Fed Survey Details Recession's Impact on Family Finances

Fed Survey Details Recession's Impact on Family Finances

photo of couple with financial troublesThe financial crisis and recession battered many American families' finances, and a newly released Federal Reserve study details the extent of the damage. Since 2007, U.S. families' net worth and income—measured by the median and mean levels—have fallen sharply, according to the Federal Reserve Board's Survey of Consumer Finances for 2010.

Falling home values primary culprit
The median family net worth, representing a family with wealth higher than half of the nation's families and lower than the other half, was $77,300 in 2010, down 38.8 percent from $126,400 in 2007, according to the survey the Fed conducts every three years. The median family net worth was $106,100 in 2001. Declining home values accounted for much of the loss in net worth. For all homeowners, the median amount of home equity dropped to $75,000 in 2010 from $110,000 in 2007. Among families with debt secured by their homes, median home equity—the difference between the value of the home and any debt secured against it—fell to $55,000 in 2010, from $95,300 in 2007.

Meanwhile, real (inflation-adjusted) median family income before taxes fell 7.7 percent from 2007, the time of the last Fed survey, to 2010. Median income dropped to $45,800 in 2010 from $49,600 in 2007. The new survey is based on data collected in 2010, and figures are reported in 2010 dollars.

The mean, or average, measures of family income and net worth also fell substantially between 2007 and 2010, the Fed survey shows. Mean income fell 11.1 percent, while the mean net worth declined 14.7 percent.

Overall value of debt down, but leverage ratio up
The picture concerning debts was a bit more nuanced. Debt fell more slowly than assets over the recent three-year period. Thus, overall indebtedness as a share of assets rose markedly. Offsetting relative declines in mortgage and credit card debt were increases in the share of liabilities accounted for by nonmortgage lines of credit and other installment loans.

The overall value of families' liabilities decreased between 2007 and 2010, but debts fell more slowly than assets. Accordingly, the ratio of the sum of the debt of all families to the sum of their assets—the leverage ratio—rose to 16.4 percent in 2010 from 14.8 percent in 2007. The leverage ratio for families with debt increased at a faster pace, to 22 percent in 2010 from 19.4 percent in 2007.

June 28, 2012