recession

Wealth Loss and the Middle Class: Where We Are Post-Recession

Economic fallout proceeding the 2008 financial collapse has been tough on the middle class. But how tough exactly? A new study by the Russell Sage Foundation shows a stunning wealth loss that may be even greater than most realize.


Where are we?

In 2007 the economy was booming, stock and housing markets were seemingly safe and lucrative, the median net worth, according to the Russell Sage Foundation report, was $98,872. As we now know, this financial prosperity was not built to last, and in six years–as reported by the RS Foundation–the median net worth has depreciated by a little over 43 percent.

 

Who was most/least affected?

The economic collapse in 2008 affected all income brackets from the 25th percentile and up, but the severity at which these brackets were altered is far from equitable.


The graph above, from the Russell Sage report, illustrates this unevenly distributed loss of wealth, especially for those income brackets in the 50th percentile or lower. From 1984 to 2013, despite a major dip between 2007 and 2009, the 95th percentile’s net worth has still more than doubled. Conversely, however, the value of the 25th percentile has dropped by over 60 percent from 1984 to 2013.

In a nutshell, those who were of low income households to begin with, were proportionally hit the hardest.  

Recovery Since 2007

Recovery for those who lost the most has been marginal since the great recession. A lackluster housing market has since been a key factor in the stagnate middle-class recovery.  [contextly_auto_sidebar id=”eKiCiVXK63211eSskk4U7w0qPP99faWi”]

According to the report, the median of non-real estate related wealth dropped 29 percent since 2007 whereas the total net worth median is about was about a 43 percent deficit.

The stock market however has rebounded quite quickly, which may have contributed to a 12.6 percent increase in non-real estate net worth for the 95th percentile between 2003 to 2013 –this can also be attributed to the fact that high income households may hold more stocks and a larger portfolio.

The report offers little in the way of optimism, stating that the wealth gap between upper a lower income brackets shows little to no signs of improving in the near future, as the housing market continues to grow modestly.

Digging the Debt

A beacon of hope comes, unexpectedly, in the form of debt reversal. According to a Stanford study in 2012, the trends in both debt service payments and  financial obligations indicate that Americans are slowly emerging from their deficits.

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A recent Survey of Consumer Finances also found that debt, since 2007, has not expanded.

And though debt mitigation is a promising trend, adversely, debt reduction may be getting prioritized over consumption and therefore decreasing output into the economy.

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James Pero