Toll of US recession: Family net worth plunged 35 percent in five years

The typical US household saw its net worth fall from $102,844 in 2005 to $66,740 five years later. Although the data are about 1-1/2 years old, they highlight challenges still facing consumers.

The toll of the great housing bust and financial crisis came into clearer focus Monday, as the Census Bureau released numbers showing a 35 percent drop in net worth for the median US household between 2005 and 2010.

The numbers give a report card on the financial health of US families before and after the recession. The typical household saw its net worth – financial assets minus debts – fall from $102,844 in 2005 to $66,740 five years later, with the census giving those numbers in inflation-adjusted 2010 dollars.

What went wrong is no secret: A housing boom went too far, setting the nation up for a big decline in home values and a banking crisis that resulted in the loss of millions of jobs. The value of homes fell faster than the debt loads associated with mortgages, and major financial assets such as stocks also fell in value.

Although these forces affecting US consumers are well known, the census report provides hard numbers on the magnitude of their impact. The report parallels a separate survey, released last week by the Federal Reserve, which also provided numbers as of 2010.

The data are about a year and a half old, but they highlight challenges that are still affecting investor confidence and consumer behavior. About 11 million mortgages (23 percent of US home loans) are "underwater," with balances larger than the home value, according to estimates by CoreLogic, a provider of housing market data.

Stock prices, meanwhile, have recovered a bit since 2010 but remain below their prerecession peaks. The Standard & Poor's 500 stock index, adjusted for inflation, is little changed today from its 2005 value.

All educational groups experienced declines in median net worth in the census survey. But the numbers still reveal a large economic advantage that a college degree confers.

In 2010, a bachelor's degree was associated with about 3.5 times the net worth of a high school diploma – a gap that had grown significantly since 2000.

The other new analysis of family finances is the Survey of Consumer Finances, released every three years by the Federal Reserve. The Fed numbers, gathered in 2010 and released this month, found that incomes as well as net worth were hit hard by the financial crisis.

Median family income, before taxes, fell from $48,900 in 2001 to $45,800 in 2010, the Fed survey found. Like the census survey, its numbers are adjusted for inflation.

Median family net worth began the decade at $106,100 in 2001, rose to $126,400 in 2007, and then plunged to $77,300 in 2010, the Fed found.

Americans have been gradually repairing their personal balance sheets since the recession – whether through saving, paying down debts, or defaulting on loans. The Fed survey found modest declines in the percentage of families holding various forms of debt. As of 2010, some 47 percent of families had mortgage debt, 46 percent had an installment loan, and 39 percent had credit card debt.

And in the quest to better their employment prospects, the installment debt is increasingly likely to be for education. In 2007, vehicle loans were the largest category of installment debt, but by 2010 education loans had pulled into the lead.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.