By BINYAMIN APPELBAUM
NY Times – June 11, 2012
WASHINGTON — The recent economic crisis left the median American family in 2010 with no more wealth than in the early 1990s, erasing almost two decades of accumulated prosperity, the Federal Reserve said Monday.
Andrew Harrer/Bloomberg News
A house for sale in Washington. Falling home prices accounted for three-quarters of the losses in net worth.
A hypothetical family richer than half the nation’s families and poorer than the other half had a net worth of $77,300 in 2010, compared with $126,400 in 2007, the Fed said. The crash of housing prices directly accounted for three-quarters of the loss.
Families’ income also continued to decline, a trend that predated the crisis but accelerated over the same period. Median family income fell to $45,800 in 2010 from $49,600 in 2007. All figures were adjusted for inflation.
The new data comes from the Fed’s much-anticipated release on Monday of its Survey of Consumer Finances, a report issued every three years that is one of the broadest and deepest sources of information about the financial health of American families.
While the numbers are already 18 months old, the survey illuminates problems that continue to slow the pace of the economic recovery. The Fed found that middle-class families had sustained the largest percentage losses in both wealth and income during the crisis, limiting their ability and willingness to spend.
“It fills in details to a picture that we already knew was quite ugly, and these details very much underscore that,” said Jared Bernstein, an economist at the Center on Budget and Policy Priorities who served as an adviser to Vice President Joseph R. Biden Jr. “It makes clear how devastating this has been for the middle class.”
Given the scale of those losses, consumer spending has remained surprisingly resilient. The survey also illuminates where the money is coming from: American families saved less and only slowly repaid debts.
The share of families saving anything over the previous year fell to 52 percent in 2010 from 56.4 percent in 2007. Other government statistics show that total savings have increased since 2007, suggesting that a smaller group of families is saving more money, while a growing number manage to save nothing.
The survey also found a shift in the reasons that families set aside money, underscoring the lack of confidence that is weighing on the economy. More families said they were saving money as a precautionary measure, to make sure they had enough liquidity to meet short-term needs. Fewer said they were saving for retirement, or for education, or for a down payment on a home.
The report underscored the limited progress that households had made in reducing the amounts that they owed to lenders. The share of households reporting any debt declined by 2.1 percentage points over the last three years, but 74.9 percent of households still owed something, and the median amount did not change.
The decline in reported incomes could have increased the weight of those debts, tying up a larger share of families’ take-home pay. But one of the rare benefits of the crisis, historically lower interest rates, has helped to offset that effect. Families also have been able to reduce debt payments by refinancing into mortgages with longer terms and deferring repayment of student loans and other obligations.
The survey also confirmed that Americans are shifting the kinds of debts they carry. The share of families with credit card debt declined by 6.7 percentage points to 39.4 percent, and the median balance fell 16.1 percent to $2,600.
Families also reduced the number of credit cards that they carried, and 32 percent of families said they had no cards, up from 27 percent in 2007.
Conversely, the share of families with education-related debt rose to 19.2 percent in 2010 from 15.2 percent in 2007. The Fed noted that education loans made up a larger share of the average family’s obligations than loans to buy automobiles for the first time in the history of the survey.
The cumulative statistics concealed large disparities in the impact of the crisis.
Families with incomes in the middle 60 percent of the population lost a larger share of their wealth over the three-year period than the wealthiest and poorest families.
One basic reason for this disproportion is that the wealth of the middle class is mostly in housing, and the median amount of home equity dropped to $75,000 in 2010 from $110,000 in 2007. And while other forms of wealth have recovered much of the value lost in the crisis, housing prices have hardly budged.
Those middle-income families also lost a larger share of their income. The earnings of the median family in the bottom 20 percent of the income distribution actually increased from 2007 to 2010, in part because of the expansion of government aid programs during the recession. Wealthier families, which derive more income from investments, were also cushioned against the recession.
The data does provide the latest indication, however, that the recession reduced income inequality in the United States, at least temporarily. The average income of the wealthiest families fell much more sharply than the median, indicating that some of those at the very top of the ladder slipped down at least a few rungs.
Ranking American families by income, the top 10 percent of households still earned an average of $349,000 in 2010.
The average net worth of the same families was $2.9 million.