Last week the Federal Reserve published a study that made the news: between 2007 and 2010, Americans experienced a 39% decline in median net worth and an 8% decline in median income. The report is one of a series going back to at least 1989, but the new report shows an unprecedented decline in economic well-being.
Although the data are dismal, there is a lesson for Americans willing to fight: it’s time to return to the working and saving habits of American mythology where strong families work together toward common goals. Families will want to pull together into larger, more integrated economic units to help those affected recover and move forward.
The decline in median family income from $49,600 in 2007 to $45,800 in 2010 (7.7% decline) may not seem severe, but it is. The median family net worth, which is assets less liabilities, declined from $126,400 in 2007 to $77,300 in 2010 (38.8% decline). Both declines are unprecedented in modern times.
Two categories of people seem exempt from the dire results: the poor (lowest fifth) saw their median income increase from $12,900 to $13,400 (see table below). The poor are the only group to see an income increase over the period. The rich (top tenth) suffered a decline, but only 5%, going from $216,800 to $205,300.
The middle classes experienced the brunt of the drops in income and net worth. Families making between $20,000 and $80,000 experienced about an 8% decrease in income.
Among age classes, only the retired generations (65-74 and 75 and above) gained in income (5% and 22% respectively). Those in early- and mid-career suffered the largest drop in income, ranging from 9% to 10% over the period.
Net worth was hit the hardest in the middle class as well. People with incomes between the 20th and 80th percentile experienced on average a 35% decline in net worth, while the low income and high income people suffered relatively less. People in the highest income percentile experienced a slight increase (1.9%) in net worth.
Regionally, the West and the South suffered the most, but they gained the most in the years preceding 2007 (not shown in table).
Earlier Federal Reserve reports on family finances showed family income increased about 5% every three years, on average. In comparison, the 7.7% drop from 2007 to 2010 is very large and unique. In constant dollars, the 2010 income level approximates that of 1998 to 1999.
The net worth story is similar. Data from earlier Federal Reserve reports show net worth rising in every three-year period since 1992, except for the 2007 to 2010 period. The decline of 39% is so severe as to eliminate gains in net worth since about 1993, 17 years earlier.
Most Americans probably know families that have been affected. I know men in their 50s who have lost well-paying jobs and spent years looking for other work. Several have depleted their savings and spent their retirement accounts, which is also common among the unemployed younger workers.
Similarly, our family knows young people under- or unemployed for years, as well as early career people, many with young children, who are out of work. One ex-real estate agent in his 30s joined the National Guard to provide insurance and income for his family.
Often the tragedies are compound: a family might have expected to enjoy the American dream of two adult incomes and ever-rising home values. Perhaps they bought a large house with a large mortgage, often near 100% of the home value. When one person lost a job and the home value dropped by 20% to 30% or more, there was no escaping foreclosure and perhaps bankruptcy.
Now with no home, few employment opportunities, perhaps a divorce, a diminished credit rating and little access to new credit, these families face poor prospects for years to come.
Saving the Family
Given the federal deficits and the tightness of many state budgets, it is not reasonable to think government will come to the rescue. The difficulties described here attend the middle classes, and it is not feasible to bail everyone out.
Further, the current problems may persist for years, maybe decades. Young unemployed workers lose skills, retirement accounts are exceedingly difficult to rebuild, home values show little sign of heading up, and other world regions offer stiff competition for American businesses.
The most reasonable solution, it seems to me, is personal: affected families should pull together and commit to helping one another in unprecedented ways—in ways sometimes common to immigrant families where individuals pool resources and destinies. Health care, retirement, education may become jointly funded priorities among extended families, whereas in preceding generations, they were thought of as nuclear family responsibilities.
For people in later life, it may be time to return to work, not so much to eke by in retirement, but to help younger family members who get laid off or lose a home. For young families still doing well, it may be time to curb desires for top-tier living and begin laying money away to help siblings or parents through unemployment, illness or retirement.
These are not easy times, and the pain is not well distributed. Each affected family will need to reach into its spiritual resources and craft plans that serve individual members and fit the context of particular histories and personalities. On this blog, I’ve written about discovering freedom in retirement and helping family members. Finding freedom in ordinary life and helping family seem now, in light of the new Federal Reserve report, to be yet more appropriate. Those of us in later life need to reflect on larger family circumstances, assessing the need to help those around us, before we pursue our personal dreams.