Not feel­ing the re­cov­ery? You’re not alone

The Mercury (Pottstown, PA) - - BUSINESS - Liz We­ston

In­comes are up, the stock mar­ket is soar­ing, and home prices have largely re­cov­ered from the mort­gage melt­down. But Amer­i­cans still haven’t re­gained all the wealth they lost and, on the whole, are worse off than in 1998.

The Fed­eral Reserve’s jus­tre­leased Sur­vey of Con­sumer Fi­nances, done ev­ery three years, tells a stub­bornly grim tale. Me­dian net worth for all fam­i­lies, mea­sured in 2016 dol­lars, dropped 8 per­cent since 1998. (The sur­vey’s def­i­ni­tion of fam­i­lies in­cludes sin­gle peo­ple and child­less cou­ples and is equiv­a­lent to how other gov­ern­ment sur­veys de­fine house­holds.) In ad­di­tion:

• The low­est in­come fam­i­lies — the bot­tom fifth — saw their net worth fall 22 per­cent.

• Hard­est hit is the work­ing class, the sec­ond-low­est in­come tier, whose net worth de­clined 34 per­cent.

• Fam­i­lies in the mid­dle, with in­comes from $43,501 to $69,500, treaded wa­ter, up just 3.5 per­cent.

• For the top 10 per­cent, net worth rose 146 per­cent since 1998. In 2013, the last time the sur­vey was done, net worth for the top 10 per­cent had risen about 75 per­cent since 1998.

Net worth is what peo­ple own — their houses, cars, re­tire­ment and sav­ings ac­counts — mi­nus what they owe in mort­gages, stu­dent loans, credit cards and car loans. An anal­y­sis of the 2016 data shows that peo­ple in the low­est two in­come bands are get­ting squeezed from both ends.

Amer­i­cans own less and owe more

Me­dian debt for all fam­i­lies in­creased by 25 per­cent since 1998 but rose much more sharply for the lower and work­ing classes. Debt was up 57 per­cent for those with in­comes below $25,300 and up 58 per­cent for those with in­comes be­tween $25,301 and $43,500. By con­trast, debt for the mid­dle class — house­holds with in­comes from $43,501 to $69,500 — rose 12.5 per­cent.

The top 10 per­cent, those with in­comes above $177,100, saw a surge in debt as well. The me­dian amount they owed rose 61 per­cent — but the value of their as­sets more than dou­bled. Con­trast that with the lower class, who saw the me­dian value of their as­sets slide by 47 per­cent, and the work­ing

class, whose as­set value de­clined 27 per­cent.

Home­own­er­ship dropped in all in­come cat­e­gories but most steeply in the bot­tom three. The home­own­er­ship rate fell 11 per­cent for the lower class, 7 per­cent for the work­ing class and 5 per­cent for the mid­dle class. Among

the high­est-earn­ing fam­i­lies, the de­cline was less than 2 per­cent. The value of their homes, though, rose 66 per­cent, com­pared with 25 per­cent over­all.

Why net worth mat­ters

The de­cline in wealth ac­tu­ally started long be­fore the re­ces­sion, says so­ci­ol­o­gist Fabian Pf­ef­fer, re­search as­sis­tant pro­fes­sor

at the Uni­ver­sity of Michi­gan’s In­sti­tute for So­cial Re­search. The hous­ing bub­ble, which peaked in 2007, ob­scured the fact that many Amer­i­cans had been los­ing ground since the 1980s, he says.

Econ­o­mists can de­bate pre­cisely why so many peo­ple have taken it in the teeth in re­cent decades, but it’s clear that years of stag­nant or drop­ping in­comes have taken a toll on their abil­ity to get ahead.

The Fed sur­vey shows the me­dian fam­ily in­come be­fore taxes peaked in 2004; by 2013, it had fallen more than 12 per­cent. In­comes have since re­cov­ered some­what but are still 4 per­cent lower than that high-wa­ter mark.

Less in­come means less money to in­vest in homes, ed­u­ca­tions and re­tire­ment. Less in­vest­ment leads to less wealth. Less wealth means be­ing less able to help the next gen­er­a­tion get started with ed­u­ca­tions and down pay­ments. And so the gap widens.

If all boats were ris­ing, tax cuts that ben­e­fit mostly the af­flu­ent wouldn’t be a cri­sis. Un­der cur­rent cir­cum­stances, though, too many peo­ple are sink­ing or barely stay­ing afloat. Law­mak­ers should fo­cus their con­cern on those folks, not the ones in the yachts.

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