Key Takeaways
- Wealth and income for U.S. households hit record highs in 2022, even after accounting for inflation, according to a landmark Federal Reserve survey.
- Despite the data, numerous polls show many people consider themselves worse off than before the pandemic.
- There are several possible reasons for the disparity, including that many people could be struggling more with their budgets despite households doing better on average.
Something strange is happening with the way Americans think about money.
Americans are, by almost every measure, richer than ever on average. Yet, when asked about our finances in surveys, we’re feeling worse off.
Whether by income, financial assets, net worth, or measures of financial vulnerability, U.S. households as a whole exited the pandemic in much better financial shape than before it began, according to a Federal Reserve report released last week.
Still, polls taken at the same time as the Fed survey, and more recently, show growing pessimism about personal finances. Even as overall wealth rises, even for typical households, some people are suffering more—a phenomenon that may not show itself in reports that assess broad measures of household financial health.
“The average can mask a lot of disparities,” said Michael Klein, a professor of economics at Tufts University and executive editor of Econofact, a nonpartisan economics website.
The Fed’s landmark survey, carried out every three years since 1989, happens to give snapshots of the time just before COVID-19 threw life and the economy into disarray, and when its impact was fading, so it’s somewhat surprising that it shows finances growing healthier on average.
For example, between 2019 and 2022, the median household before-tax income grew to $70,259 from $68,454 in inflation-adjusted 2022 dollars. That means that household purchasing power rose despite the steep increases to the cost of living in recent years.
The income data shows how families’ bottom lines have benefited from the hot pandemic-era labor market. Wages have risen even faster than inflation partly because a wave of COVID-induced early retirements made the remaining workers more valuable to employers, who had to raise wages to compete for talent. Income improved for even the lowest earners, according to the survey, although high-earners benefited the most, as the chart below shows.
Despite this, more people are feeling poorer than richer, according to polls. For example, in January 2023, 50% of U.S. adults surveyed by Gallup said they were financially worse off than a year ago, compared with just 35% who said they were better off. In January 2019, it was nearly reversed, with 50% saying they were better off and 26% worse.
Digging into the Fed’s survey, the financial progress made by typical households was dramatic, highlighting the contrast between financial realities, and people’s perception of them.
Household net worth rose even more than income, surging by$51,755 to $192,900, a 37% increase and the highest on record. That’s according to the median average: If you have the median average net worth, half of households have less than you, and half more.
Net worth as measured by the simple mean average is even more eye-popping: In 2022, U.S. households had a net worth of more than $1 million on average for the first time in history after rising 23% from 2019—a figure that’s skewed higher because it includes the ultra-wealthy. (The median, rather than the mean, average gives a better picture of a typical household.)
A major reason for the increase in net worth was the stunning rise of home prices during the pandemic. Ultra-low mortgage rates and the work-from-home trend fueled rabid demand for houses and made buyers bid prices up to record levels. Home prices rose 45% between February 2020 and June 2022, according to the S&P CoreLogic Case-Shiller Home Price Index.
The median household gained nearly $63,000—nearly a year’s worth of income—from home value increases alone, according to the Fed's Survey of Consumer Finances (SCF).
Measures of financial vulnerability also improved significantly. Debt-to-income ratios, and payment-to-income ratios declined to the lowest levels on record since the Fed began collecting data in 2010. A smaller share of people declared bankruptcy, made late payments, and took out payday loans than any year since at least 2010.
And going by shopping statistics, people do indeed have plenty of money to spend. Retail sales figures have repeatedly blown past the expectations of forecasters.
The latest SCF, conducted in 2022, and early 2023, is considered by economists to be the “gold standard” of measuring wealth distribution and the financial health of households. It’s carried out by the National Opinion Research Center, a research organization at the University of Chicago, which interviewed 4,602 families for the 2022 report.
The hard data says one thing—yet our feelings say another. In poll after poll, people say they feel worse about their financial situation than before the pandemic.
An ABC News / Washington Post poll in the November 2022 showed similar results, with 43% of those surveyed saying they were worse off than two years before, and just 18% saying they were doing better. In 2018, 36% said they were better off, and only 14% said they were worse off.
Widely watched indexes of consumer confidence and consumer sentiment—how people feel about the economy and their own finances—both plunged in 2020 and remain well below their pre-pandemic levels, according to surveys by The Conference Board and the University of Michigan.
There are several potential reasons why data says one thing, and people say another when asked directly.
One is that broad averages conceal vast differences between different groups of people. For example, government pandemic relief programs distributed cash widely to households, especially benefiting the lowest earners—but only temporarily. The end of stimulus checks and tax credits, including the expanded child tax credit, reduced the income of poor households by thousands, a significant financial setback. The child poverty rate, which plunged in 2021, came back with a vengeance in 2022.
Another possibility is that people were psychologically shaken by the pandemic’s economic fallout. In the space of a month, more than 20.5 million people lost their jobs. And while those jobs came back (and then some) in the subsequent years, the unemployment spike was followed by a surge of inflation that peaked in mid-2022 with the highest inflation rate in more than 40 years.
“We went through this period of unprecedented volatility, so even if things are OK now, people are feeling probably more vulnerable,” Klein said. “I think people just understand that things are more precarious or could be more precarious than 2019, where we were coming off a long period of stable inflation and no recessions since 2008-2009.”
Another reason: Feelings about finances tend to be partisan. Republicans feel worse about their financial situation when a Democrat is president, and vice versa. In a highly polarized environment, many people may be absorbing news from partisan sources that exaggerate the downsides of the economic situation.
“There's a demonization by people of the current administration, and saying things are really bad,” Klein said. “The statistics don't bear that out, but a lot of people are being told that all the time.”
