Young Adults Experienced Financial Side Effects from the Great Recession

Blog Post
Oct. 24, 2013

Mounting debt, diminishing net worth, insufficient savings, increasing foreclosures, rising unemployment—all painful financial side effects of what has been dubbed the worst economic recession in almost a century. These side effects have been relatively well-documented. Rates of bankruptcy rose 74% and home foreclosures soared as much as 358% in some areas. Unemployment rates peaked at a national average of about 10%, with much higher rates documented for African Americans and Latinos. High rates of unemployment meant potentially fewer wages for day-to-day household needs. With only small amounts of savings or net worth to tide them over, millions of households turned to public assistance programs to sustain themselves. These effects are likely to follow households—and the children who grew up in these households during the Great Recession—for years to come.

The use of the term "side effect" to describe the financial effects of the Great Recession almost diminishes the experiences of many US households. When we think about side effects (no, not Soderbergh's recent flick), we might think about unfortunate, unwanted—and likely temporary—discomfort. Aside from a little soreness, stiffness, or grouchiness, in a utopian existence we can eat our chicken soup and return to full health within a few days. For many households, the remedy is not so simple. And in fact, the severity and duration of the effects of the Great Recession may be severe and long-lasting, perhaps even flowing over into the financial security of future generations. These financial side effects may follow households and their children for years and in unanticipated ways.

The Study

Vernon LokeIlsung Nam, and myself recently set out to study changes in households' net worth during the decade leading up to and including the Great Recession. We also wanted to know whether young adults who were transitioning to independence during the Great Recession experienced financial side effects of their own that were triggered by changes in their households' net worth—an indication that financial side effects experienced by households overflowed to younger generations. In other words, did young adults feel the financial pinch of the Great Recession in part through their households' declining net worth?

The Findings

Here's what we found:

  • Households lost $70,858 in median net worth between 1999 and 2009—a 75 percent decline over this 10-year period.
  • Between 2007 and 2009 alone (the beginning years of the Great Recession), households lost $113,327 in median net worth—an 83 percent decline.
  • 31% of households experienced declining net worth between 1999 and 2009 that culminated with a precipitous drop between 2007 and 2009, controlling for all relevant factors.
  • Declines in median net worth values were especially detrimental to households that were already financially vulnerable, leaving many households with low levels of net worth by 2009.
    • Households headed by African Americans lost $14,294 in median net worth, bottoming out at $1,500.
    • Female-headed households lost all their net worth between 1999 and 2009—declining from $10,824 to $0.
    • Households whose heads had high school degrees or less lost median net worth of $33,296 between 1999 and 2009, settling with a low valued at $10,000.
    • Low-to-moderate income households lost $38,797 in median net worth, ending up with $4,500.
  • Young adults saved less money of their own when they grew up in households that experienced declining net worth.
    • Young adults who grew up in households with the lowest percentile of net worth in 2007 saved a median of $300 compared to $3,000 saved by their counterparts who grew up in households with the highest percentile of net worth.
    • When young adults who grew up in households whose net worth declined leading up to and including the Great Recession, they saved significantly less money themselves even after controlling for all relevant factors.

Young adults are already in financially fragile positions given their unstable stage of the life course when they begin to live separately from their families, enter the labor market, experience fluctuating incomes, and repay educational debt. These transitions are complicated even in the best of economic conditions. Now, evidence suggests that not only did young adults feel the financial pinch from an unfavorable economy. They may have felt (and continue to feel) the financial pinch from their households whose own declining net worth may have been inadequate for helping young adults through this transition. What households experienced financially overflowed to young adults during an age characterized as their transition into independence. With less savings of their own, young adults may have been less able to afford expenses, adjust to changes in employment, supplement income, or repay their debts.

The Implications

So what? Now, I'll be the first to admit that these findings are not necessarily surprising and that they align with common sense. In other words, some could argue that no one needs to drop a piano out the window to prove gravity. Thanks to Isaac Newton and Blood, Sweat, & Tears, we already know that "what goes up, must come down." The "so what" comes in what we do with the information. 

If we agree that (a) households—especially households that were financially vulnerable to begin with—experienced detrimental losses to their net worth during the Great Recession and (b) young adults growing up in those households struggled financially themselves, then it is logical to support existing policies or to develop new ones that help households and young people to accumulate wealth that can be used during unfavorable economic conditions and characteristically unstable life transitions. Not only are these political courses of action logical, it could be argued that ignoring findings and avoiding action could be somewhat irresponsible or unwise (like walking underneath that piano suspended in air by ropes). Especially when we know that households with stable net worth and the young adults growing up in those households are better off financially—findings that have been consistently confirmed in the research (such as here, here, and here). We should be aiming to support and develop policies that truly position financially vulnerable households and young people for the best chances of financial success. After all, these side effects are more than just numbers on a page. These are the real, lived experiences of households and young people who may need a more potent and long-lasting remedy for the Great Recession’s financial side effects than the equivalent of chicken soup.

This study is forthcoming in the Journal of Family and Economic Issues (doi:10.1007/s10834-013-9379-7). Please email for more information. Follow @TerriFriedline or @AssetsEducation on Twitter or visit for more information about this research.