According to Federal Reserve data released on Wednesday, American families experienced the largest increase in their wealth on record between 2019 and 2022 as rising stock indexes, rising home prices and repeated rounds of government stimulus made people’s finances healthier.
Average net worth rose 37 percent in inflation-adjusted terms over those three years, according to the Federal Reserve’s Survey of Consumer Finances – the largest increase on records dating back to 1989. At the same time, the average family income rose between 2018 and 2021 after deducting 3 percent price increases.
While income gains were strongest among the wealthy, the data clearly showed that Americans made almost consistent financial progress in the three years that included the pandemic. Savings increased. Credit card balances dropped. Retirement accounts skyrocketed.
Other data from government and private sources pointed to these increases. But the Fed report, published every three years, is considered the gold standard for data on household financial situations. It provides the most comprehensive look at everything from savings to stock ownership, across all racial, wealth and age groups.
This is the first time the Fed report has been released since the coronavirus outbreak, and it provides a sense of how families have fared during a turbulent economic time. In early 2020, people lost their jobs in large numbers and the government tried to soften the blow with several relief packages.
More recently, the labor market has been booming, with very low unemployment and rapid wage growth helping to improve incomes. At the same time, rapid inflation has wiped out some of the gains by making daily life more expensive.
For example, without taking inflation into account, average income would have increased by 20 percent, according to the report published on Wednesday.
The financial progress, particularly for poorer families, is particularly striking when compared to the impact of the last recession, which lasted from 2007 to 2009. It took years for household wealth to fully recover after this crisis, and some families never did.
Between 2019 and 2022, incomes rose across all groups, with the largest upward increases – meaning income inequality widened.
This created a large difference between the median income – the number in the middle of all households – and the average, which adds all incomes together and divides them by the number of households. Average income rose 15 percent, one of the largest three-year increases on record.
Wealth inequality was more complicated. Because the rich hold such a large share of financial wealth in America, wealth disparities tend to increase in absolute terms as prices of stocks, bonds and houses rise. In fact, rich families’ wealth in dollar terms increased much more.
But over the three years covered by the survey, the increase in wealth, in percentage terms, was actually greatest among poorer families. People in the bottom quartile had a net worth of $3,500 in 2022, up from $400 in 2019. Among families in the top 10 percent, the median net worth rose to $3.79 million, up from $3. 01 million US dollars three years earlier.
Because of the way the data is measured, it is difficult to figure out what impact pandemic-related payments would have had on the numbers. To the extent families saved one-time checks and other assistance they received during the pandemic, these would have been included in net worth metrics.
Families also still received some pandemic payments when income measures were collected in 2021, meaning things like enhanced unemployment insurance likely factored into the data.
Some Americans appear to have taken advantage of their improving financial situation to invest in stocks for the first time: 21 percent of families directly owned stocks in 2022, up from 15 percent in 2019, the largest change on record. Many of these new stock owners appear to have been relatively small investors, likely reflecting, at least in part, Americans’ enthusiasm for “meme stocks” like GameStop during the pandemic.
The Fed’s newly released figures show that significant income and wealth disparities remain between different racial groups, although Black and Hispanic families have seen the largest percentage gains in net worth during the pandemic.
The median net worth of black families rose 60 percent to $44,900. That was a larger increase than the 31 percent increase among white families, which increased their household wealth to $285,000. Hispanic families saw a 47 percent increase in net worth.
At the same time, racial and ethnic minorities experienced slower income growth through 2021. Black and Hispanic households saw slight declines in income when adjusted for inflation, while white families saw modest increases.
For the first time, the report included data on Asian families, which had the highest median net worth of any racial or ethnic group.
Although the data in the report is slightly outdated, it underscores what a strong position American families were in as they emerged from the pandemic. Solid net worth and rising incomes have helped people continue spending into 2023, helping the economy continue to grow solidly even as the Fed has raised interest rates to cool them.
That resilience has raised hopes that the Fed could achieve a “soft landing,” where it gently slows the economy without putting so much strain on consumers that it plunges America into recession.