Trade & Tariffs
Despite the pandemic’s effects on the economy, the total wealth of American households has grown since the Great Recession. This is according to data from the Federal Reserve, which calculates household wealth as net worth — the value of assets subtracted by the liabilities and debts owed. Accounting for inflation, total household net worth has grown 81% from $68 trillion in the first quarter of 2009. In the fourth quarter of 2020, the total net worth of American households was $123 trillion, or roughly $900,000 per household on average.
So far, the economic recession due to the COVID-19 pandemic has not significantly decreased household wealth. While overall household wealth fell roughly 18% from the third quarter of 2007 (the peak before the Great Recession) to the first quarter of 2009 (the trough), wealth has already resumed climbing after a brief fall of 7% in the first quarter of 2020.
While the wealth decline during the Great Recession affected all income groups, the dip in the first quarter of 2020 was primarily experienced by the top 20% of income earners. This is at least in part due to the fact that investments in the stock market make up a much larger proportion of wealth for top income earners, and the stock market was hit particularly hard in the first quarter of 2020.
[For more on how the standard of living changed in 2020, see the State of the Union: Standard of Living]
While middle class wealth has grown 37% since the low of the Great Recession, adjusting for inflation, wealth for the top 1% of income earners has grown over three times as fast. (Wealth ownership also varies by race.)
These differing growth rates resulted in a changing distribution of wealth, despite growth in absolute levels of wealth for all income groups. For example, while the wealth of the middle 20% of income earners has grown 68% since 1990, these households went from owning 12% of wealth in 1990 to 7% in 2020. The middle-class share of wealth has fallen two percentage points since the first quarter of 2009. In that same time, the share of wealth owned by the top 1% of income earners has increased six percentage points.
For the top 20% of income earners, wealth is composed of a diverse number of assets. Roughly 30% is in corporate equities and mutual fund shares, 20% is in real estate, and 20% is in pensions. However, for the bottom 60% of American income earners, household net worth is predominately composed of real estate (46% of total) and pension entitlements (28%).
Differing wealth compositions by income group plays a role in the differing rates of wealth growth. Investments in the stock market, in the form of corporate equities and mutual fund shares, have grown at a much faster rate than other types of assets — 294% since the 2009 low, adjusting for inflation. Assets held in real estate have only grown 31% in that time.
As the pandemic continues, it will be critical to continue to track patterns in household wealth across different income groups. In the initial response to COVID-19, the government made certain protections to prevent foreclosures, which had contributed to a major loss of assets for many Americans during the previous recession. However, should these protections end before the economy recovers, household wealth may take more of a hit.
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