Sometimes numbers just don’t make the impact they should when first encountered. I reread some this morning that snap an unforgettable shot of the Great Recession and its aftermath.
Last March, the Boston Foundation published an interesting paper, The Transfer of Wealth in Greater Boston: The Toll of the Recession and Prospects for the Future which was based on research by John J. Havens and Paul G. Schervish of The Center on Wealth and Philanthropy at Boston College.
The paper focused on the prospects for charitable giving through 2061, when the last Baby Boomers reach age 100. One of the oldest and largest community foundations in the US, the Boston Foundation commissioned the study to identify how and in what amounts money will come to philanthropies over the long term.
As a preface, the report describes the Great Recession’s effects in Greater Boston on ‘household net worth … the market value of all assets owned by members of a household minus all debt.’ These are the numbers that disturbed me:
Ninety-one percent of households in Greater Boston saw their net worth decline between 2007 and 2009. The hardest hit were the 41 percent of households with a net worth of less than $100,000 (including those with zero or negative net worth), according to calculations based on data from the Federal Reserve, the U.S. Census Bureau and the U.S. Bureau of Labor Statistics. These almost 700,000 households had $14.2 billion in aggregate wealth in 2007, but it plummeted more than 76 percent to just $3.3 billion by 2009. These families were heavily leveraged, and while the value of their assets plunged, their debt did not. As a result, Boston area households with zero or negative net worth swelled by 48 percent— from 165,236 in 2007 to 244,043 in 2010. Nationally, the number grew from 12.1 million to 17.1 million, or 41 percent….
For six hours, I haven’t been able to get those numbers out of my head.
Yes, the numbers would be more real had the households with zero or negative net worth in 2007 been treated separately. Nonetheless, the effects on those striving upwards can only be described as catastrophic.
And, they will rebound less buoyantly, more painfully than the stock market has. ‘These families were heavily leveraged, and while the value of their assets plunged, their debt did not.’
Of course, households with net worth of less than $100,000 weren’t alone in their losses.
[The] 14 percent of Greater Boston households worth $1 million or more (238,887 households) lost only about 15.9 percent of their wealth from 2007-09. However, the average loss per household for this group was substantial at $689,000, and in the aggregate, these millionaire households lost more than $164 billion. Indeed, the number of millionaire households fell 24 percent from 238,887 in 2007 to 182,064 in 2009, to recover 10 percent to 200,896 in 2010.
Again, one might quibble with the choice of an average loss rather than a median, given the unlimited upper range of the over $1m households. That range makes the stated loss almost unmeaningful.
Still, the rapid recovery in the numbers of over $1m households is meaningful. So were the disparate effects of the distribution of pain by age.
Wealth distribution in the Greater Boston area is weighted toward older households. This is partly because these families have had more years in which to build wealth, but also because young people were particularly hard hit by the Great Recession. In 2009, for example, the average wealth per household fell 45 percent among households headed by people 30 or younger compared to a decline of 14 percent in families headed by someone 80 or older. The more than 500,000 households headed by people under 40 often have significant debt in the form of car loans, student loans, and/or home mortgages.
For philanthropies – the potential recipients of up to 40 percent of wealth to be transferred between generations — the demographics and statistics are not so grim, though not as giddy as they were before 2007. The Boston Foundation projects potential charitable giving from Greater Boston households to range from $178.8 billion and $240.4 billion between 2007 and 2026.
As impressive as these numbers sound, they would have been 11 to 15 percent higher … in the short term [through 2026] … if the Great Recession had not occurred.
What should those numbers mean to us?
First, they suggest in the starkest manner the impact of the Great Recession. And, considering how long it takes for households under $100,000 to rebuild wealth in the best of circumstances, the Recession’s effects will be felt for a long time.
Second, organised philanthropies in Greater Boston should be directing giving toward rebuilding the health and wealth of the under $100,000 households. Not in 80 years has it been so critical for charities and donors alike to focus on the local multiplier effect potential of their grants.
When Boston’s greatest charity, Harvard University with a $30.6 billion endowment, launches a $6.5 billion fundraiser but says nothing in its objectives about the local economy and its employees, something is very wrong. That’s what these numbers say.
N.B.: The author is a member of the boards of some charities, including the Vermont Community Foundation. However, the views expressed here are his and must not be taken as those of any institution whom he serves.
1. Boston Foundation, The Transfer of Wealth in Greater Boston: The Toll of the Recession and Prospects for the Future (March 2013) based on research by John J. Havens and Paul G. Schervish of The Center on Wealth and Philanthropy at Boston College, p. 7. H/T: Beth Healy, ‘Boston’s rich expected to donate large sums’, Boston Globe, Mar. 5, 2013, p. B5. Print headline read: ‘Donations to charity expected to grow’.
2. Id. All dollar figures are stated in constant 2007 dollars.
4. Id., p. 8.
5. Id., p. 9. The difference depends largely on the rate of growth in GDP which the report acknowledges to be the single biggest driver in the growth of charitable giving.
6. Id., p. 6.
7. Endowments are useful as gauges of relative worth amongst large institutions. However when dealing with large educational institutions, they bear no demonstrated relationship with actual net worth (for which in most instances data don’t exist and when they do, aren’t necessarily comparable). For instance, the value of Harvard’s intellectual property rights – from patents to logos – or its real property holdings show up in the ‘endowment’.