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Study: Gaps in wealth grew during recession

Caitlin Yoshiko Kandil | 4/5/2011, 7:51 p.m.

Black and low-income households have been hit hardest by the recession, widening the gap between rich and poor, claims a new study by the Economic Policy Institute.

According to the non-partisan, nonprofit think tank, the recession officially lasted from December 2007 through June 2009. By the end of this time, the median net worth of black households was just $2,200 — the lowest ever recorded. Meanwhile, the median net worth of white households was $97,900 — 44.5 times the net worth of black households.

Almost a quarter of households in the United States had a zero or negative net worth in 2009, a sharp increase from 18.6 percent before the recession. But the number of black households with zero or negative net worth was a staggering 40 percent.

The Economic Policy Institute defines net worth, also referred to as wealth, as the sum of all assets less the sum of all liabilities. Assets include money in the bank, real estate, stock, retirement funds and retirement plans, while liabilities include mortgages, credit card debt, student loans and outstanding medical bills. Social Security and Medicare are excluded from net worth calculations because workers do not legally own these assets.

Most middle-class families in the United States rely on their homes as their primary source of wealth, the study explained. But after the burst of the housing bubble in 2006, equity and house prices dramatically fell, ruining the wealth of millions of households.

But the recession hit Americans unevenly, the study shows. The richest fifth of the country witnessed a 16 percent decline in household wealth, while the remaining four-fifths of Americans experienced a 25 percent drop. For black households, this decline in wealth was even more dramatic — 37 percent.

According to the report, this unevenness can be traced to where a family holds its assets. “Wealthy households, for example, tend to hold a much higher percentage of their wealth in stocks and bonds,” the study explains, “whereas less-affluent households typically hold most of their wealth in housing equity — which is why the recent troubles in housing have disproportionately affected the middle class.”

At the same time, the top fifth’s share of wealth increased at the expense of the bottom four-fifths. In 2009, the top fifth held a staggering 87.2 percent of the country’s wealth, an increase of 2.2 percent, while the bottom four-fifths owned just 12.8 percent, a decrease of the same amount.

This gap between rich and poor has “not only persisted, but has grown over time,” the report demonstrates. In 1962, the richest fifth in America controlled 81 percent of the country’s wealth, and the remaining four-fifths controlled just 19 percent. After two decades, this gap widened to 81.3 percent and 18.7 percent, and by 1998, it stood at 83.4 percent and 16.6 percent. Today, the distance is even further. More striking is the disparity in actual dollars. In 1962, the richest fifth had an average of $773,000 in wealth, while the bottom fifth on average was $7,000 in debt. By 1998, the average wealth of the top fifth grew to $1,338,400, while that of the bottom fifth sank to $11,700 in debt.