Financially, You're Back to 1992 (but It's Not As Bad As It Sounds)

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1992 EconomyIt's official. Money-wise, you're right back where you were 20 years ago.

Last week, the Federal Reserve published its latest report: "Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances." But if the title alone is enough to start you yawning, stifle the urge for a moment. There are some interesting details in here.

For example, between 2007 and 2010 -- from Housing Bubble high to "We're out of recession" low -- the median net worth of U.S. households fell 39%. And post-plunge, your average U.S. family is now "worth" something on the order of $77,000, or roughly the same as it was back in 1992.

Rip Van Winkle's Worst Nightmare

Yes, you read that right. Two decades. Twenty years. Zero improvement in your family's fortunes. Tally up the value of your house, your 401(k), and your bank account, subtract your debt, and chances are you're right back where you started 20 years ago.

Nor do prospects look good for "making up the difference." Between 2007 and 2010, median family income in the U.S. declined by nearly 8%. (If you're curious to learn whether you're keeping up with the Joneses... they're making about $45,800 per year.) Meanwhile, stock-market-based retirement accounts are said to have fallen 7%.

Sounds Bad ... But Not That Bad, Right?

Salaries down 8% and 401(k) accounts that are 7% smaller isn't exactly good news, but those hardly sound like end-of-the-world numbers.

So where the heck did the headline-grabbing "39%" decline in net worth come from?

Anyone who's lived in America these past few years can probably guess at the answer: home values.

The real import of the Fed's report isn't that things have become universally bad in America, but that one particular factor in Americans' net worth took a particularly brutal beating when the housing bubble burst. With home values falling but homeowners' debt on their mortgages remaining basically unchanged, median home equity during the three years covered by this survey fell 42%, to about $55,000.


Aside From That, Mrs. Lincoln, How Was the Play?

Again, this is pretty bad news. But there was good news, too.

For example, by 2010, more than 25% of U.S. families were carrying essentially no debt -- a higher number than three years earlier. In particular, consumers have cut back on credit card debt, with 60% of U.S. households reporting that they pay off their credit cards in full, every month -- a 6.7 percentage point improvement over 2007. And even families that still do have credit card debt have less of it. Median credit card balances declined 16% to about $2,600.

As for mortgage debt, there's good news to report here, too. From September 2007 to September 2010, interest rates for a 30-year fixed mortgage dropped by more than 2 full percentage points to 4.35% (and are still dropping). So for those homeowners with the ability to refinance, debt has become less of a burden.

The End of Irrational Exuberance

Of course, cutting debt is just one step toward getting a family's finances in order. The other part is saving.

With 4.4% fewer households saying they were able to add to their savings in 2010 than in 2007, the Fed's report makes it clear that saving is getting harder. And that's not surprising. Overall incomes are down modestly, although median incomes among the poorest quintile of American families actually rose -- up about 4% to $13,400 annually.

But when people do get a chance to save, they're saving more carefully. The Fed survey shows a 3 percentage point increase in the value of households' retirement accounts between 2007 and 2010 -- a trend that's continued uninterrupted since at least 2001. Allocations of saving to steadier-paying bonds and to "liquid" checking and savings accounts are also up. Meanwhile, consumers are paring their exposure to volatile common stocks. The percentage of family financial assets invested in stocks dropped 3.8 percentage points between 2007 and 2010, and stock investments are down by fully one-third since 2001.

For anyone who's wondered why the stock market has been looking so anemic lately, this last point may be the most revealing of all.

With money flowing out of stock funds, and into cash and bonds, it's only natural that share prices would stagnate. Economics 101, after all, teaches us that lower demand leads to lower prices. The good news, though, is that if and when money starts flowing back into stocks at more historically normal rates, we could see a new stock market rally.

And this time, one better grounded in lower debt levels, and solid savings accounts to support it.

