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Great Recession slammed average American’s net worth 35%

Tim Devaney, The Washington Times –

For the second time in as many weeks, the federal government is out with new numbers measuring the toll the Great Recession has taken on the nest eggs of ordinary Americans.

The Census Bureau reported Monday that U.S. median household net worth declined 35 percent between 2005 and 2010, from $102,844 to $66,740, reflecting the plunge in housing prices and stock values.

That follows the Federal Reserve Board’s Survey of Consumer Finances, which was released last week and also shows that family income and net worth fell from 2007 to 2010.

“The overall decline in net worth reflects drops in housing values and stock market indices,” Census Bureau economist Alfred Gottschalck said in a statement.

Joseph Gagnon, senior fellow at the Peterson Institute for International Economics, agreed, saying that this drop “shouldn’t be too surprising considering we know house prices have fallen.”

Households led by people 65 and older saw the largest decline in median net worth, falling from $195,890 to $170,128. Other households saw their median net worth drop less in absolute dollar terms, though the decline, from $8,528 to $5,402, was greater in percentage terms for people 35 and younger.

However, the declines were perhaps more severe for those who were less established. Households led by people age 35 to 44 lost 59 percent of their median net worth, while younger households lost 37 percent, compared to older households who lost only 13 percent.

Those with more education, while still hit hard, were able to weather the storm slightly better than others. In 2010, people with a graduate or professional degree were worth $245,763, compared with $142,518 for people with a bachelor’s and $42,223 for people with a high school diploma.

And the gap between the rich and poor is growing.

In 2000, those with a bachelor’s degree had a median net worth that was nearly twice as large as those with only a high school diploma, but by 2010 the divide had increased to nearly 3 1/2 times as large. When comparing graduate and professional degrees to high school diplomas, the gap went from 3.5 times the net worth to 5.8 over the same period.

While economists put much of the blame for the decline on the housing market, they also said this means the numbers will get back to normal over the next few years as housing prices begin to stabilize.

“I think housing has bottomed out,” Mr. Gagnon said. “You should expect both housing and stock markets to rise slowly over time.”

Mr. Gagnon noted that while the stock market fell 23 percent between the Fed’s study in 2007 and 2010, it has since risen 18 percent.

The wealthy, therefore, will have an easier time getting over the recession, Mr. Gagnon explained, because they have “varied wealth” – including homes, stocks and businesses – while the middle class is mostly dependent on the value of their home.

“The wealthy had the biggest fall,” Mr. Gagnon said. “But I think the middle class was hurt more.”

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