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Wealth is an important indicator of well-being, as it
can be used as productive capital and, depending on
its liquidity, for current capital investment and as
a reserve to sustain the household in periods of low
income. Farm
operator households, in particular, are known to
save and dissave as a response to income variability.
The farm operator household's farm wealth is not always
equivalent to the wealth of the farm businesses they
operate. Just as individuals outside of the farm operator
household can receive some of the farm business income,
other stakeholders can own the wealth of farm businesses.
Farm operator households also hold nonfarm wealth in
their portfolios. This chapter focuses on the wealth
of farm operator households.
- Total farm household wealth includes farm and nonfarm
wealth. Farm wealth is the dominant share of total farm
household wealth.
- Median wealth of farm households is close to five
times the median wealth of all U.S. households.
- The distribution of farm household wealth and the
relative importance of nonfarm wealth vary across farm
households.
- Farm households incur debt secured by farm business
assets as well as by nonfarm assets. More farm households
report end-of-year debt for nonfarm purposes than for
farm purposes.
See the glossary for definitions
of terms.
Farm Household Wealth
Wealth (net worth) is the difference between assets
and debts. In 2006, the average total wealth of farm
households was $895,756, with about three-quarters of
this total associated with farm assets (see table).
This represents a 9-percent increase in average wealth
over the previous year, with increases in both farm
and nonfarm wealth. Although most operator households
derive most of their wealth from farm assets, the share
of wealth associated with nonfarm assets of farm operator
households grew from 15 percent in 1994 to 25 percent
in 2006. Farm operator households reduced their debt-to-asset
ratio from 0.13 in 1994 to 0.10 in 2006.
Farm households have broadened their portfolios to include
more nonfarm investments, particularly real estate and
retirement accounts. More than 50 percent of the nonfarm
debt is mortgages for operators' dwellings not owned by
the farm operation and other nonfarm real estate. The
balance sheet for farm operator households illustrates
the differences in the distribution of wealth by typology
(see table).
Since three-quarters of farm household wealth is attributed
to farming, wealth increases with the size of the operation.
However, households that operate large and very large
farms (with total value of annual production of $250,000
or more) have the greatest average nonfarm wealth as well.
Farm and nonfarm wealth combined, households operating
large farms had an average wealth of $1.6 million and
the wealth of households operating very large farms averaged
$2.7 million in 2006.
Wealth Distribution of Farm and All U.S. Households
The latest information available on wealth of all U.S.
families is for 2004 (Survey
of Consumer Finances, Federal Reserve System). The
median value of wealth for all U.S. households was $93,100
in 2004, compared with $456,914 for farm households. Thus,
the median wealth of farm operator households was about
five times the median wealth of U.S. families. The median
wealth is the level at which 50 percent of the households
are above and 50 percent are below. Household wealth may
be acquired through savings, inheritance, or appreciation
of household assets. The major share of U.S. household
wealth is in houses and other real estate. In contrast,
farm households have the major share of their wealth in
farm business wealth.
The distribution of household wealth for all U.S. households
was considerably more skewed than for farm households.
For example, if wealth were equally distributed (so that
each 10 percent of households held 10 percent of wealth),
the curves would not be bowed upward but would be a straight
line. Thus, the greater curvature for nonfarm households
indicates that their wealth is more unequally distributed
across households.
Levels of wealth increase with age and education (of
head of household) for both farm and nonfarm households
(see table).
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