From 2007 to 2010, the middle class has suffered a devastating loss of income, jobs, home equity, and retirement savings. In fact, middle class families suffered the largest percentage decrease in net worth and income following the financial crisis, leading them to spend and save less, according to the Federal Reserve’s Survey of Consumer finances.
The Federal Reserve Bank’s survey, which is issued once every three years, provides information about the financial health of American families during the period from 2007 to 2010. Median family net worth fell by 38.8 percent down to 1992 levels, and median family income fell by 7.7 percent during that period. The median point is the middle of all the data points. (“Fed: Recession Kicked median household wealth to 1992 level,” by Tim Mullaney, USA Today and “Family Net Worth Drops to Level of Early ’90s, Fed Says,” InvestmentNews).
On the other hand, the wealthiest 1 percent of American families saw their net worth and income rise, in many cases dramatically so.
Scott Hoyt, an economist with Moody’s Analytics, explained: “Richer people owned more bonds that didn’t get killed. For middle-income households, their primary asset is their house’.”
The housing price bubble burst. The S&P/Case-Shiller U.S. Home Price Index fell 23 percent during the three years ended 2010, while the S&P 500 stock index lost 14 percent in the same period. American families lost $7 trillion in home equity. Median home equity fell 31.8 percent from $110,000 to $75,000 between 2007 and 2010. Housing prices have continued falling, dropping another 1.9 percent in the 12 months ended in March, according to the S&P/Case-Shiller composite index.
The percentage of families saving anything fell to 52 percent in 2010, and a growing number saved nothing. Education loans rose from 15.2 percent in 2007 to 19.2 percent in 2010, making up a larger share of the average family’s debt than car loans for the first time since the survey began.
The Fed found that middle class savings vehicles ? IRAs and 401(k)s ? got slammed, too. “The most noticeable drops in ownership were among families in the middle-income, middle-wealth, and middle-age groups,” the survey said, adding: “Retirement accounts had been growing in importance as a supplement to Social Security and other types of retirement income, and the decrease in ownership in the past three years may represent a setback.”
In short, the Fed’s survey shows that the rich got richer and the middle class got poorer. “It fills in details to a picture that we already knew was quite ugly, and these details very much underscore that, Jared Bernstein, an economist for the Center on Budget and Policy Priorities, was quoted as saying, adding: “It makes clear how devastating this has been for the middle class.”
Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.