Pew Research on recovery: A rise in wealth for the affluent; declines for the lower 93%


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On April 23, the Pew Research Center released its report, An Uneven Recovery, 2009-2011.
Pew found that during the first two years of the nation’s economic recovery, the mean net worth of households in the upper 7 percent of the wealth distribution rose by an estimated 28 percent, while the mean net worth of households in the lower 93 percent dropped by 4 percent, according to Pew’s analysis of newly released Census Bureau data.

From 2009 to 2011, the mean wealth of the 8 million households in the more affluent group rose to an estimated $3,173,895 from an estimated $2,476,244, while the mean wealth of the 111 million households in the less affluent group fell to an estimated $133,817 from an estimated $139,896.
These wide variances were driven by the fact that the stock and bond market rallied during the 2009 to 2011 period while the housing market remained flat.

Affluent households typically have their assets concentrated in stocks and other financial holdings, while less affluent households typically have their wealth more heavily concentrated in the value of their home.

From the end of the recession in 2009 through 2011 (the last year for which Census Bureau wealth data are available), the 8 million households in the U.S. with a net worth above $836,033 saw their aggregate wealth rise by an estimated $5.6 trillion, while the 111 million households with a net worth at or below that level saw their aggregate wealth decline by an estimated $0.6 trillion.

Because of these differences, wealth inequality increased during the first two years of the recovery. The upper 7 percent of households saw their aggregate share of the nation’s overall household wealth pie rise to 63 percent in 2011, up from 56 percent in 2009. On an individual household basis, the mean wealth of households in this more affluent group was almost 24 times that of those in the less affluent group in 2011. At the start of the recovery in 2009, that ratio had been less than 18-to-1.
Pew said it focused on the upper 7 percent of households rather than some other share of high wealth house-holds reflects the limits of the tabulations published by the Census Bureau.

Overall, the wealth of America’s households rose by $5 trillion, or 14 percent, during this period, from $35.2 trillion in 2009 to $40.2 trillion in 2011. Household wealth is the sum of all assets, such as a home, car, real property, a 401(k), stocks and other financial holdings, minus the sum of all debts, such as a mortgage, car loan, credit-card debt and student loans.

During the period under study, the S&P 500 rose by 34 percent while the S&P/Case-Shiller home price index fell by 5 percent, continuing a steep slide that began with the crash of the housing market in 2006. Housing prices have slowly started to rebound in the past year but remain 29 percent below their 2006 peak.

The different performance of financial asset and housing markets from 2009 to 2011 explains virtually all of the variances in the trajectories of wealth holdings among affluent and less affluent households during this period. Among households with net worth of $500,000 or more, 65 percent of their wealth comes from financial holdings, such as stocks, bonds and 401(k) accounts, and 17 percent comes from their home. Among households with net worth of less than $500,000, just 33 percent of their wealth comes from financial assets and 50 percent comes from their home.

The Census Bureau data also indicate that among less affluent households, fewer directly owned stocks and mutual fund shares in 2011 (13 percent) than in 2009 (16 percent), meaning a smaller share enjoyed the fruits of the stock market rally. Likewise, fewer had individual retirement accounts (IRAs) or Keogh accounts (22 percent in 2011 versus 24 percent in 2009) and the same share had 401(k) or Thrift Savings Plan accounts (39 percent in both years). Among affluent households, there was also a decline in the share directly owning stock and mutual fund shares during this period (59 percent in 2011 versus 62 percent in 2009), but a slight increase in the share with IRAs or Keogh accounts (70 percent versus 68 percent) and a larger increase in the share with 401(k) or Thrift Savings Plan accounts (65 percent versus 61 percent).

Overall, net worth per household in the U.S. in 2011 made up nearly all the ground it had lost since 2005. Total household wealth doubtless rose for a period after 2005 before falling precipitously during the Great Recession and rebounding since then. However, no household wealth data are available from the Census Bureau for the years between 2005 and 2009. Looking at the period from 2005 to 2009, Census Bureau data show that mean net worth declined by 12 percent for households as a whole but remained unchanged for households with a net worth of $500,000 and over. Households in that top wealth category had a mean of $1,590,075 in wealth in 2005, $1,585,441 in 2009 and $1,920,956 in 2011.

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