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A Drop in Most American’s Net Worth

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.

  • Elle June 13, 2012, 9:24 am

    I am not sure I am understanding what “sharp difference” you are trying to explain. If it is the difference between the declines in the 2010 median (39%) and mean (15%), then I think this is mostly because the wealthy got hit less hard than the not-so-wealthy. See Table 4, last category “Percentile of Net Worth.” One of the five groupings by percentile range had an increase in both median and mean net worth from 2007 to 2010: The top ten percent. All other percentile ranges had declines. This skews the overall mean (that is, the mean for all) so that its decline is not as much as that of the overall median.

    For those interested in wealth re-distribution, the median is the number to which one should pay attention.

  • JOE June 13, 2012, 9:54 pm

    I am looking at Table 4 and see the top 10% (the 90-100 percentile) saw the mean number drop by 15%, so as a group the top 10% loss this amount. The median number for this group rose a bit suggesting the lower half shifted a bit to the better.
    Yes, I was struck by the difference between the drop to the median family, and agree that during this period, the ‘rich’ got richer, i.e. lost less.
    I conclude it was the result of the real estate crash more than anything nefarious.

  • Elle June 15, 2012, 12:52 pm

    From your response, I see I was looking at the 2001 column, not the 2007 column. Pardon my read-o. Feel free to delete my comment. Though it is interesting that, from the 2001-2010 period, only the top 10% had their average and median net worth rise (assuming I am reading the table correctly this time).

  • JOE June 15, 2012, 5:40 pm

    No problem. I find this type of data fascinating. To add one more observation – Those with College degree – from 2001 the median fell over 25%, with the mean basically flat. I know that people shift within percentiles, and move from one range to another. I’m sure there’s some more ‘peeling back the onion’ needed to really understand what’s going on.

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