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Family Net Worth Down Significantly After Recession

This article was written by in Wealth and Affluence. 13 comments.

The Federal Reserve’s survey of family finances in 2010, released recently, provides a picture of how devastating the recession has been to families’ financial conditions. Family income and net worth both declined from 2007 to 2010 across all slices of demographics, but the decline in net worth was much sharper. The Federal Reserve’s report on the survey contains a lot of interesting information, so I may return to it again, but I found the changes in net worth interesting.

If your net worth has increased from 2007 to 2010, congratulations. A family that shows an overall increase over the time period has bucked the trends and fought against the averages. With a wider economy pulling families in one direction, those who have managed to increase their net worth have shown uncommon success.

Don’t be too quick to accept responsibility for the relative success with net worth. The declines shown in the charts can be primarily due to changes in real estate valuation. As primary homes are not investments but still count in a net worth calculation, families don’t attempt to time the market with residences. To move a family when house values are at their peak would be disruptive, and unless the plan is to downsize or to rent, when you sell at the theoretical top to move, you’ll also need to buy your new place at the theoretical top. That eliminates any advantage to timing the market.

It’s possible to succeed with this strategy by selling at the top in one location while buying in a different location where prospects are good for future appreciation or by selling at the top and buying a house under-priced due to the work necessary to improve the property, but either situation can be majorly disruptive to a family. As most families do not attempt this, or they attempt and fail to make good decisions related to market timing, the result is a significant decline in net worth following a system-wide real estate market crash.

These numbers paint a dark picture over all of the nation’s wealth, but they also highlight some important distinctions. Continue reading to see the net worth chart from the study and some thoughts.

Family Net Worth

The chart illustrates a few interesting aspects of net worth in the United States.

There is a major net worth gap between the top ten percent and everyone else. The groups used in this chart aren’t designed for perfect comparisons. The four bottom categories represent the four lowest quintiles of Americans based on income, while the top quintile is split into two groups. It does help differentiate the major differences within the top 20 percent of income earners. The shape of a graph based on these data would be a steeply rising curve.

The top ten percent of income earners have an median net worth of $1.194 million — half of all families in this category earn more and half earn less. The mean is significantly higher than the median, at almost $3 million. With the mean so much higher than the median, net worth is majorly skewed in favor of the very top earners. The gap between the top 10 percent and the second 10 percent has increased since the beginning of the recession, further separating the elite from the less-elite.

A college degree is undeniably worthwhile. Education is one of the most-discussed topics on Consumerism Commentary, mostly due to the fact I consider education one of the most important aspects of any life. Yes, more important than money. Recently, I wrote about whether students should ever be discouraged from attending college and a recent study has shown that young adults deprived of a college education feel their life would be better with a degree.

Since 2007, the mean wealth of families whose head of the household has only a high school diploma decreased 17 percent. Households led by college graduates experienced a 15 percent decline. In addition to the smaller decline on wealth through the recession, the wealth of college graduates on a whole, whether looking at the median or mean, is significantly higher than those with just high school diplomas. As far as I know, these numbers are not normalized for other variables, so if home ownership rates are higher among college graduates, that could contribute to the higher level of wealth.

Self-employment relates to high net worth more than managerial positions. Numbers like these put the corporate rat race into perspective. So much time, when working for a corporation, is spent trying to get the next promotion, jockeying for a raise, and playing nice with management in order to gain favor, but the overall economic benefit of moving slowly up the ladder is limited.

Self-employment is a better way to build wealth for your family. One million dollars isn’t what used to be, but it is still more wealth than most families have. The Millionaire Next Door, the classic financial book with down-home advice about building wealth, explains how owning a business is much more effective for economic mobility than chasing the carrot in a job working for someone else. It’s riskier, but the benefits outweigh the drawbacks for the right person.

Have you bucked the trend and grown your net worth over the past few years including the recession?

Federal Reserve

Published or updated June 12, 2012.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 13 comments… read them below or add one }

avatar 1 Anonymous

I have grown my net worth but only because I was worth virtually nothing while I was attending college (although I wasn’t negative!) and now I’m worth much more because I save and invest so much of my paycheck. I lucked out at when I graduated I guess in one sense since I had no problem getting a job in my field.

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avatar 2 Luke Landes

Just not having a negative net worth in college certainly sets you apart! Congrats on getting a job in your field.

