Reports keep telling us that America’s economy is improving, with new jobs continually being created and GDP slowly but steadily rising; but a new survey by the Pew Research Center revels that most Americans are simply not being taken along for the ride.
“The net worth of American families overall (the difference between the values of their assets and liabilities)” suffered “a dramatic drop during the Great Recession,” the report reveled. “From 2007 to 2010, the median net worth of American families decreased by 39.4%, from $135,700 to $82,300.”
Such a plunge in personal wealth is quite understandable, given the financial devastation that touched every part of the U.S. economy from housing, to manufacturing, to employment, to exports, to stock markets. “Rapidly plunging house prices and a stock market crash were the immediate contributors to this shellacking,” Pew underscores.
But things have not improved all that much since then, and Pew has the disappointing numbers to prove it. “The typical household had a net worth of $81,400 in 2013, according to the Fed’s survey,” the report revealed, “almost the same as what it was in 2010, when the median net worth of U.S. households was $82,300 (values expressed in 2013 dollars).”
In fact, the numbers show that Americans’ average net worth is still shrinking, falling from $135,700 in 2007, to $82,300 in 2010, to $81,400 in 2013 – a total decline of 40.01%.
So how have you been doing since the financial crisis? Better or worse? While the Pew report reveals that some factors contributing to American families’ change in wealth might be out of their control, there are other factors which are very much within their control. Let’s take a look at some of the them and see if we can do something about our own progress, or lack thereof as the case may be.
Factors Beyond Our Control
If we are finding we haven’t progressed all that much, the first thing we need to do is understand we are not the only ones, and that many others are experiencing precisely the same struggles. Somehow, it helps us muster up the courage to carry our burdens knowing that we are not alone.
In fact, much of our eroding wealth could have nothing to do with us at all. Or a least, nothing we ever had any control over.
“Our analysis of Federal Reserve data does reveal a stark divide in the experiences of white, black and Hispanic households during the economic recovery,” the Pew report informed. “Wealth inequality has widened along racial and ethnic lines.”
The following graphs depict how the wealth gap between whites and non-whites has widened in recent years. In fact, even before the recent economic crisis these gaps were growing wider.
For instance, the gap in net worth between whites and African Americans was narrowest from about 1998 to 2001, with the average white household earnings 6 times more than the average black household. That gap widened to 10 times in 2007 just before the economy collapsed.
By 2013, the year from which the latest data is available, the wealth gap between whites and blacks has widened to 13 times, the widest since the end of the 1980s.
Source: http://www.pewresearch.org/fact-tank/2014/12/12/racial-wealth-gaps-great-recession/
The situation is very similar for the wealth gap between white households and Hispanic households in the U.S. Where the gap was narrowest in 1995 at some 6 times in favor of white families, it had widened to 8 times by the start of the crisis in 2007. Since then it has widened even more to 10 times in favor of white families.
One reason for this, which the Pew report does not suggest, is that the loss of more than 8 million jobs during the 2008-09 crisis put more whites on the unemployment line than before, workers who generally had higher education and training levels, as well as more work experience. When new jobs became available, these would go to those with the highest education and experience, with whites ending up being called more often, due to their prior credits and experience.
Overall, the average net worth of white households actually increased from 2010 to 2013, rising from $138,600 to $141,900, while it fell for Hispanic families from $16,000 to $13,700, as well as for Black families from $16,600 to $11,000.
That’s right; those are average household net worth totals per family. Appalling, isn’t it?
Source: http://www.pewresearch.org/fact-tank/2014/12/12/racial-wealth-gaps-great-recession/
But while there exist external factors affecting family prosperity which are beyond our control, there are other factors which are very much within our control. And these are the ones we ought to focus whole-heartedly on. Dwelling on the factors we can control instead of on the ones we can’t will ultimately spark a fire within us that will impel us to create our own prosperity.
Factors Within Our Control
We already mentioned two such factors within our control… education and taining. While it may be difficult for families of lesser financial means to afford university programs, there are plenty of community and online colleges offering courses and training at much more affordable prices. And these are available to you regardless of your ethnicity or background.
In fact, you may be eligible for some assistance which wealthier families may not be entitled to, benefits which should be researched and applied for as often as possible. Take advantage of every program available to you. It is very much your right, which you deserve just as much as anyone else.
Another factor affecting household wealth within our control is the type of investments families generally hold. “Financial assets, such as stocks, have recovered in value more quickly than housing since the recession ended,” the Pew report explained. “White households are much more likely than minority households to own stocks directly or indirectly through retirement accounts. Thus, they were in better position to benefit from the recovery in financial markets.”
Indeed, stock markets have certainly recovered tremendously, as graphed below. Since the economic recovery began in March of 2009, the Dow Jones Industrial Average [beige] has risen 165%, the S&P 500 index [black] has gained 195%, while the NASDAQ index [blue] has surged 270%. On an annualized basis, the largest three U.S. stock market indices have averaged 28.70%, 33.91% and 46.96% respectively each year!
Source: BigCharts.com
Of course, it may appear rather disingenuous to recommend to families who may be experiencing financial difficulties to invest in stocks. But the idea should be planted firmly in our minds, and should be discussed with our family members regularly. The more we talk about something specific, with a sound plan structured around it, the more inclined we are to act upon it.
The stock market is one of those blind, equal opportunity institutions that can reward you regardless of your ethnicity or background. And with so many low cost online brokerages offering low commissions, even households of the humblest of means can open an account and start saving for their future, watching their savings grow over time.
Just don’t get bedazzled into thinking that stock markets will forever go up, and up, and up from here. They can and do correct, always more frequently than we’d like. But investing in cash instead of on margin, and choosing the larger general market ETFs will increase your wealth over time.
There For The Taking
While the Pew report, which was itself based on data compiled by the Federal Reserve central bank, may remind many Americans that the nation as a whole still has much more progress to make to ensure all of its citizens have a fair and equal opportunity to prosper side-by-side along with everyone else, the report can also provide us with a new sense of optimism.
What optimism can we possibly get from a report as depressing as that? Plenty, the most striking of which is that despite there existing some conditions affecting our prosperity which are still out of our control, there are plenty more conditions that are very much within our control.
All we need to do now is look at ourselves in the mirror and declare that we have just as much a right to prosperity as anyone else. And believe it or not, a regular investment routine in a sound broader market ETF is as simple as scheduling a bill payment.
It’s all right there for you, just as much as it is for everyone else.
Joseph Cafariello
