Many now call the last 10 years a “Lost Decade.” The immediate reference is to 10 years of going nowhere, or worse, in the stock market.
Fortunately, the stock market isn’t a good barometer of wealth for most people. That reality led me to wonder: Is it possible the decade wasn’t so bad? Maybe the pain was just being felt by the truly wealthy?
The Case-Shiller home price index, after all, rose at an annual rate of 4.74 percent for the decade. That’s well ahead of the 2.6 percent inflation rate for the period, in spite of the fall in home prices since the bubble broke.
An appreciation of nearly 60 percent for the decade is no stick in the eye. It’s got to count for something, right?
Nice try, Mr. Happy Talk. Sadly, the damage is real.
When you look at the big picture, our new millennium is off to a truly medieval start. Household net worth, adjusted for inflation, is flat to slightly down for the decade. Collectively, we treaded water.
My guide here is a regular data series on households kept by the economists at the Federal Reserve. Part of their ongoing flow of funds figures, the household and non-profit balance sheet adds up all our assets— homes and consumer durables like cars, plus our bank deposits, time deposits, stocks, bonds, and mutual funds— then subtracts all our debts. What’s left is our collective net worth.
Our 1999 net worth was a hefty $43.9 trillion. It peaked at $64.5 trillion in 2007, bottomed at $48.5 trillion early last year, and recovered to $53.4 trillion in the third quarter of 2009. The year-end figure for 2009 will be released next week. It won’t be wildly higher than $53.4 trillion.
So our collective net worth rose by nearly 25 percent.
Is that so bad?
Those are nominal dollars. During the same period, the dollar lost 29 percent of its purchasing power. Collectively, we’ve gone nowhere, or lost a little.
To put it in some perspective, I measured how our real net worth changed in each of the postwar decades. Here are the figures:
- 1949 to 1959, real wealth increased 62 percent
- 1959 to 1969, real wealth increased 50 percent
- 1969 to 1979, real wealth increased 37 percent
- 1979 to 1989, real wealth increased 46 percent
- 1989 to 1999, real wealth increased 42 percent
Basically, we’ve been on a roll for half a century. The last ten years was the first bum decade in the lifetime of most living Americans. Only older retirees have experienced such times before. They can remember the ‘30s.
In spite of this, there are people whose fortunes improved. Some are the well-publicized wealth gainers— like partners at Goldman Sachs, hedge fund managers and others who measure their compensation by the million.
Others are neither visible nor dramatic, but their gains are real.
Who are those unheralded gainers in a decade of loss?
Try these profile markers:
- You bought a house at the beginning of the decade or earlier.
- You refinanced it several times, taking advantage of lower interest rates to reduce your mortgage payment.
- You used the liberated mortgage payment money to pay down the mortgage faster or increase your 401(k) plan contributions.
- You own at least one car that isn’t worth much but keeps on running in spite of having over 100,000 miles on it. You like not having a car payment.
- You never took out a home equity loan to pay for a car, a vacation, or anything else.
- You saved money regularly, keeping a fair amount of it in cash, CDs, or bond funds whose yields were more disappointing year by year. One reason you did this: You were still smarting from the losses you took when the Internet bubble broke. Another is that you saw the job market shrinking.
- You wondered many times if you were too careful. Everyone else seemed to be living better than you were.
If a few of these fit you, now you know. You were doing the right thing and it paid off.