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For most families, wealth has vanished

Daily Ticker

If you’re a typical family, you’re considerably poorer than you used to be. No wonder the “recovery” feels like a recession.

A new study published by the Russell Sage foundation helps explain why many families feel like they’re falling behind: They actually are. The study, which measures the average wealth of U.S. households by income level, reveals a startling decline in wealth nationwide. The median household in 2013 had a net worth of just $56,335 -- 43% lower than the median wealth level right before the recession began in 2007, and 36% lower than a decade ago. “There are very few signs of significant recovery from the losses in wealth suffered by American families during the Great Recession,” the study concludes.

Not surprisingly, lower-income households have lost a larger portion of their wealth than those with higher incomes, as the following chart from the study shows:

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Source: Russell Sage Foundation

Source: Russell Sage Foundation

Wealth generally comes from two types of assets: financial holdings and real estate. Financial assets have more than recovered ground lost during the recession, thanks largely to a stock-market rally now in its sixth year. The S&P 500 index, for instance, has hit several new record highs this year and is up more than 25% from the peak it reached in 2007. Home values, however, are still about 18% below the peak reached in 2006, according to the S&P/Case-Shiller index.

Since wealthier households tend to hold more financial assets, they’ve benefited the most form the stock-market recovery, which itself has been assisted by the Federal Reserve’s super-easy monetary policy. Fed policy has been intended to help typical homeowners and buyers too, by pushing long-term interest rates unusually low and, in theory, goosing demand for housing. But a housing recovery is taking much longer to play out than the reflation of financial assets. That’s part of the reason the top 10% of households have held onto more of their wealth than the other 90% during the past 10 years. Here’s how different income groups have fared since 2003:

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Source: Russell Sage Foundation

Source: Russell Sage Foundation

The Russell Sage data is based on surveys, and differs in a few important ways from data gathered by the Federal Reserve, which paints a rosier picture. The Fed’s numbers, derived from banking data, show that total net worth plunged during the recession but hit new highs in 2012, and is now nearly 20% higher than the prerecession peak. Since the Fed’s numbers aren’t broken down by income level, they don’t show whether more wealth has been concentrated among a smaller number of rich households.

The Sage numbers fill in that blank and do show that the top 10% of households control a larger portion of the nation’s total wealth than they used to. They also show, however, that every income group is still behind where it used to be, on average. The top 5% of households, for instance, have an average net worth of about $1.4 million — but that’s still about 16% lower than in 2007. The top 10% have an average net worth of about $763,000, down about 18%. Yet that’s far better than the median household, which has lost about 43% of its net worth since 2007. “Wealth inequality increased significantly from 2003 through 2013,” the study found.

By technical measures, the economy has been expanding since the middle of 2009, which is why economists label the past six years a recovery. Yet it’s the weakest recovery since the 1930s, with incomes stagnant, consumers reluctant to spend and employers skittish about hiring. Lost wealth has a lot of do with that, since people can’t spend money they don’t have, and they don’t feel like spending when they’re in the hole, anyway.

The wealthy do contribute to an economic recovery, but they can’t pull the whole economy up on their own. That requires a vibrant middle class spending en masse as their earnings and wealth climb. Maybe next year, or the year after that, or the year...

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.

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