Family Net Worth before the Recession

Abstract

Using the 2007 Survey of Consumer finances, this Fact finds large differences in the level and composition of wealth across the income distribution. Before the recession, working-age families in the bottom-quintile had median net worth of $4,300 and held the majority of their wealth in housing. Top-quintile families had median net worth of over $500,000 and held less than one-quarter of their wealth in housing. With few liquid assets to draw from in case of a financial emergency, bottom-quintile families were in a vulnerable position at the onset of the recession.

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Introduction

Even before the current recession, low-income families had relatively few assets. Data from the 2007 Survey of Consumer Finances show that working-age families in the bottom income quintile had median net worth of $4,300. These holdings are strikingly low compared with the median net worth of over $500,000 for topincome- quintile families (table 1). In fact, the median net worth of bottom-income-quintile families was just 0.8 percent of the median net worth of top-incomequintile families. With few assets, bottom-incomequintile families were in a precarious financial position at the onset of the economic slowdown, thus making them vulnerable to economic hardship due to income loss during the current recession.

The composition of wealth varies enormously across the income distribution (figure 1). Bottom-incomequintile families held the majority of their net worth in housing (60 percent), while middle- and top-incomequintile families held less than half of their wealth in housing (47 and 22 percent, respectively). Thus, the net worth of bottom-income-quintile families was more likely affected by the recent burst of the real estate bubble. In contrast, bottom-income-quintile families held only a small fraction of their wealth in financial assets (3 percent) and retirement accounts (6 percent). These meager holdings could have isolated bottom-incomequintile families from the recent swings of the financial markets. But low wealth also means that bottom-incomequintile families have few liquid assets to draw from in case of a financial emergency.

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