Panel Paper: Wealth Loss During the Great Recession: Facts, Impacts, and Policy Remedies

Saturday, November 10, 2012 : 3:50 PM
International C (Sheraton Baltimore City Center Hotel)

*Names in bold indicate Presenter

Signe-Mary McKernan1, Caroline Ratcliffe2, C. Steuerle2 and Sisi Zhang2, (1)Urban Institute, (2)The Urban Institute

Clear declines in wealth during the Great Recession have been documented both at the macro level and the micro level. This study builds on previous research by examining changes in family net worth over time, along with the various components of asset and debt holdings, overall and for subgroups of families by age, race, educational attainment, and income. Using SCF data from 1983 through 2010, we construct synthetic cohorts to answer the following questions: How large have the wealth losses been since the onset of the Great Recession and which groups were hardest hit? To what extent are families protected by previous wealth accumulation? Are there any fundamental changes in financial behaviors, especially for those families who are behind on housing payments or underwater?

Using data over a nearly 30-year period, we trace the wealth trajectory of families by birth cohort. This allows us to measure not just the change in wealth before and after the Great Recession, but the change in wealth relative to what wealth would have been given that cohort’s lifecycle wealth trajectory. Beyond families’ net worth, we examine key components of net worth including housing equity, retirement savings, and non-retirement financial assets, among others. The paper also examines the differential effects of the Great Recession by race, educational attainment, income group, and, importantly, for families at different points in the life cycle. For example, we will provide evidence on how older families near retirement fared as compared with younger families who might have recently purchased a home or are accumulating savings to send a child to college. A life cycle approach distinguishes assets by their relative importance for typical households at different stages of life and it demonstrates how the power of compounding works on steady saving patterns over time. Beyond descriptive analyses, analyses will include aggregate cohort-level and family-level regressions.

The results of these analyses will help researchers and policymakers understand the disparate impact of the financial crisis and will shape policy that aims to better prepare families for financial emergencies and asset building.