Janet L Yellen: The importance of asset building for low and middle
income households
Speech (via prerecorded video) by Ms Janet L Yellen, Chair of the Board of Governors of the
Federal Reserve System, at the 2014 Assets Learning Conference of the Corporation for
Enterprise Development, Washington DC, 18 September 2014.
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Thank you for this opportunity to show my support for the work all of you do on
assetbuilding, and to say a few words on this vitally important topic.
The financial crisis and the Great Recession demonstrated, in a dramatic and unmistakable
manner, how extraordinarily vulnerable are the large share of American families with very
few assets to fall back on. We have come far from the worst moments of the crisis, and the
economy continues to improve. But the effects of the recession are still being felt by many
families, particularly those that had very little in savings and other assets beforehand.
To help make this point, I'd like to cite a few numbers from the Federal Reserve's 2013
Survey of Consumer Finances, published earlier this month. The Survey is conducted every
three years and this new edition provides one of the first good looks at how families in
different economic circumstances have fared in the recovery.
For lower-income families, what we find is sobering. The median net worth reported by the
bottom fifth of households by income was only $6,400 in 2013. Among this group,
representing about 25 million American households, many families had no wealth or had
negative net worth. The next fifth of households by income had median net worth of just
$27,900. These numbers represent declines from 2010. One reason is that income has
continued to fall for these families.
Another likely reason for this decline in net worth is the lingering effects of the housing crisis.
Home equity accounts for the lion's share of wealth for most families and many of these
families have not yet recovered the wealth they lost in the housing crisis. The housing market
is improving and housing will remain an important channel for asset building for lower and
middle income families. But one of the lessons of the crisis, which will not be news to many
of you, is the importance of diversification and especially of possessing savings and other
liquid financial assets to fall back in times of economic distress.
Yet for lower and middle income families, financial assets, including 401 (k) plans and
pensions, are still a very small share of their assets. According to the 2013 survey, the
bottom half of families by income held only 8 percent of all financial assets held by
households.
A larger lesson from the financial crisis, of course, is how important it is to promote
assetbuilding, including saving for a rainy day, as protection from the ups and downs of the
economy. I surely hope that our nation will not face another crisis anytime soon as severe as
the one we recently experienced. But for many lower-income families without assets, the
definition of a financial crisis is a month or two without a paycheck, or the advent of a sudden
illness or some other unexpected expense. Families with assets to draw on are able to deal
with these developments as bumps in the road. Families without these assets can end up,
very suddenly, off the road. According to the Board's recent Survey of Household Economics
and Decisionmaking, an unexpected expense of just $400 would prompt the majority of
households to borrow money, sell something, or simply not pay at all.
The Federal Reserve's mission is to promote a healthy economy and strong financial system,
and that is why we have promoted and will continue to promote asset-building. One way we
do this is through the Community Development programs at each of our 12 Reserve Banks,
and through the Federal Reserve Board's Division of Consumer and Community Affairs in
Washington. As a research institution, and a convener of stakeholders involved in community
development, I believe the Fed can help you in carrying out your mission, to encourage
families to take the small steps that over time can lead to the accumulation of considerable
assets.
Thank you for the chance to be a small part of this conference, and for your commitment to a
cause that I strongly support.