at the distribution of net worth. If there are outliers (extreme values that are statistically different from the middle), then one way to handle them is to throw them out to adjust the average net worth appropriately. Looking at the distribution of net worth could also tell you a lot about this sample and help you determine whether to believe the data. I believe this was performed because they clearly say in the article:
“the average is pulled up by a small group of the very wealthy.”
Look the primary purpose of looking at the average is to see how the middle of the distribution is doing, and they are stating here that their number doesn’t reflect the middle. In addition to this disclaimer, I would have preferred to have seen a measure of the middle that was insensitive to outliers (i.e. the median or the mode). Here an example. Let’s say that you have 5 people with the following net worth: $10,000, $10,000, $11,000, $8,000, $150,000. The median and the mode are $10,000 whereas the average is $37,800. Which measure of the middle do you think best represents our sample?
- The WSJ wouldn’t lie – Again, he is likely being facetious here too, but let’s pretend he is serious for comedy sake. Sam obviously has a lot more faith in any publication than I do. Personally, I see retractions all the times from very authoritative publications. In fact, I just wrote about one last week over here. That said, I don’t necessarily know that their math is wrong. It is easy for people to unintentionally “lie” or mislead with numbers. Again, I just would like more data so I could make a more informed interpretation, especially since they explicitly state that outliers are skewing the data upward. To be honest, this acknowledgment alone makes their number more credible as the average of their sample but not the middle of the distribution.
- Detractors just want to feel better about themselves – This could be true. I certainly don’t know others motivations for trying to discredit the data. I will tell you that I hold myself to a higher standard than the average, and hopefully you do too. Thus, doing better than the average should be immaterial with respect to our emotional states. Alas, for some this may not be the case though.
I have deliberately avoided going into other critiques of the WSJ data for sake of length and attention spans. For example, another consideration is “does this sample even represent the general population (sampling error)?” It’s always interesting to reanalyze data. There are always problems. I can point you to limitations that I acknowledged in my own published work. Highlighting certain weaknesses doesn’t invalidate the data as much as give boundaries for interpretation. As a colleague recently told me, just because you don’t like what you can conclude doesn’t make the conclusions wrong. In this case, you can conclude that the average net worth of that sample is $182,000 AND that the average doesn’t represent the middle net worth (which is lower). I believe saying much more without any additional data would probably be speculation.
Well, those are some my thoughts on the matter.
Thought Question: What say you?
Now, it’s time to do the weekly Uncommon Money News and Yakezie Round Up.
Uncommon Money News and Yakezie Round Up
In preparing to write my posts, I often come across noteworthy and sometimes bizarre financial and business news. Below are links to some of these sites. Enjoy! To my readers: I am so honored by your support. Thank you for reading, subscribing, and for voting for articles from this site on social bookmarketing sites such as stumbleupon, reddit, delicious, digg, propeller, twitter, and yahoo buzz. Together, we are telling thousands of the importance of financial literacy. I absolutely could not do it without you. You are vital to this site, and I appreciate your! Thank you sincerely.
The Lost Decade of Investing at Generation X Finance – Jeremy challenges the argument that most investors lost as much money as they though. In fact, he shows how several investors made money.
The Average American Net Worth Is Huge! at Financial Samurai – Sam’s argues that since the WSJ reports the average net worth as $182,000, people are doing well and calls every detractor a hater.
How Expensive is it to Eat Healthy Food? at Invest It Wisely – Kevin challenges the myth that eating healthy has to break the bank in this very analytical and useful article (enter his giveaway while there).
AARP States That Lower Income Americans Are Nervous About Retirement? at Everyday Tips and Thoughts– Kris states her astonishment over how few lower income responders are concerned about retirement.
Reasons To Spend – I Don’t Want a Coffin Full of Dollars at Money Reasons – Money Reasons lists eight reasons to spend.
Who Wants a Free Mp3 Player? at Barbara Friedberg Personal Finance – Barbara cautions you about being enticed by things that appear “free”
Investing and Economy
Apple shares hit all-time high, bordering on $300
Let’s Talk about Deflation (Squirrelers) –Squirrelers discusses the current economic climate and which factors contribute to deflation.
Entertainment Money News
Stars and Their Billionaire Beaus
- Carnival of Financial Planning at Personal Finance By The Book – Why Is Debt Really Decreasing? and Economists Blame ME for the Slow Recovery
- Carnival of Wealth at Personal Dividends – My Big, Fat Trashy Home: The Fall of the McMansion
- Carnival of Personal Finance at Well-Heeled Blog – Why Do We Save Anyway? (Editor’s Pick)
- Festival of Frugality The Money Beagle – 7 Surprising Facts About Millionaires
Round ups that linked to posts from this site (excluding the Festival of Frugality)
- Wisebread Best Money Tips – Do Competent Kids Need an Inheritance? (Editor’s Pick)
- Barb at Barbara Friedberg Personal Finance – Inspiring Weekend Reading
- Squirrelers at Squirrelers – Updates and Favorites
- Kris at Everyday Tips and Thoughts – Links to Love
- Money Reasons – MR Cache
- B Simple at Simple Financial Lifestyle – Heat of Fall Edition
- Laura at Move to Portugal – Autumn is Here Edition
Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.