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As of December 2019—before the shutdowns—households in the bottom 20% of incomes had seen their financial assets, such as money in the bank, stock and bond investments or retirement funds, fall by 34% since the end of the 2007-09 recession, according to Fed data adjusted for inflation. Those in the middle of the income distribution have seen just 4% growth.
“This is the richest country, yes, but it’s also a low-saving country,” said Annamaria Lusardi, an economist at George Washington University. “That’s where it’s going to bite.”
Economists point to two main reasons for the savings shortage.
First, incomes for all but the highest-income Americans have been stagnant or falling for decades. Median household income in 2018 was only about 3% higher than in 2000 after adjusting for inflation, according to the Census. For the poorest 20%, incomes had declined 2%.
“They’re barely paying the bills at the moment,” said Greg Kaplan, an economist at the University of Chicago. “There’s really not anything left to be able to save.”
The second reason has to do with the continuing effects of the debt households accumulated before the 2007-09 recession.
A new paper by Atif Mian, of Princeton University, Ludwig Straub of Harvard University and Amir Sufi of The University of Chicago found that rising income inequality over the past few decades created the conditions that fed the rise in debt held by lower-income households in the early 2000s.
As higher-earning families saw their incomes grow, they amassed more and more savings. Those savings helped keep interest rates low and spark a borrowing boom that inflated the housing bubble, the paper said.
The debt of the poorest Americans more than doubled during the housing bubble of the 2000s, Fed data show. After the bubble burst, borrowers spent several years paying down those loans, which reduced their ability to save.
https://www.wsj.com/articles/lack-o...wnturn-11586943001?mod=hp_major_pos1#cxrecs_s
“This is the richest country, yes, but it’s also a low-saving country,” said Annamaria Lusardi, an economist at George Washington University. “That’s where it’s going to bite.”
Economists point to two main reasons for the savings shortage.
First, incomes for all but the highest-income Americans have been stagnant or falling for decades. Median household income in 2018 was only about 3% higher than in 2000 after adjusting for inflation, according to the Census. For the poorest 20%, incomes had declined 2%.
“They’re barely paying the bills at the moment,” said Greg Kaplan, an economist at the University of Chicago. “There’s really not anything left to be able to save.”
The second reason has to do with the continuing effects of the debt households accumulated before the 2007-09 recession.
A new paper by Atif Mian, of Princeton University, Ludwig Straub of Harvard University and Amir Sufi of The University of Chicago found that rising income inequality over the past few decades created the conditions that fed the rise in debt held by lower-income households in the early 2000s.
As higher-earning families saw their incomes grow, they amassed more and more savings. Those savings helped keep interest rates low and spark a borrowing boom that inflated the housing bubble, the paper said.
The debt of the poorest Americans more than doubled during the housing bubble of the 2000s, Fed data show. After the bubble burst, borrowers spent several years paying down those loans, which reduced their ability to save.
https://www.wsj.com/articles/lack-o...wnturn-11586943001?mod=hp_major_pos1#cxrecs_s
