It started with a CNN article catching my eye – Family net worth plummets nearly 40%. That article let me a to paper by the Board of Governors of the Federal Reserve System. This paper is titled Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances. A report the Fed issues every three years. What I found interesting about the report and how CNN presented the information was that the report offered both Median (the family right in the middle) and Average (add up all families and divide by the total.) Indeed, the median fell 39% during this period, yet the mean fell less than 15%.
It’s not a simple matter to parse out the reasons for this sharp difference. One likely cause I’d look at is the drop in real estate values over this period. The report shows 2/3 of residential homes carrying a mortgage. As the median value of these homes dropped 18.9% and the mean fell 17.6%, the effect on the homeowner’s equity is magnified. The Fed report offers “If primary residences and the associated mortgage debt are excluded, the median of families’ net worth is reduced from $126,400 to $42,300 in 2007 and from $77,300 to $29,800 in 2010. Although the adjusted wealth measure declined proportionately by only a somewhat smaller amount than the unadjusted measure—29.7 percent— the amount of the change is, obviously, much smaller; median adjusted wealth declined $12,600, while the unadjusted measure fell $49,100.” This confirms my suspicion that real estate was a major factor. Another cause is the demographic shift, new graduates coming into the job market at lower wages than they might have before the current economic troubles began.
An interesting report from the Federal Reserve, and not light reading, if you retrieve the article from the link above you’ll find an 80 page PDF dense with data that will take some time and patience to sift through. Next time, we’ll look at the changes in income over the same three year period.