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Sunday, July 21, 2024

Unprecedented Surge in American Household Wealth During the Pandemic

The Federal Reserve’s recent data reveals remarkable financial progress for American families between 2019 and 2022. Median net worth surged by 37%, marking the largest increase on record since 1989, after adjusting for inflation. During the same period, median family income rose by 3% when factoring out inflation.

This unprecedented boost in wealth is not limited to a specific demographic; it spanned across the board. Savings increased, credit card debts decreased, and retirement accounts expanded. These findings corroborate data from other sources, both public and private, but the Federal Reserve’s Survey of Consumer Finances is deemed the most comprehensive and reliable.

The report also highlights the first time this data was released since the onset of the COVID-19 pandemic, offering insights into how American households fared during the tumultuous economic period. Families faced job losses on a significant scale in early 2020, but government relief packages aimed to mitigate the impact. More recently, a booming job market with low unemployment and substantial wage growth has contributed to increased incomes. However, inflation has offset some of these gains by raising living costs.

What makes this financial progress particularly notable is its comparison to the aftermath of the 2007-2009 recession, which saw a protracted recovery for household wealth, leaving some families behind.

While income increased for all groups from 2019 to 2022, the most substantial gains were experienced by higher-income households, thus widening income inequality. The data shows that median income (the midpoint among all households) increased, but average income (which aggregates all earnings and divides by the number of households) surged even more significantly.

Wealth inequality presents a more complex picture. Wealth disparities tend to grow when stocks, bonds, and housing prices rise since the wealthy own a substantial portion of these assets. In absolute terms, wealth increased more for affluent families. Still, in terms of percentage growth, lower-income families saw the most significant improvements. For instance, families in the bottom 25% saw their net worth rise from $400 in 2019 to $3,500 in 2022, while those in the top 10% experienced an increase in median net worth from $3.01 million to $3.79 million during the same period.

The extent to which pandemic-related payments affected these figures is challenging to ascertain. One-time stimulus checks and other forms of financial assistance would have contributed to measures of net worth. Moreover, families were still receiving pandemic payments when the income measures were collected in 2021, suggesting that pandemic-related financial support was a contributing factor.

The data also indicates that some Americans leveraged their improved financial positions to invest in stocks for the first time, with 21% of families owning stocks directly in 2022 compared to 15% in 2019, marking the most substantial change on record.

Although significant wealth and income disparities persist among racial groups, Black and Hispanic families experienced the most substantial percentage gains in net worth during the pandemic period. Black families saw a 60% increase in median net worth, reaching $44,900, while white families saw a 31% increase, bringing their household wealth to $285,000. Hispanic families experienced a 47% increase in net worth.

This report, albeit slightly dated, underscores the robust financial position of American families as they emerged from the pandemic. Solid net worth and rising incomes have allowed people to sustain their spending into 2023, contributing to the economy’s steady growth, even as the Federal Reserve increases interest rates to moderate it. This resilience raises the hope that the Fed may achieve a “soft landing,” gradually slowing the economy without causing a recession by overly burdening consumers.

David Faber
David Faber
I am a Business Journalist of The National Era
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