Tell me I’m not the only one around here who’s totally stoked that the Survey of Consumer Finances came out! You’re not? I asked you not to tell me that!*
The Survey of Consumer Finances is a “triennial interview survey of U.S. families sponsored by the Board of Governors of the Federal Reserve System with the cooperation of the U.S. Department of the Treasury.” It has been taken since 1989, with only minor changes to the survey, which means that we have consistent information across a reasonable period of time.
So, what’s in the new Survey that so interesting? You may have seen the headlines, “The American Dream Shrinks: Avg. Net Worth Falls 40% From 2007-2010” from Yahoo! by Stacy Curtin of Daily Ticker. This is such a shocking and discouraging headline that “America’s Finest News Source,” The Onion (NSFW) has reported on man-on-the-street reactions. The writers of the Federal Reserve Bulletin “Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances” know why this is. Speaking of median family’s net worth reduction from only 2007 to 2010 of 38.8%: “Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices.” They also said:
A substantial part of the declines observed in net worth over the 2007–10 period can be associated with decreases in the level of unrealized capital gains on families’ assets. The share of total assets of all families attributable to unrealized capital gains from real estate, businesses, stocks, or mutual funds fell 11.6 percentage points, to 24.5 percent in 2010. Although the overall level of debt owed by families was basically unchanged, debt as a percentage of assets rose because the value of the underlying assets (especially housing) decreased faster.
It’s a pretty sad autopsy of an economic calamity – and how fragile household wealth is in the face of a general economic collapse that pushes prices down across housing and securities markets, and a spike in unemployment and underemployment that threatens household income. I already linked to a post about a video about the fragility of two income households (which is much of the middle class), so I won’t belabor the point.
There’s no “magic bullet” for protecting yourself against a coordinated collapse of asset prices while still keeping yourself diversified across asset classes and avoiding single-investment risks. But, you can manage your finances wisely in the face of the possibility of volatile asset prices. You can work to manage your career so you can choose the work you want, instead of taking the work you can get. You can take time to make sure you have a reasonable budget and savings plan. You can do what you can do, and there’s no reason not to do it.
* An homage to the finest secret agent to ever spy on the enemy: Maxwell Smart (Agent 86) of CONTROL.