In a surprising turn of events, American households have experienced a remarkable upswing in their financial prosperity, marking the most significant increase in wealth on record between 2019 and 2022. This revelation comes from the recently released Federal Reserve data, which showcased a substantial boost in median net worth—rising by an astonishing 37 percent over the three-year period when adjusted for inflation. This remarkable surge represents the most substantial leap in wealth recorded since data collection began in 1989. Concurrently, median family income saw an increase of 3 percent between 2018 and 2021, after adjusting for inflation.
A Rising Tide
The wealth surge was not confined to a specific income bracket but was a trend experienced by Americans across various economic strata. Savings grew, credit card balances reduced, and retirement accounts expanded, offering individuals a more stable financial foundation. Other data sources, both governmental and private, also alluded to these financial improvements, further underscoring the significance of the Fed’s report in assessing the financial well-being of American households.
The release of this report holds particular importance, as it is the first to emerge since the onset of the COVID-19 pandemic. It provides insight into how families fared during an economically tumultuous period that included mass job losses early in 2020, mitigated by multiple government stimulus packages. More recently, a resurgent job market, characterized by low unemployment and substantial wage growth, has substantially contributed to income growth. However, the spectre of rapid inflation has somewhat eroded the gains, making everyday expenses more expensive.
The report provides valuable context by explaining the concept of inflation, highlighting that it results in a loss of purchasing power over time, impacting consumers’ ability to afford goods and services. The rise and fall of inflation are influenced by various factors, including shifts in consumer demand and external factors such as oil production and supply chain disruptions. Notably, without adjusting for inflation, median income would have seen a 20 per cent increase. This fact underlines the resilience of American households in adapting to economic challenges.
A Pleasant Surprise
The most striking aspect of this financial progress is its broad reach, particularly benefitting lower-income families. This achievement is particularly noteworthy when compared to the aftermath of the 2007-2009 recession when it took years for household wealth to fully recover, if it did at all. Income increased for all groups during the 2019-2022 period, although wealthier individuals experienced the most significant gains, thereby widening income inequality. This distinction is apparent in the difference between median and average income figures, as average income registered a 15 per cent increase, one of the most substantial three-year increments on record.