PensionReforms
Veritas propter investigationem [Truth through research]
 
TitleThe Wealth of Older Americans and the Sub-Prime Debacle (2009)
AuthorsBarry Bosworth
 Rosanna Smart
InstitutionCenter for Retirement Research
TopicsGlobal financial crisis
 Household wealth data
 Debt issues
CountryUnited States
Date Published2009
Date posted on PR03 Feb 2015
  
  
 
Bosworth, B Smart, R, (2009). The Wealth of Older Americans and the Sub-Prime Debacle (2009) Center for Retirement Research,

PensionReforms’ summary and comments

The 2008 ‘Global Financial Crisis’ (GFC) had a significant effect on the total wealth of households, particularly in the US.  PensionReforms adds this 2009 report as a record of that impact at an early stage in the GFC.

 

“We have used information from a series of household surveys to construct a broader picture of the impact on U.S. households of the rise and fall in home prices and the financial crisis.”

 

Before the GFC, households were withdrawing home equity because house prices were increasing.  Until 2004, household refinancing was increasing.  It seemed that households were using their housing assets to “…finance consumption, repay debt, and make home improvements.”

 

The GFC changed that:

“However, with the collapse of the housing market, the primary factors driving this equity withdrawal disappeared, and households across the age distribution experienced major wealth losses.  Since younger families have a larger share of their net wealth in housing and hold larger mortgages as share of home value, they typically suffered a larger percentage loss in net worth.  In contrast, older households were hit harder by the decline in equity prices.”

 

On average, US households lost a quarter of their wealth between 2007 and 2009 and, because of their greater leverage, younger households lost more, proportionately.

 

The report finds that “…no age, education, or income group was left unscathed by the economic meltdown.  Older households lost much of their presumed gains relative to earlier cohorts, and they will have less time to recover.”

 

PensionReforms notes that subsequent recoveries in investment markets have reversed many of the immediate losses but as the report notes, where families lost their homes following the GFC, that loss at least was both real and permanent. 

 

PensionReforms agrees that all wealth (including Social Security and other assets) is the only relevant measure and it will be interesting to see a future similar analysis to show who were the ultimate winners and losers from the GFC’s effects. (File size 126 KB; 37 pp) 716

 

 

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