A new comprehensive report by the Federal Reserve finds that most Americans' incomes have fallen since 2010, and the recovery hasn't brought them back.
The verdict is in on the economic recovery, and it’s what you may have suspected: The only Americans who have really recovered are wealthy ones.
The majority of U.S. families could not even handle an unanticipated expense as small as $400, Federal Reserve Chair Janet Yellen says a new Federal Reserve survey has revealed. Those families would need to sell something, borrow or not pay, she said.
Financial crisis looming for many families
“For many lower-income families without assets, the definition of a financial crisis is a month or two without a paycheck, or the advent of a sudden illness or some other unexpected expense,” Yellen said, speaking to the Corporation for Enterprise Development, a nonprofit organization whose goal is financial independence for lower-income families.
She described more findings from the Fed’s Survey of Consumer Finances, a major study done every three years. This year’s study is called “Changes in U.S. Family Finances from 2010 to 2013: Evidence from the Survey of Consumer Finances.” Among the findings:
- The median net worth of the bottom 20 percent of U.S. households, some 25 million households in the lowest income bracket, was just $6,400. The median is the point in the middle for the group; half had a net worth that was higher, and half were lower.
- Many of those families had no savings at all. For some, their debts exceeded assets.
- The families in the bottom 40 percent in income had lost household wealth since 2010. “One reason is that income has continued to fall for these families,” she said.
For the study, researchers interviewed 6,026 people in 2010 and 6,492 in 2013. The new study compares those years with 2007 findings, just before the recession kicked in.
3 percent have more than half of the wealth
The most striking finding in the new Survey of Consumer Finances may be the degree to which wealth is being concentrated in the hands of a small portion of the population.
But the SCF shows that the wealth gap continues to grow. The share of wealth belonging to the richest 3 percent of Americans was:
- 44.8 percent in 1989.
- 51.8 percent in 2007.
- 54.4 percent in 2013.
The wealth gap widens
The next wealthiest 7 percent of the country owned 20.9 percent of the wealth in 2013. Unlike the very rich, though, their share and their incomes have stayed steady.
Taken together, these two wealthiest groups are 10 percent of the U.S. population; they hold three-quarters of the private wealth in the U.S.
Technology and globalization are among forces driving the wealth gap, Reuters says. Bloomberg names some other causes:
Households with access to assets such as homes and stock portfolios have found their wealth buoyed over the last three years. The Standard & Poor’s 500 Index climbed 47 percent in the three years ended December 2013, while the S&P/Case Shiller index of property values climbed 13.4 percent.
Meanwhile, the rest of the population was sliding backward. The households with the fewest assets lost more ground than most. Among families in the bottom 90 percent, “their slice of the pie fell to 24.7 percent, led by a 21 percent drop among the poorest 10 percent,” The Christian Science Monitor reported.
The share of wealth held by the bottom 90 percent was 33.2 percent in 1989, the report says.
Since the early 1990s, family incomes grew steadily in the U.S., the report says. That changed radically between 2007 and 2010, when median and average income dropped 8 percent and 11 percent, respectively.
In 2010-2013, that trend continued:
- Median income fell 5 percent, from $49,000 to $46,700. (All survey numbers are in 2013 dollars.)
- Mean (or average) income grew by 4 percent, from $84,100 to $87,200. That sounds hopeful, but average isn’t useful in this case because it is distorted by high earners’ much larger incomes.
Incomes in 2010-2013 moved in the same directions as wealth, down for most and up for those at the top:
- For households in the bottom 25 percent of net worth, median income declined 7 percent and average income fell 10 percent.
- Households in the 25 to 75 percent net worth group saw median income decline by 5 percent, and average income drop by 3 to 4 percent.
- “For those households in the 75th to 90th percentile of net worth, median income rose 10 percent,” the report said.
- In the top 10 percent of net worth, median income grew by 5 percent and average income jumped 13 percent.
The same trends occurred when the report looked at income gains and losses by income groups, rather than net worth:
Mean income declined strongly for the bottom two quintiles and barely budged for those between the 40th and 90th percentiles, whereas the mean income of the top decile increased 10 percent between 2010 and 2013.
The report also looked at how income was distributed among the various income groups:
- The share of income received by the top 3 percent of earners was 31.4 percent in 2007, then dropped to 27.7 percent in 2010, and rose to 30.5 percent in 2013.
- “The share of income received by the next highest 7 percent of the distribution has not changed over the past quarter of a century, sitting slightly below 17 percent in 1989 and 2013,” the report said.
- The income share of the bottom 90 percent of earners fell to 52.7 percent in 2013.
Think a college degree doesn’t matter? The report contradicts that view: “Between 2010 and 2013, both median and mean income changes were positively associated with educational attainment.”
- Average income for those with no high school diploma fell 17 percent, and median income dropped 9 percent.
- Average income for high school grads dropped 2 percent, and median income fell 6 percent.
- The average income for those who had completed a college degree rose 5 percent and median income increased by 1 percent.
Retirement security is in retreat
Retirement prospects also diminished in 2010 to 2013 for the bottom half of households.
The SCF found:
- The average retirement account among all U.S. households grew by 10 percent, to $201,300.
- Among those with incomes in the bottom half, the average IRA and 401(k) combined was $39,100, 20 percent less than in 2007.
The Fiscal Times reports from the study:
Ownership of retirement plan accounts also fell sharply. In the bottom half of income distribution, just 40 percent of households owned any type of account — IRA, 401(k) or traditional pension — in 2013, down from 48 percent in the 2007 survey. The Fed attributes the drop mainly to declining IRA and 401(k) coverage, since defined benefit coverage remained flat. … In the top 10 percent, 95 percent of families are covered.
Overall, household debt declined between 2010 and 2013. “Median debt declined 20 percent, and mean debt decreased 13 percent for families with debt,” the report said. It added:
Much of the decline in debt can be explained by a large decline in the fraction of families with home-secured debt, which fell from 47.0 percent to 42.9 percent, a decline that is only partly explained by the much smaller drop in homeownership.
The percentage of families who own a home, at 69.1 percent in 2004, was 67.3 percent in 2010, and dropped further to 65.2 in 2013, the lowest it’s been since 1995. The only income group that saw an increase in homeownership in the new report was the top 10 percent.
Meanwhile, student loan debt increased. Among families with a head of household 40 or younger:
- The portion with student loan debt grew from 22.4 to 38.8 percent between 2001 and 2013.
- Among those with student loan debt, the average debt grew from $16,900 in 2001 to $28,900 in 2013.
- The median debt grew in that time period from $10,500 to $16,800.
- In 2001, 78.2 percent of those with student loan debt owed less than $25,000, 15.6 percent owed between $25,000 and $50,000, 5.6 percent owned between $50,000 and $100,000, and 0.6 percent owed more than $100,000.
- In 2013, 64.2 percent owed less than $25,000, 17.1 percent owed between $25,000 and $50,000, 13.2 percent owned between $50,000 and $100,000, and 5.6 percent owed more than $100,000.
For more information on the report’s findings, see “Most US Families Aren’t Mired in Credit Card Debt.”