A new report from the Federal Reserve indicates that the median net worth of American families plummeted by 38.8 percent in the aftermath of the recession.
Median net worth nosedived from an average of $126,400 in 2007 to $77,300 in 2010, close to levels not seen since the Fed first conducted the income survey back in 1992. Much of the decline can be attributed to the plunge in home prices, which accounted for the largest asset of many American families. Median home equity, or the difference between the value of a home and any debts secured against it, fell from $95,300 in 2007 to $55,000 in 2010, a 42.3 percent decrease, according to the report.
Other factors included unemployment, which increased from 5.0 to 9.5 percent between 2007 and 2010, the highest level since 1983. Real gross domestic product also fell nearly 5.1 percent between the third quarter of 2007 and the second quarter of 2009, the period that the National Bureau of Economic Research officially characterizes as the recession.
Even if the recession is officially over, many Americans feel it has lasted to the present day. Unemployment ticked up a tenth of a percentage point last month to 8.2 percent as employers added only 69,000 jobs. Even though the Fed report only tracks data up to 2010, it noted, “Recovery from the so-called Great Recession has also been particularly slow; real GDP did not return to pre-recession levels until the third quarter of 2011. The unemployment rate continued to rise through the third quarter of 2009 and remained over 9.4 percent during 2010.”
The rising unemployment rate and the new report have become ammunition in the Presidential campaign. After the Fed released the report Monday, Mitt Romney told Fox News that President Obama should “go out and talk to people in the country and find out what’s happening.” He has argued in recent days that Obama is “out of touch.”
Obama, for his part, is pushing Congress to address the items on his “to-do list,” including job creation proposals such as a 10 percent tax credit for small businesses that create new jobs or increase wages this year. On the housing side, Obama wants Congress to pass legislation to cut red tape in the mortgage market to enable families to refinance their mortgages more easily at the current low interest rates.
Those steps might eventually help people recover more of their lost savings and net worth. But the future looks bleak for many families as their retirement savings dwindle and politicians talk of cutting back on the entitlement programs that keep many families afloat. With the aging of the Baby Boom population, Americans will need programs like Social Security, Medicare and Medicaid in the years ahead in ever greater numbers, especially as few have substantial enough retirement accounts to last them for very long.
The Federal Reserve report notes that from 2007 to 2010, the fraction of families with retirement accounts fell 2.6 percentage points to 50.4 percent. That decrease offset most of the 3.1 percentage point increase over the preceding three years.
In the aftermath of the recession, many families have needed to dip into their retirement savings if they had any, even while risking the heavy tax penalty of withdrawing money from a 401(k) account prematurely. Accountants can act as advisors to help their clients plan how to recover more of their lost savings and wealth, and advise them where to put their money to keep it from dwindling quickly. But a faster and more robust economic recovery will provide the most help for Americans’ bank accounts.
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