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avatar 3 qixx

My wife and i’s net worth has increased almost $20,000 since 2007. Mostly getting rid of Credit Card Debt. Significantly reducing car loans and slight reduction to student loans. A little over half of that comes in the last year and a half. Most of the rest comes from moving from 2 vehicles with loans down to 1 vehicle with a loan in 2009.

Here is a quick review of where we sit
Assets $15,672.14
Liabilities -$30,724.54
Total -$15,052.40

Last month’s total -$16,429.83
Change over last month $1,337.43
Last year’s total -$22,131.44
Change over last year $7,079.04
Change since we began tracking (Jan 2011) $11,139.54

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avatar 4 Anonymous

The popping of the real estate bubble took a big bite out of the average American’s net worth. We’re in the process of moving to a different town and a bigger house next month. The price we got for our current home was almost $100,000 less than it appraised for just a few years ago. We’re lucky though because we’re still breaking even. Many people are underwater in their mortgages and would have to bring significant money to closing.

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avatar 5 Anonymous

My net worth has indeed grown from 2007 to now… but that wasn’t hard, given that I started from a big ol’ negative thanks to student loans. Thanks to aggressive retirement savings, I’ve managed to increase my networth by over $100K in the past 5 years… BUT I’m heading back to grad school soon, and so my net worth will be taking a huge hit at least in the short term.

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avatar 6 Anonymous

The classic question popularized by Reagan “Are you off better than you were four years ago?”

Net worth wise without question yes.

Economically as stable? No. I felt much more secure in 2007 than I do now.

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avatar 7 Luke Landes

In what way do you feel less secure, if you don’t mind sharing?

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avatar 8 Anonymous

Some of this I observe within my business and environment.

– New small biz growth lowest amount recorded ever
– IMHO country headed in the wrong direction on many levels. Specifically regulations and policies. It’s becoming much more politicized in order to run a business. The red tape is becoming idiotic.
– Level of debt and more importantly deficits of our government with no logical methods to pay for it.
– Growth of the economy is awful. The worst since the depression.

I think since 2008 we’ve in for more common boom/busts and overall a much more unstable economy.

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avatar 9 Anonymous

My net worth has recovered, but it was primarily tied to the stock market and I bought more when the market was down so when it came back up, so did my net worth.

Incidentally, that’s also why the top 10% didn’t suffer as much. The middle class got hammered because the bulk of their wealth was in real estate. What they don’t tell you is exactly what Flexo pointed out – that wealth is in the primary residences, so it’s not really wealth in the same sense. Just like my 401(k). Yeah, it’s back up and so is my net worth as a result, but I can’t really access that wealth any time I want to, so it’s somewhat illusory.

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avatar 10 Ceecee

Slightly down since 2007, due to a stock market account that has not fully recovered from the downturn. Sad to think that I’d be better off if I left that cash in a low-rate CD, but that is the reality. Hoping to be back to even in the next year.

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avatar 11 Anonymous

My net worth has increased. I believe this is mainly because (1) I paid off my mortgage in 2004 and (2) as a result, I was able to max out my 401 (k) contributions and dollar-cost average into the stock market during the downturn. “Buy low, sell high” does work. Now I’m retired with enough of a portfolio to live off my investments, and two houses, both paid off. BTW I never earned more than about 50k in any one year

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avatar 12 Luke Landes

It sounds like you made a number of good decisions that paid off! Enjoy your retirement!

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avatar 13 Anonymous

We were fortunate to escape from the latest recession with our highest net worth ever. Main reason for that is following what I’ve come to call “the fifth dimension” of personal finance. From what I’ve read, personal finance wisdom boils down to four pillars:

– earn more
– spend less
– eliminate debt
– invest wisely

Flexo has all 4 covered, which is why this site is so powerful and why I visit so often.

But… there is a fifth dimension: timing. Buying a house at the bottom of a recession is much smarter than buying it at the top of the market. Same decision, same house even, but dramatically different result.

The only difference is timing. (And, no, this is not “timing the market.”)

There’s a simple chart I came across that shows the economic cycle. I can show the link if you’re interested.

What the chart shows is the U.S. has had a recession every 7-10 years, almost like clockwork, as long as most of us have lived. Stunning, when I first saw it. It’s so simple and so predictable. Yet I’m old and I missed it for so long.

But… now that I discovered it, it has worked like a charm. Recession now is what I look forward to, because if you have cash it’s the best time on earth to be buying and investing. The trick is to know where we are in the economic cycle and keying decisions off of that. I can preach more but only if someone really wants to know… :)

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