Personal Finance

Wealth Drain: Most Americans Own Less Than They Did in 2005

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There’s two ways to measure how people are doing financially: How much they earn, and how much they own. The second category gets less attention, but it can be just as important. And it’s very likely that you own a lot less than you did before the Great Recession. In fact, odds are roughly 50/50 that you own less than you did in the year 2000, according to the latest Census data. That’s stunning. And it’s another reason you might feel restless.

With so much talk about “1 percenters” and the minimum wage recently, I feel like the big, often economically silent middle of America hasn’t gotten the attention it has deserved.  Let’s call them the “20 to 80 percenters.” I know that doesn’t have much of a ring to it, but it’s a pretty important group. And here’s the sad truth about what they own.

Last week, the Census Bureau released new figures on net worth, broken out in quintiles — the top 20 percent, the 20-40 percent, the 40-60 percent, and so on.  Net worth is a pretty simple, but important, number. It’s basically the value of folks’ homes, savings, retirement accounts and other financial assets minus their debts — mortgage debt, credit card debt, and so on. So a $400,000 home with a $300,000 mortgage counts as a $100,000 asset. The census released data for 2000, 2005 and 2011, meaning the data isn’t quite current.  Still, it’s incredibly illuminating.

Census_Where_is_the-wealth

It shouldn’t surprise anyone that all five groups own less than they did in 2005, at the height of the housing bubble. Housing values have a big impact on net worth measures, at least in the top 3 quintiles.

But if you dig into the numbers a bit, you can see how punishing this drop is on the middle class. Up there in the richest fifth of Americans, the median net worth of that group dropped 19%. That’s a bit harsh, sure. But look at the middle group, where net worth dropped from $106, 591 to $68,839. That’s 35%.

The “middle” middle class lost more than one-third of its net worth between 2005 and 2011!

Drop down a quintile and you’ll see even worse punishment. The 60-80 percenters lost more than half of their net worth. Even the pretty-well-off Americans in that second group, the 20-40 percenters, lost more than a quarter of their wealth (26%).

I’d argue these dramatic numbers actually understate the problem.  Losing one quarter to one-half of your net worth when you didn’t have much to begin with is a heck of a lot bigger kick in the teeth than losing that much as a wealthy person. After all, that awful number, “zero net worth,” starts staring up at you. By now, I hope you’ve noticed that the bottom quintile lives with negative net worth and the 20-40 percenters aren’t too far off.

But climb up the scale again, and you’ll see that folks have assets that are roughly equal to one year’s wages. That means their lives are teetering on a razor’s edge. As I’ve argued many times — middle-class and upper-middle class Americans have a lot more in common with those below them than those above on the income class scale.

I’ve concentrated here on the impact of the recession on net worth between 2005 and 2011, but the chart above tells another alarming story. The bottom two quintiles have lost ground since 2000…after 11 years of work, school, hopes and dreams…that massive group owns less than it did at the turn of the century. Even the next two groups — the 40-80 percenters — have seen their assets grow by less than 10% during that time. If it feels like you aren’t getting anywhere, you probably aren’t.

Net worth is a very rough measure of how people are doing. Another housing bubble could reverse this chart within a couple of years. Still, when you look at where the assets in America are, it’s not with these 20-80 percenters. Look at the jump in median asset value between the top 20 and the next 20. This is one reason America should consider an asset tax in addition to, or as a replacement for, the income tax. 

It’s certainly a reason you feel restless.

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Image: Yanik Chauvin

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