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w_diago

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July 16 2013 at 8:29 AM Report abuse rate up rate down Reply
Richard

You really have to laugh when you hear all the zombie Republicans wail about socialism yet they love those pork barrel projects like the defense industry that wastes more money than any single government agency. Take for example, the F-22 and F-35 fighter planes. The F-22 started out at about $89 million but now both have ballooned to over $310 million per copy. Republicans and Romney vow to increase defense spending by $100 billion while cutting social safety nets like Social Security and Medicare.

Even more hilarious is the flood of money coming in from tax evaders like Romney with his offshore Cayman Islands tax haven, Sheldon Adelson the gambling czar who funnels much of his wealth through casinos in Communist China and Donald Trump whose gambling empire included the Taj Mahal bankruptcy.

These multi-billionaires like the Koch brothers, Adelson, Trump and other super wealthy individuals who avoid paying their fair share of taxes have no problem flooding a cascade of money through super pacs like Americans For Prosperity which ironically the IRS defines as "social welfare organizations."

June 23 2012 at 1:23 PM Report abuse -1 rate up rate down Reply
ha6ai

What a disgusting photo of Obama! Thanks HuffPuff!

June 23 2012 at 5:41 AM Report abuse +1 rate up rate down Reply
chris1011

Your biggest problem righties is that Americans see Romney as a phoney. Read it and weep suckers: http://blogs.wsj.com/washwire/2012/06/20/poll-shows-obama-with-big-national-lead/

June 20 2012 at 4:02 PM Report abuse -1 rate up rate down Reply
chris1011

Let's try austerity and see if that works:

If Mitt Romney is elected president, the U.S. will experience an economic disaster the likes of which have been recently seen in Ireland, according to Paul Krugman.

"Ireland is Romney economics in practice," the Nobel-Prize winning economist and New York Times columnist said on the Colbert Report on Monday. "I think Ireland is America's future if Romney is president." (h/t Politico.)

"They've laid off a large fraction of their public workforce, they've slashed spending, they've had extreme austerity programs, they haven't really raised taxes on corporations or the rich at all, they have 14 percent unemployment, 30 percent youth unemployment, zero economic growth," Krugman said.

Romney, the likely Republican nominee for president, recently suggested that the government should lay off more firemen, policemen, and teachers, according to CNN. Romney's campaign website says that if elected president, Romney would aim to slash federal spending at least 18 percent by the end of his first term.

Conservatives like Romney loved Ireland's economic program before the country fell into a depression, in part because it had "the lowest corporate tax rates," Krugman said on the Colbert Report. Ireland fell into recession again at the end of last year.

June 19 2012 at 2:46 PM Report abuse -2 rate up rate down Reply
jdykbpl45

Money talks bull---- walks. Obama talks that is why we are walking, limping.

June 19 2012 at 10:32 AM Report abuse +1 rate up rate down Reply
vallowery1

1992 Great; Back to being broke, working 2 part-time jobs, full time in college, while living in the dorm, eating Raman, and watching Beavis and Butthead.

June 19 2012 at 6:35 AM Report abuse +3 rate up rate down Reply
William

Everyone is cutting thier debt. Except one. His holiness is out spending us all. In fact he's already spending your kids taxes that they have not made yet.

June 19 2012 at 3:38 AM Report abuse +2 rate up rate down Reply
Debbie Nap

Im finding that alot of people who have been married and have children that there finances are better but married couples with children grown and gone its much harder if living from week to week I noticed more of those married couples getting divorced just in order for the couples to make it..How sad is that

June 19 2012 at 3:18 AM Report abuse -1 rate up rate down Reply
rudniski136

I knew we are living back 20 years ago. All the kids are living with us again. Unforturnately, some of them brought extra people home with them but no money..

June 18 2012 at 10:12 PM Report abuse rate up rate down Reply
1 reply to rudniski136's comment
DAVID

Cool I am single again

June 18 2012 at 11:10 PM Report abuse +1 rate up rate down Reply