The 2008 financial crisis was a near cataclysmic economic event. Coming in the midst of a recession, it set in motion structural changes in the economy still impacting millions of Americans.
The recession officially ended in June 2009 but the recovery for individuals has been painfully slow. Unemployment has remained stubbornly high and many of those with jobs are under-employed, working part-time when they want and need a full-time job.
How are you doing?
While the stock market has surged and the housing market has begun to recover, many consumers simply don't feel that well off. A group of economic researchers at Ohio State University has studied household wealth in America and concludes that many of us haven't recovered. In fact, it's not even close.
The economists focused on the mean net worth of American households – what households are worth when you subtract debts from assets. They found the average household net worth is about 14% less than it was before the pre-recession peak in 2006. If you are middle-aged and middle income, the economists say, you suffered the biggest hit.
These findings may come as a shock to the Federal Reserve, which issued a report last summer finding that the net worth of Americans had recovered since the recession. In fact, the Fed said we've never had it so good, with overall wealth the highest it has been in nominal terms since records began in 1945.
Why would there be such a disconnect? The Ohio State economists point to four reasons; the Fed didn't adjust for inflation nor for population growth; it included accounts held by foreigners living outside of the United States; and it included wealth held by nonprofits and not just households.
“All four of these issues with the Fed report pointed in the same direction, leading toward a conclusion that was far rosier than what exists in the real world,” said Randy Olsen, co-author of the study and a professor of economics at Ohio State.
Remember that in 2006 the U.S. was at the height of the housing bubble. Home prices were racing higher, creating equity for people who had purchased their homes just a few years – in some cases a few months – earlier.
Counties still suffering
The collapse in housing also affected the wealth of municipalities, that depend in large part on property tax revenue. Another study – this one by the National Association of Counties, also suggests the recovery has been uneven. It shows that about half the counties in the U.S. had yet to recover to pre-recession levels by 2013. The association characterizes the economic recovery as “fragile.”
According to the OhioState study real net worth peaked at $398,620. At the bottom of the recession in 2009, it fell to $217,687, largely due to a collapse in home prices. By 2012 it had recovered to $333,859 but was still 16% below its pre-recession high. The stock market rally of 2013 and continued recovery in the housing market brought household wealth to 14% below the 2006 high.
The study also shows that the recovery of wealth has been uneven, perhaps contributing to the emerging political issue of “income inequality.” In terms of net worth, some have definitely gotten back on their feet faster than others.
In something of a surprise, the study shows people in the bottom quarter of wealth had recovered most of their lost wealth by 2012. But maybe that's not so much of a surprise when you consider they had little to lose and recover.
“Many may have already lost their homes and had their credit cards taken away,” Olsen said. “If they can’t borrow, they can’t go into debt. Some may have paid off their old car loans, which gives them a small asset.”
The not-quite rich
The upper middle class, meanwhile, is still playing catch-up. Their net worth is still 19% to 23% below their 2006 wealth levels. As you might expect the top 1% has done exceedingly well, since much of the driver of net worth in the last five year has been the equity markets.
But those who have taken the biggest economic hit since the recession are those now in their middle years, between the ages of 35 and 54. In 2012 they were a staggering 27% below their 2006 wealth peak, at a time in their lives when that loss weighs heaviest.
“What we’re seeing in these middle-aged people is very disheartening, because they are in what should be their peak earning years, when they should be accumulating assets before retirement,” Olsen said.
Instead, many in this age group have lost jobs. Many have been forced to liquidate assets because they can't find work.
“As much as the Federal Reserve might want people to believe we have recovered from the recession, the bottom line is that we haven’t.”