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Middle Class Wipeout: Median Household Net Worth Plummets Nearly 40 Percent Between 2007 and 2010

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The median net worth of the American family fell by almost 40 percent between 2007 and 2010, according to the Federal Reserve report released on Monday.

The drop between 2007 and 2010 wipes out 18 years of economic progress for Americans in the middle of the income distribution, taking the median household net worth to levels not seen since the early 1990s.

The Survey of Consumer Finances published by the Federal Reserve Board on a triennial basis reveals the depth of the financial destruction wrought by the housing crisis. Between 2007 and 2010, median net worth fell from $126,400 to $77,300 – a 38.8 percent drop – while average net worth fell 14.7 percent percent.

Incomes fell sharply as well. Median income fell by 7.7 percent and the average income fell by 11.1 percent. Prior to the 2007-2010 period, median income had remained unchanged, with the mean rising 8.5 percent.

Hardest hit were Americans whose biggest asset was their house because Americans in this group also experienced the biggest declines in median incomes as a percentile of net worth.

The poor suffered the most: “From 2007 to 2010, the median for the lowest quartile of net worth fell from $1,300 to zero—a 100 percent decline; at the same time, the mean for the group fell from negative $2,300 to negative $12,800.”

Saving fell overall to 52 percent, the lowest level since the survey began collecting this information in 1992. This is expected because many Americans have been using savings to support themselves in lieu of a job.

Historical context reveals just how wild the ride has been in the years leading to the crash. Between 2001 and 2004, the median household’s net worth remained stable around $107,200, then increasing by 2007 to $126,400 before the drastic fall. Much of that increase was due to the housing bubble, of course, and its deflation caused the median home equity to fall to $55,000 in 2010 from $95,300 in 2007, a 42.3 percent drop.

While the report shows the depth of the economic crisis, its numbers are a year old. Since 2011, the economy has undergone mild improvement, which suggests the obvious question: how much of that lost wealth has been recovered?

According to the latest flow of funds report, household net worth rose by $2.8 trillion in the first quarter of 2012 versus the fourth quarter of 2011. But the growth was led by an increase in net worth among those Americans who have been able to participate in the 12 percent rally in the stock market this year.

In other words, things remain bleak for the median American household. Household debt levels did not see great declines, suggesting most households struggle with repayment. And how can they not? Real wages have been drifting down. Total debt today is about where it was in 2007, and remains well above the lows seen in the early years of the first decade of the century. And borrowing continues; consumer credit activity was up from the first quarter of 2011 by $111 billion, suggesting that some consumers may be turning to credit to cover necessities. 

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About A. Jurek

A. Jurek is one of the editors at Blogcritics. Contact me at: a.jurek@blogcritics.org
  • troll

    …the report (pdf) is quite a remarkable statement on economic inequality in the US

    here’s another take on it

    editorial nitpick – when discussing multiple types of averages best to list them as not in: “Median income fell by 7.7 percent and the average income fell by 11.1 percent.”

  • Baronius

    “Net” worth. The headline is wrong.

  • http://www.squidoo.com/lensmasters/IanMayfield Dr Dreadful

    Thanks, Baronius. I went through and tidied up a while ago and thought I’d spotted all the typos. I’ll fix it.

  • Glenn Contrarian

    Looking at the graph, does anyone else note the general upward trend of net worth until 1980, and the general downward trend since then?

    But of course the downward trend of net worth since 1980 is obviously indicative of the increased opportunities for financial success since the advent of Reaganomics, right? After all, financial success trickles down so well from the rich too the poor, as any good Republican will tell you!

  • troll

    (…careful with that graph of percent change year to year – it reflects positive growth in median net worth until ’99-’00)

  • Baronius

    There’s a very important discussion about income mobility in that Federal Reserve report. It noted that 30% of the bottom quintile in 2007 had moved out of it in only two years. That demonstrates the error in talking about “the rich” versus “the poor”. It’s like saying that the earth can’t sustain life because half of it is in darkness. Well, the part that’s in darkness changes all the time. Yes, there are areas of persistent poverty in America. But a good portion of what statistically looks like poverty is really just the rise and fall of individual income, particularly over the life cycle.

  • troll

    feh Baronius – the ‘stickiness’ of the top and bottom quintiles alone belies your demonstration requires explanation and justifies talking about “the rich” vrs “the poor”

  • Baronius

    Troll, I acknowledge that there is some stickiness, but you’ve got to be impressed that 30% of the people in the bottom quintile made their way out of it in two years. 25% of the top quintile departed that level in two years. Less than half of the people in the middle quintile in 2007 remained in it in 2009.

    There are always more people waiting to ride the roller coaster than are on the roller coaster. Does that mean that the “haves” are always riding it while the “have-nots” are always in line? No. Everybody gets a turn. If you take a picture of it, you’ll always see a line, but it’s not always the same people in line. In the economy, not everybody gets a turn, but a lot more do than the OWS crowd seems to think.

    This is the thing about the economy, any economy. It always looks like it shouldn’t work. It’s easy to look at it and find a precarious moving part that could throw off the whole system. And sometimes that happens. But perennial doomsayers don’t impress me, because the vast majority of the time in most major countries, every gear meshes.

  • http://thingsalongtheway.blogspot.com/ Cindy

    In privileged la la land everything meshes.

  • troll

    “…you’ve got to be impressed that 30% of the people in the bottom quintile made their way out of it in two years.”

    Baronius – you paint a pleasant picture but there are issues for example: how much of this ‘movement’ can be explained as displacement by the 22% of the 4th quintile (5.4 of the third; 2.1 of the second; 1.1 of the top) who ‘fell’ into the 5th in the same time period rather than by a change for the better in material circumstances?

    …as for the rest of your starry-eyed outlook – biases are like assholes etc

    btw – the ‘ows crowd’ chose to ‘sloganize’ against the top 1% rather than the top 20% for a reason

  • Glenn Contrarian

    Cindy –

    In privileged la la land everything meshes.

    Quoted for truth!

  • roger nowosielski

    Yet, it’s precisely Baronius’s pleasant picture and “starry-eyed outlook” which is still being shared by the dwindling middle class and perpetuates the notion that the growing income and wealth disparity is an anti-American myth.

  • Baronius

    Explain your principles, and they say the facts are against you. Give facts, and they say your outlook is wrong. Have a nice weekend, y’all.

  • troll

    …that implies that “they” find your outlook and interpretation of the facts off-base and disagree with your principles I guess Baronius

    thanks and enjoy your weekend as well

  • troll

    hi Roger – how’s your recovery coming along? taking multi-mile daily walks?

    people talk about memes and paradigms more or less comfortably but have difficulty with the idea of indoctrination with ‘ruling class ideology’

  • roger nowosielski

    Haven’t reached that point yet, but will be moving back to CA early July.

    As to Baronius, he’s surely off base insofar as I am concerned. (Naturally, I’m including you and Cindy as well). My argument has always been based on principles, not on any utilitarian, cost-benefit type of analysis.

    A convenient out, I suppose.