Americans’ Median Net Worth Drops 40 Percent

What a difference a few years can make in the typical American household.

The Federal Reserve recently announced that the median U.S. household lost nearly 40 percent of its wealth between 2007 and 2010, the largest drop in net worth, the value of assets minus debt, since the reserve first began surveys in 1989. In fact, net worth in 2010 mirrored those last seen as far back as 1992. This report, published in June 2012, has given economists some insight into the severity of the recession and may explain why it has had such a significant impact on America’s economic recovery.

The report, resulting from a survey of consumer finances, indicated middle class families experienced the largest drop in net worth during the recession mainly because the value of their homes, typically their largest asset, plummeted.

The report stated that in 2007, the median family’s net worth dropped from $126,400 to $77,300. In fact, the Federal Reserve estimated Americans lost $7 trillion in home equity as a result of the housing crisis that followed the rush in mortgage defaults after 2006.

Incomes Also Fall

At the same time, median incomes dropped nearly 8 percent for all Americans while the richest Americans, the top 10 percent, fell just over 5 percent. Median net worth of the wealthiest, however, was reported to have risen 10 percent at that time.

In April, 2012, according to Sentier Research, median household incomes (adjusted for inflation) were still 5.9 percent lower than when the recession ended in June 2009 and 8.3 percent lower than the end of 2007.

More affluent families also experienced a small drop in income, according to the report, but this decrease didn’t alter their net worth nearly as much as it did with the middle class.

It’s assumed by economists, judging by the performance of the housing and stock markets, that middle-class families probably have not regained much of their lost ground since 2010.

A recent analysis of new Census Bureau data completed by CNNMoney suggests the extreme drop in net worth shouldn’t be blamed solely on the collapsed housing market. When the effects of the meager housing market were removed from the equation, median household net worth was still reduced by 25 percent between 2005 and 2010.  The culprit, they say, was a falling stock market, which shattered a significant number of retirement accounts and financial portfolios.

Race and Age Play a Role

Further analysis revealed some groups were affected more by the reduction in net worth. For example, white households, the report showed, lost around 30 percent of their median net worth while black, Asian and Hispanic families lost around 60 percent.

Hispanic families saw a 55 percent reduction in median home equity values, while Asians experienced a 43 percent decline and blacks a 35 percent decline.  White households saw a 25 percent reduction.

Age also seemed to play a part in the amount of lost home equity values, as young Americans lost more wealth than people in their parents’ age group. The largest decline in median net worth, the report indicated, was in households with people ages 35 to 44, who lost nearly 60 percent with home equity factored in and 40 percent without.

Economists fear the recovery from the middle class’ reduction of net worth may take years. According to Sentier, household incomes were still nearly 6 percent lower in April of this year (adjusted for inflation) than in June 2009, when the recession is said to have ended.  While incomes are said to have gained a bit in late 2011, they began sliding again in 2012. While economic stability may be in the process of being reinstated, overall wealth has not been fully restored.

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it seven years ago, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering college and professional sports, which are the fantasy worlds of finance. His work has been published by the Associated Press, New York Times, Washington Post, Chicago Tribune, Sports Illustrated and Sporting News, among others. His interest in sports has waned some, but his interest in never reaching for his wallet is as passionate as ever. Bill can be reached at bfay@debt.org.

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    Sources:

    1. Americans' wealth dropped 40%. (2012, June 11.) Retrieved from http://www.whptv.com/news/local/story/Americans-wealth-dropped-40/8ZwjBc955UevessxPTHE2g.cspx
    2. Mullaney, T. Fed: Recession kicked median household wealth to 1992 level (2012, June 13). Retrieved from:
    3. http://www.usatoday.com/money/economy/story/2012-06-11/wealth-shrank-in-recession-fed-says/55528036/1
    4. Luhby, T. Wealth implosion: It's not just housing. (2012, June 19). Retrieved from: http://money.cnn.com/2012/06/19/news/economy/net-worth-housing/index.htm