Television news thought it was a big deal: we're all richer, they said, citing the newly released findings from the 1998 Survey of Consumer Finances. Between 1995 and 1998 the average family net worth zoomed from $224,800 to $282,500 expressed in dollars of 1998 purchasing power. Real family net worth, in other words, had increased 25.7 percent.

Nice.

Well, maybe not so nice. If you compare the gain to the stock market, it starts to look anemic. One clue comes from the performance of what may soon be the nation's largest mutual fund, the Vanguard 500 Index. From mid-1995 to mid-1998, $10,000 invested in the Vanguard 500 index would have grown 115.67 percent to nearly $21,567.

Then again, suppose you had started the three-year period dead broke as a renter who took the bus to work and didn't have a dime in investments. If you had invested $1,000 a month in the same fund for 36 months, your investment would have been worth $55,905 at the end of the period. If you had saved $1250 a month--- the maximum sum most employees save when the employer 401k plan match is included--- your net worth would be nearly $70,000, very close to the $71,600 median net worth of the American household.

The "median" means half the families have a greater net worth, half have a smaller net worth. In other words, starting from zilch, a family that invested $1,250 a month in common stocks could have risen to the midway point of American net worth in only three years, probably one of the greatest opportunities to rise in wealth standing in our history.

If you take a longer-term view and start in 1989, the figures are even more stunning. From a stone-broke start in mid-1989, every $100 a month invested in common stocks would have grown to $27,945 by mid 1998. A mere $256 a month would have taken you from no net worth to the middle of the wealth pyramid. And just over $500 a month would have taken you into the top 25 percent of all wealth in America. Instead, the median net worth of all families only increased from $59,700 in 1989 to $71,600 in 1998, an increase of $11,900.

That could have been done by saving $1.42 a day and investing it in the index fund.

Now let's look at what really happened during the period.

Median net worth of families with incomes under $10,000 actually declined. Ditto families with incomes of $10,000 to $24,999. And families with income of $25,000 to $49,999 saw their net worth rise from a median $56,700 to $60,300. That's not too impressive. Nor is it impressive that the median net worth of families with incomes over $100,000 declined slightly over the period.

Median Family Net Worth Changes by Income Level



Income Level 1995 Net Worth 1998 Net Worth Change
Under $10,000 $4,800 $3,600 Down
$10,000 to $24,999 $31,000 $24,800 Down
$25,000 to $49,999 $56,700 $60,300 Up slightly
$50,000 to $99,999 $126,600 $152,000 Up
Over $100,000 $511,400 $510,800 Down slightly

Source: Federal Reserve Bulletin, January 2000. The full, 29 page study may be downloaded as a pdf file from the Federal Reserve Board website.

The situation doesn't improve much if you compare changes in the average net worth of each income category rather than the medians. The very best performance was the 22.4 percent increase in the average net worth of families with incomes over $100,000, from $1.4 million to $1.7 million--- but that's so far over the average net worth all families that most people won't care.

What does it all mean?

Simply this. For all the media attention to Internet billionaires, soaring stock prices, and the importance of investing, saving barely budged over the period. It increased from 55.2 percent of all families to 55.9 percent of all families. Similarly, as late as 1998, only 19.2 percent of all families owned individual shares of stock; only 16.5 percent owned mutual funds; and only 48.8 percent had retirement accounts.

The message: At least half the families in America have missed the easiest ticket to wealth in two generations.

Tuesday: Score yourself in wealth percentiles.