Posted on Monday, April 4, 2011
Americans' desire to save more could slow the U.S. economic recovery, according to a study released Thursday by the Federal Reserve, which said wealthy families were hit hardest by the financial crisis.
Most Americans saw their wealth decline from 2007 and 2009 as home and stock prices fell, but the brunt was born by high-income families, the Fed said in comparing two surveys of consumer finances. Overall, median family wealth fell to $96,000 in 2007 from $125,000 in 2007.
The polls were conducted in the second half of 2007, just before the recession started, and the second half of 2009, when the economy resumed growing. About 4,000 families were interviewed for each survey.
"The data show signs that families' behavior may act in some ways as a brake on reviving the economy in the short run," the study said. A large proportion of families in all wealth groups and across the range of changes in wealth expressed the need for greater rainy-day savings.
"Overall, it appears that families may be relatively reluctant to spend more when asset prices rise and may more readily reduce spending when asset prices fall," the paper said.
More than 60% of families saw their wealth shrink over the two years, but the distribution was uneven across wealth groups. In the top wealth bracket, about 77% of families suffered wealth declines; the figure was below 50% for those with the smallest wealth.
Many Americans saw their wealth shrink due to falling home values and lower stock prices, the study said. Homeownership rates are almost 100% among the wealthiest Americans, and less than 20% for the least-wealthy quarter of families.
Families were more cautious in 2009 than two years before, as most worried about increasing their savings and many expressed concern about income and employment, according to the Fed paper.
By LUCA DI LEO, THE WALL STREET JOURNAL