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SJun 15, 2012

The Lower Ninety

Scott Burns
What Las Vegas Can Teach Us About Mutual Fund Investing

Raw numbers can be striking. While Occupy Wall Street has focused on the 1 percent versus the 99 percent, the recently released Federal Reserve report on the Survey of Consumer Finances clearly shows that the Lower Ninety— the 90 percent of all households that are less well off that the top 10 percent— were hard hit by the housing bust that started in 2006 and endures today.

The study, which shows how our finances changed between 2007 and 2010, also confirms all the piecemeal reporting on foreclosures, job loss and the 401(k) plans that became 201(k) plans. And the losses aren’t limited to the housing wipe out. Most households are worse off today than they were in the survey done for 2001, before the housing bubble. Here are some of the findings from the report:

The decline in net worth goes well beyond 2007.

From 2001 to 2010 the bottom 20 percent of all households went from a modest net worth ($1,400 in 2010 dollars) to a negative net worth. While the largest percentage decline in net worth was for households in the second quintile (between 20 and 40 percent from the bottom), every household category but the top 10 percent suffered a decline in net worth. If most Americans feel poorer, it is because they are.

The major source of loss was the housing bubble.

But you knew that. The loss was large because home values dominate the personal balance sheets of most households. Worse, the lower you are on the net worth scale, the greater the size of your home mortgage as a portion of home value. The same leverage that made people quickly rich during the bubble worked to destroy net worth very quickly in the downturn.

The housing bust hit the South and West hardest, largely because those areas were experiencing the largest population growth and development.

Some changes were contrary to expectations.

The median real income for most age groups fell from 2001 to 2010. The only age group to enjoy an increase in real income was those 65 and over. The AARP may need to consider this. (This may reverse in the 2013 report. It will show the impact of the Zero Interest Rate Policy from the Federal Reserve over the period.)

Another surprising change is that the only group by level of education to enjoy an increase in real income from 2001 to 2010 was those without high school diplomas. Their median income rose from $20,800 to $23,000. The median real income for those with college degrees fell from $83,100 to $73,800, an 11 percent decline.

The used car market is really important.

Used car prices have been rising. That’s a good thing because about 75 percent of all households have more invested in their cars than they have in CDs or individual common stocks. It also appears that nearly 50 percent of all households have more tied up in their cars than in their retirement accounts.

We truly are a consumer economy. The report also found that only 52 percent of all families saved money over the preceding year, the lowest proportion since the data started being collected in 1992.

So, how are you doing? Where do you stand? The report can help us with that: It provides percentile data on wealth and income. It may be some relief to know that your financial health has declined but your status hasn’t— you’re still in the same percentile group. Or not.

You’re in the Lower 90 percent if your 2010 income was under $142,300 and your net worth was under $952,500.

If your net worth is over $77,300 you’re in the top half of all households. You’re in the top 25 percent if your net worth is over $301,700.

If your income is over $94,600 you’re in the top 20 percent of all households. You’re in the top 40 percent if it is at least $57,800.

Are We Having Fun Yet?

The Decline of Wealth and Income Since 2001

Percentile of Income 2010 2001
20th $20,400 $20,600
40th $35,600 $37,800
60th $57,800 $63,000
80th $94,600 $100,800
90th $142,300 $145,600
Percentile of Wealth    
25th    $8,300 $15,700
50th $77,300 $106,100
75th $301,700 $351,800
90th $952,500 $907,000

Filed Under: Government, Taxes & Other Disasters