A couple weeks ago, I read a Times’ article The Typical Household, Now Worth a Third Less. The punchline of this article was the fact that the US median household saw their net worth fall from $87,992 in 2003 to $56,335 in 2013.
The article linked to a report, Wealth Levels, Wealth Inequality, and the Great Recession. It offered further context to the median wealth numbers.
Keep in mind, during this period, stocks, as measured by the S&P 500, rose by an inflation adjusted 61%. Yet, total wealth (look at the first line, the mean number) fell by 8.6%. This would be disturbing enough, but the top 5% saw an increase 14.4%, identifying a large shift in wealth to the top. Three quarters of households fell behind, losing 36% or more of their wealth.
The ten year period in question contained the housing crash, and the losses shown reflect the fact that even at the 75th percentile, much of one’s wealth is contained in their home. Overall, real estate represents less than 25% of wealth in this country, but this number doesn’t spell out how this is distorted at the sub 75th percentile. For the median family, most, if not all of their wealth might be in their home.
Back to the title of this post. These ten years reflect the continuation of a frightening trend, a middle class that is fading away. Income hasn’t kept up with inflation or with the long term trend of improved productivity. In other words, the average worker is producing more, yet seeing no increased reward for the fruits of his labor. We’ve seen the results of economic bubbles, how a too-high NASDAQ (remember the dotcom bubble?) will come crashing down. We saw the housing crash. Now, I’m looking carefully at this statistical shift in wealth. A democratic society can’t continue on this path, as this trend simply shifts more and more wealth to a select fewer and fewer people. I don’t have a solution to offer, only these observations. And the desire to see a strong middle class return to this country.
I find it hard to believe that the top 5% saw a drop between 2009 and 2013. Wasn’t 2009 the bottom and haven’t both housing and stocks appreciated since then? Both should easily have beaten inflation during those four years, especially at the high end.
I agree, the data is difficult to really believe. Keep in mind, the numbers are inflation adjusted, so their actual numbers may have risen a bit, but the value fell by 4% due to inflation. The top tier doesn’t have as much wealth in their house as the rest of the country. So they should have seen a rise they included the S&P gains you cite. The original work is from Stanford, check out the linked PDF.
I’d find it interesting to see another column on that chart showing the number of households that fell in each category in each year. One problem with drawing conclusions based on these numbers is the presumption that it is the same people in each bucket across the time period represented in the graph. The other part of the story is income mobility. That is, are people moving up or down that chart. I’d wager that it is a mix of people going in both directions.
I agree with your observation that a particular family didn’t necessarily stay in the same percentile through the ten year period. Mobility is important, of course, but the data reflecting the concentration of wealth is still a factor. Over the ten year period, the wealth split among the bottom 75% fell by more than 10%. I’m sure every one of the members of this group hopes for entry into the top 25%, but of course, it’s 25% at any given time.
@freebird
I can believe it. The well off were heavily invested in real estate, too, and, contrary to the propaganda you hear, the housing market has bounced back to bubble levels in only a very few markets. A lot of money was lost, and is still gone, from RE.
Also, it is quite the myth that the “rich” own a lot of stocks. Some do, of course, but many have hidden their money in cash and bonds since the crash. They’re as scared, maybe more, of another event. They have more to lose.
Nice post Joe – agree with you re the majority of household income in the US, esp among the middle and upper middle class, is drained via housing costs. this is also supported via the most recent edition of The Economist (ie CA leads the US in greatest % disparity of cash income and affordable housing) also from a survey of Consumer Finance highlighting the inability/unwillingness of the upper middle class to not save enough.
how it impacts us on a personal level – on the one hand, my wife and I count our blessings – we both work full time and make the effort to save/invest proactively without adapting to a ‘spartan’ lifestyle. on the other hand, it is difficult b/c we are trying to live within a budget/savings plan while we feel that our peers continue to buy/consume on credit. we want to ‘enjoy’ our income too, but in the face of rising housing costs, pressure to maximize retirement accounts, and anticipating inevitable rising college tuition <– which is insane if the 'balance sheet' affluent are to accomplish all of these simultaneously given the mean statistics, 'something' sincerely needs to be done. that being said, i'm all ears for genuine reform. once again nice post!
best,
DDH
Thank you for the visit and comment, I appreciate your kind words, Don.
You raise some really good points Joe especially about the decay of the middle class. I also find the jobs situation really interesting. On one hand, we hear that the US is headed back to full employment on the other hand (I don’t know about you but) I have friends and family who have lost their jobs and not returned to work or at least are not fully employed. I wonder if part of the challenge is that we keep getting told everything is going well.