Saturday, June 30, 2012

US FedReserve Reports Family Income/Wealth Declining

Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances

Jesse Bricker, Arthur B. Kennickell, Kevin B. Moore, and John Sabelhaus, of the Board's Division of Research and Statistics, prepared this article with assistance from Samuel Ackerman, Robert Argento, Gerhard Fries, and Richard A. Windle.

The Federal Reserve Board’s Survey of Consumer Finances (SCF) for 2010 provides insights into changes in family income and net worth since the 2007 survey.

Over the 2007–10 period, the median value of real (inflation-adjusted) family income before taxes fell 7.7 percent; median income had also fallen slightly in the preceding three-year period (figure 1). The decline in median income was widespread across demographic groups, with only a few groups experiencing stable or rising incomes. Most noticeably, median incomes moved higher for retirees and other nonworking families. The decline in median income was most pronounced among more highly educated families, families headed by persons aged less than 55, and families living in the South and West regions.

Real mean income fell even more than median income in the recent period, by 11.1 percent across all families. The decline in mean income was even more widespread than the decline in median income, with virtually all demographic groups experiencing a decline between 2007 and 2010; the decline in the mean was most pronounced in the top 10 percent of the income distribution and for higher education or wealth groups. Over the preceding three years, mean income had risen, especially for high-net-worth families and families headed by a person who was self-employed.

The decreases in family income over the 2007−10 period were substantially smaller than the declines in both median and mean net worth; overall, median net worth fell 38.8 percent, and the mean fell 14.7 percent (figure 2). Median net worth fell for most groups between 2007 and 2010, and the decline in the median was almost always larger than the decline in the mean. The exceptions to this pattern in the medians and means are seen in the highest 10 percent of the distributions of income and net worth, where changes in the median were relatively muted. Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices.

This collapse is reflected in the patterns of change in net worth across demographic groups to varying degrees, depending on the rate of home ownership and the proportion of assets invested in housing. The decline in median net worth was especially large for families in groups where housing was a larger share of assets, such as families headed by someone 35 to 44 years old (median net worth fell 54.4 percent) and families in the West region (median net worth fell 55.3 percent). A substantial part of the declines observed in net worth over the 2007–10 period can be associated with decreases in the level of unrealized capital gains on families’ assets. The share of total assets of all families attributable to unrealized capital gains from real estate, businesses, stocks, or mutual funds fell 11.6 percentage  points, to 24.5 percent in 2010. Although the overall level of debt owed by families was basically unchanged, debt as a percentage of assets rose because the value of the underlying assets (especially housing) decreased faster. With overall median and mean debt basically unchanged or falling less than income, measures of debt payments relative to income might have been expected to increase. In fact, total payments relative to total income increased only slightly...For more, go to

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