However, wealth data are not adjusted for family size because it is difficult to associate a current family size with a stock of wealth. 42Īs in preceding chapters, the estimates of income reported below have been adjusted for household size and scaled to reflect a three-person household. Thus, lower- and middle-income families were more vulnerable to the crash in housing values that preceded the recession. Much of that new debt was secured by their primary residence. Furthermore, in the run-up to the recession, they took on relatively more debt in relation to their assets than did upper-income families. These households are twice as dependent as upper-income households are on home equity as a source of wealth. The steep decline in the net worth of lower- and middle-income households is a consequence of the housing boom and bust that preceded the Great Recession. Those setbacks were large enough to turn the clock back on the net worth of lower- and middle-income households by about two decades or more. However, the loss in wealth was much sharper for the lower- and middle-income tiers. The recession caused income to fall by similar percentages in all three income tiers. The disparate trends in income and wealth emerged in the Great Recession. 41 Moreover, the growth in the wealth gap across income tiers easily outdistances the growth in the income gap. The incomes of middle- and lower-income households may have increased, but their net worth has stagnated and their long-term security may not be as secure as suggested by the trends in income. From 1983 to 2010, there was a notable increase in wealth only for the upper-income tier. Trends in wealth, data for which are available starting in 1983, tell a slightly different story. 40 The increase in their share of aggregate income exceeded the increase in the share of adults that live in upper-income households. aggregate household income in 2010 than they did in 1970. As a result, upper-income households accounted for a larger share of U.S. Income rose for all three tiers, but it increased the most for the upper-income tier and the least for the lower-income tier. Trends in income for lower-, middle- and upper-tier households show that in the past four decades the United States has been a society characterized by rising prosperity and rising inequality. Thus, the two yardsticks together provide a more complete portrait of the economic status of families. There are families, such as seniors who are retired, with low incomes but high levels of wealth, and other families, such as young professionals, with high incomes and low levels of wealth. Among other things, wealth provides retirement income, protection against short-term economic shocks, and security and social status for future generations. Wealth, unlike income, represents a stock of assets, minus outstanding debt, accumulated over time. A family that is considered in the middle-income group one year may be in the lower-income group the next, or vice versa. 38 Income is the more widely used measure, but, due to changing economic circumstances, it is subject to sharp, short-term fluctuations. This chapter examines trends in the well-being of lower-, middle- and upper-income groups through the prisms of income and wealth.
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