Americans' Net Worth Has Plummeted, Report Shows

Personal wealth was decimated across America by the housing collapse and the financial crisis, according to a new report by the Federal Reserve. Incomes declined for almost all demographic groups, and net worth plummeted to levels not seen in a generation.

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DAVID GREENE, HOST:

And now we have new evidence to report of the impact of the financial crisis. A new report released yesterday by the Federal Reserve shows that many families across America have seen their personal wealth wiped out. In just the span of three years, the net worth of the median American household fell almost 40 percent and overall incomes declined for the rich and middle class alike. Joining me to talk about the study and what it means is NPR's economic correspondent Chris Arnold.

And Chris, I know you've been digging through these numbers. What is standing out to you so far?

CHRIS ARNOLD, BYLINE: So what we know is that times are tough. And that's not surprising. But if you look at all of this together - this report really lays out just how severe and damaging this financial crisis has been for so many Americans. And if you look at that headline number, I mean losing 38 percent of your life savings in three years, that's a tremendous hit. And that's almost 20 years of accumulated wealth wiped out in three years. So if you look at it that way, you can see what a shock to the system this recession has been.

GREENE: Those are pretty stunning number. When you talk about so much life savings disappearing, I mean who exactly are we talking about and what are these numbers telling us as you break them down?

ARNOLD: If we take the median family, which is the family right in the middle, where half of Americans have more money and half of Americans have less money, in 2007 that family had a net worth of $126,000. And just by 2010, that had fallen to $77,000. So that's a loss of almost $50,000 for that median family.

GREENE: When we're talking about losses like that, Chris, I mean you're using the term net worth, and I guess I wonder how much property has to do with that and home prices, which we've heard so much about.

ARNOLD: Yeah, I mean a lot of this has to do with home prices. And, you know, you look at the stock market. The stock market fell and then it rebounded. But home prices fell, and then they fell some more, you know. And even today they've barely come off the bottom. In some neighborhoods prices are beginning to recover, but in most of the country prices are flat. And they're down dramatically, by some measures 25, 30, 35 percent. So home prices accounted for most of the losses.

And if you look again at that median family in the middle, they lost about $35,000 in home equity. And if you look at people where there house really is their biggest asset - so the Fed looked at it by families headed by someone 35 to 44 years old, so they probably have a family and they bought their house not too long ago and they don't have a huge retirement savings account, their net worth fell by 54 percent.

GREENE: Wow. I guess one question, because as you look at this, I mean, it's a window, obviously, into the impact of the financial crisis. Can you see how it's affecting different income levels? I mean, lower income, the rich, the middle class, I mean who's taking the biggest hit in terms of income?

ARNOLD: Well, I think one big take away from this report is just how much this recession has been hurting middle class Americans, and in particular middle class homeowners, like we just talked about.

But its not just home values. When you adjust for inflation, incomes fell too. And median income, that family in the middle, fell from about $50,000 down to $46,000. So that's, you know, when you're earning 50 grand, a drop of $4,000 in your income is significant.

And if you look at the bottom 20 percent of Americans by income, they actually saw incomes go up a little bit. Not a lot, but there were some gains there. So the middle class is bearing the brunt. At the top, the wealthiest Americans, yes, they earned a little less. But the top 10 percent is still earning more than $200,000 a year. They took a smaller percentage hit than the middle class. So I think its' really a story about the impact on the middle class.

GREENE: Whenever we have you on the air talking about things like this, we always look for glimmers of hope. And I guess I wonder if there's anything encouraging. I mean, interest rates, we've heard about how low they are. Are they helping people at all?

ARNOLD: Yeah, and this is really important. It's something we've covered a lot on NPR. And you would think, OK, if you're making less money, you have less income, and all of your expenses are rising, how are you going to pay your debts? Your debt payments might go up. You get stuck. The opposite is happening, where people's debt payments are a smaller amount of their income. So that is interesting. Anybody you know who's refinanced their house and they're saving hundreds of dollars a month - that is helping a lot of people.

GREENE: All right. Thank you so much for joining us, Chris.

ARNOLD: Thanks, David.

GREENE: That's NPR economics correspondent Chris Arnold.

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