Recession Hits Personal Wealth Hard

After years of prosperity and gain the latest recession has wiped out nearly 20 years of stored value of personal wealth. The New York Times reports, a thorough survey of American Households, the Fed releases data on consumer finance once every three years. The release revealed 75% of the loss of families’ personal wealth is due to the housing market.

In 2007 the median net worth of an American household was $126,400, in 2010 that same statistic read at only $77,300, a 39% evaporation of net worth. What’s more, incomes have gone down as well. In 2007 the average income was $49,600, in 2010 it went down to $45,800. That’s translated to a major loss.

Families’ ability to sock away savings has dwindled proportionately even though the savings rate has gone up. That means income is not sufficient enough to sustain and grow wealth as it stands. Yet, more people are attempting to save even though it’s not accumulating. What the survey revealed is the decision to save is influenced by the attitude towards the economy. As reported in the NY Times article, “The survey also found a shift in the reasons that families set aside money, underscoring the lack of confidence that is weighing on the economy. More families said they were saving money as a precautionary measure, to make sure they had enough liquidity to meet short-term needs.”

What’s also at play is the way families are borrowing. Since interest rates are so low, ironically, people have found a different means to borrow, lowering their credit card debt. Since 2007 credit card debt went down 6.7% with a median balance going down 16.1%. And for the first time in the history of the consumer finance survey, encumbered student loans have eclipsed auto loans.

It’s something to think about when a couple years can evaporate twenty years worth of personal wealth. That’s the reason the economy and housing are so important, their improvement will invariably alleviate people’s personal financial pain.