Not surprisingly, the wealth of a family is related to its income. In 1983, the median wealth of middle-income families was $95,879. This was much higher than the $11,544 wealth of lower-income families, but it was far less than the $323,402 wealth of upper-income families. Thus, in 1983, upper-income families had nearly 30 times as much wealth as lower-income families and about three times as much wealth as middle-income families.
The wealth gaps across families in the three income tiers widened greatly from 1983 to 2013. The wealth of lower-income families in 2013 was $9,465 – 18% less than they had in 1983. The wealth of middle-income families was essentially unchanged, rising only 2% to $98,057. However, the wealth of upper-income families doubled to $650,074 in 2013. Thus, in 2013, upper-income families had almost 70 times as much wealth as lower-income families and nearly seven times as much as middle-income families.
The increase in wealth gaps across income tiers occurred after an initial period of gains for lower-income families. From 1983 to 1992, the wealth of lower-income families increased from $11,544 to $14,024, or 21%. The median wealth of middle-income families was unchanged at around $96,000 in this period. Moreover, the gain for upper-income families was modest as their wealth increased 6%, to $344,162 in 1992.
A period of prosperity ruled from 1992 to 2001 as the wealth of all families rose sharply. For middle-income families, median wealth increased by 43%, from $95,657 to $136,445. Lower-income families experienced similar gains as their median wealth increased from $14,024 to $19,397, a boost of 38%. But gains for upper-income families were much sharper as their wealth almost doubled, from $344,162 in 1992 to $600,089 in 2001.
Lower- and middle-income families have continued to fall behind upper-income families in the 21st century. Heading into the Great Recession, lower-income families lost 6% of their wealth, edging down from $19,397 in 2001 to $18,264 in 2007. Middle-income families strengthened their position, raising their wealth by 18%, to $161,050 in 2007. Upper-income families fared the best, as their median wealth increased by 22%, to $729,980 in 2007.
The Great Recession had a negative impact on all families, with the greatest damage inflicted upon lower- and middle-income families. From 2007 to 2010, median wealth fell to $10,688 for lower-income families, to $98,084 for middle-income families, and to $605,228 for upper-income families. In percentage terms, these represented losses of 41%, 39% and 17%, respectively. Once again, upper-income families stretched their advantage, this time by losing proportionately less than other families.
The harmful effects of the Great Recession are showing signs of dissipating, but the clock is far from being rewound completely. Lower-income families continued to experience losses from 2010 to 2013 as their median wealth slipped an additional 11%. The wealth of middle-income families held steady, at about $98,000. Meanwhile, upper-income families stitched together gains in this period as their wealth rose to $650,074 in 2013, an increase of 7%.
Assets owned by lower-, middle- and upper-income families
Differences in the types of assets owned by families in the three income tiers likely contributed to the differences in the recent ups and downs of their respective portfolios. An owned home is a sizable asset for most American families.47 But while a home is the single most important asset of lower- and middle-income families, upper-income families have a wider variety of assets. For upper-income families, stocks and bonds and business assets are equally important.
In 2007 and 2013, the equity held in an owned home accounted for about 45% to 50% of the total mean value of assets owned by lower- and middle-income families.48 Stocks and bonds account for about 20% of the total assets of middle-income families but for less than 10% of the assets of lower-income families. Equity in an owned business is more important to lower-income families than to middle-income families, by a factor of about 2-to-1. For both income tiers, transaction accounts and other assets, such as vehicles and other personal property, account for about 30% of assets.
For upper-income families, an owned home represents only about 20% of the total value of assets. Stocks and bonds and business assets each account for 20% to 25% of total assets for these families, and other assets, including transaction accounts, make up an additional 30% or so. It is likely that the greater diversity of assets owned by these families is in itself a result of the greater financial means at their disposal.
The distribution of assets held by American families did not change much from 1983 to 2013. Stocks and bonds gained more importance in the portfolios of lower- and middle-income families from 1983 to 2001 as defined contribution pension plans, such as 401(k) plans, became more prevalent.
The greater reliance on home equity as a source of wealth proved to be detrimental to the financial health of lower- and middle-income families in the 21st century. The most significant economic events in this century have been the crash in the housing market in 2006, a meltdown in the financial markets in 2007-08, and the Great Recession of 2007-09.49
From December 2007 to December 2010, the Standard & Poor's 500 index fell 14%, and the Case-Shiller national home price index declined by 19%. Thus, as noted, families in all income tiers experienced significant losses in wealth.
In the post-Great Recession period, the stock market recovered more quickly than the housing market. The S&P 500 index rose 47% from December 2010 to December 2013 compared with a rise of 13% in the Case-Shiller national home price index. Overall, these trends in asset values favored families who owned relatively more financial assets than those who owned relatively more housing. Thus, during the course of the latest economic downturn and recovery, the wealth gap between upper-income families and other families grew.
A family’s wealth, or net worth, is the difference between the value of its assets and the value of its liabilities. Thus, in addition to asset prices, the amount of debt taken on by a family plays a key role in determining its net worth. Although the absolute value of assets rose more than the absolute level of debt in the years leading up to the Great Recession, the rate of growth typically was faster for debt – leaving families vulnerable when the economy weakened.50
From 1983 to 2001, asset values increased by more than the increase in debt levels for families in all income tiers. Among middle-income families the mean value of assets increased by $156,928, compared with an increase of $31,738 in their debt level. Thus, their mean wealth increased by $125,190 from 1983 to 2001.51 The pattern of asset values increasing more than debt levels also prevailed from 2001 to 2007.
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