Households Have Some Ground to Cover

Texas State economics professor David Beckworth has some disturbing information for households published on his blog yesterday:

there has been some meaningful repair to banking system’s balance sheet and that is more than can be said for the household balance sheet. This can be seen by examining the flow of funds data for the households, specially household net worth (i.e. household assets minus household liabilities). The figure below graphs this series as a percent of disposable income (click on figure to enlarge):

Note that household net worth as a percent of disposable income reached its lowest point during the crisis in 2009:Q1 with a value of about 450%. At this point, household net worth was put back to where it was in late 1985! For the latest observation of 2009:Q3 household net worth is about 485%, which is approximately where it was on average for the entire 1987:Q1-1993:Q1 period. The bottom line is that household balance sheets have been put back almost two decades. This is both amazing and alarming.

The question, as is frequently asked these days, is what to do about this. Beckworth has some ideas, which you can see here. What will be interesting to see is how this change in household net worth impacts lifestyle choices over the next five to fifteen years, and what it means for the perspective of wealth that children who grow up during that time develop.