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How to Understand Effects of the Great Recession on U.S. Family Financial Life
How can you grasp the effects of the Great Recession, especially its impact on the U.S. family -- this article analyzes the massive drop inhousehold net worth(HNW), assets minus debts. You can "untangle" it, by separating details of this rapid spiral, of the precipitous downward plunge. Family net worth is down nearly 40% as reported by the Federal Reserve (the Fed) in their "Survey of Consumer Finances", June 11, 2012. The report, usually made for each previous three years span, lags over a year behind. This time it reveals not only deep, slashing of the family-net-worth but also very dire losses ofhousehold income. It is painfully complicating the severity of these economicveryhard times -- often called "the worst since the Great Depression".
There was a more massive 16% lost in just 2010 (more than double), in one year compared to, previously,family net worthalready falling 7.67% per year, based on the prior Fed report of the terrifying 23% lost in the previous 3 years from 2007 -- 2009said the U.S. Federal Reserve report, March 2011. That time it was entitled "Surveying the Aftermath of the Storm," as the report took a broad look at how the financial crisis impacted the individuals household. You won't be surprised that 2009 wasnotany aftermath of the storm -- as, clearly, 2010 brought a much higher gale-force wind change, and what do we know about the details of that continued, fearful 16% heightened storm? Read on...
Search into losses of the American family average totaling 39% of its wealth from 2007, 2008, 2009 plus 2010 as the "Great Recession" brought HNW down and back 20 years to as low as the early 1990s level of family wealth.
Notice, also, the HNW fell, in four years, a chilling total of ,100 to ,300, including 2010, starting from an over-heated 6,400 in 2007, adjusted for inflation, in the Federal Reserve report June 11, 2012.
Check this drop-off, steeper than the Fed's quarterly reports had previously indicated showing the severity of the 2007-12 recession and the minimal recovery that has been meandering sluggishly.
- Young middle-age heads of family (35- to 44-year-olds) have had median HNW drop 54% to ,100 over the period.
- 47.6% of these families said they had saved in 2010, the lowest of all age groups. Overall, 52% of all families put money into savings that year.
- In 2001, 62.3% of families headed by the 35- to 44-year-olds had saved money that year, the highest percentage savings in all age categories in the Fed report! This indicates the decline in those saving has gone -- down a raw 8.4% which is 13.5% of 62.4%, the previous amount -- falling to only 54% from 62.4%.
Look at all families' finances, as the median income fell to ,800 in 2010 from ,600 three years earlier — a 7.7% decline, spread through all population groups.
- Families headed by people ages 65 and over, many on fixed incomes, and doing more-conservative investing, didn't see much erosion of real incomes between 2007 and 2010.
- By contrast, the young families, headed by those under 35 years old, had the biggest drop in median income, falling more than 10% to ,100 in 2010.
Look into the biggest percentage drop occurring in families headed by people with "some college education":Their incomes fell to ,900 from ,800, down 10.3%. Families headed by college graduates saw their median incomes fall just a hair less than 10%, to ,800 from ,900.
Recognize the survey of U.S.households, that was first performed in 2007, repeated in 2009 to gauge the effects of the recession, shows the median/middle HNW fell ,000 from 5,000 in 2007 to ,000 in 2009:
Understand that in the 2008 financial crisis trillions of dollars of "value evaporated" from household wealth.Now the 2012 Federal Reserve official report states how harshly the recession has hit families, and how they reacted. Families who were in "median or middle" values had or owned:
- Stock -- dropped more than a third to ,000 from ,500, on average.
- Home real estate -- decreased an average of ,700.
- Credit or debt -- worsened to ,600 from ,300.
- Income dropped -- down to ,800 from ,100.
Pay off debt, if possible, as some have been doing -- getting "out of debt" -- as the Fed report notes:
Look at earnings of other families (those below and above median):
- Families starting above the national average in 2007 saw their incomes decline.
- Those below the median national income in 2007 actually saw their earnings recover a little by 2009.
Read about families in the top 10% of HNW in 2007 saw their incomes down by 13% on average, a phenomenon the Fed attributed to large declines in capital gains and in business, farm or self-employment income.The report also reveals that:
- Over 60% of families saw their wealth decline over the period.
- Americans have increased their savings rate across the board so less money is being spent or pumped into the economy.
- Inflation Calculator and budgeting help- FREE, downloadable, and "printable budget worksheets" in one of several formats: HTML, Excel or PDF. You can choose a budget sheet for:Family, Vacation / Travel, Pet Costs, Blank, Custom. INFLATION:
- .00 in 1992 had the same buying power as .64 in 2012. Annual inflation over this period was 2.49%, and more examples are below.
- .00 in 1982 had the same buying power as .40 in 2012. Annual inflation over this period was 2.96% (since the Ronald Reagan presidency).
- .00 in 1978 had the same buying power as .22 in 1992. Annual inflation over this period was 5.86% (since the Jimmy Carter presidency).
Long term unemploymentat record levels since theGreat Depression:
- After about a year being out of work, the chance of landing a job falls to 1 in 10 per month. The best job prospects found new opportunities more quickly. But those of downsizing industries or having outdated skills may be unemployed over 6 months or over a year. In 2012, there are 5.4 million people that have been out of work for over six months (when long-term unemployment begins), 42.8% of the unemployed. That percent of long-term unemployed is at record-high levels, in 2012.
- The average time to get a job has been about 40 weeks (around 9 months) for the past year, but about 50% of the long-term unemployed find a job within six months, and three-quarters within a year, leaving 25% who remain unemployed.
- Study and learn about Fannie Mae and Freddie Mac,government-sponsored enterprises(GSEs) large contributions to the "Great Recession", though -- like the Financial Crisis Inquiry Commission -- many have ignored or minimized their responsibility or culpability/faults. Now, a number of upcoming books will evaluate these GSEs and the impact of their activities before the 2008 crisis. The first of these is“Fannie Mae and Freddie Mac: Turning the American Dream into a Nightmare”by Oonagh McDonald, formerly a U.K. financial regulator, as the formerDirector of the U.K. Financial Services Authority, and formerlyLabour Party member of the U.K. Parliament, and a financial scholar and author.
Video: How to : Understand the effects of the great depression
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