The dismal state of consumer finances

Falling incomes and lack of asset accumulation may make retirement at a “normal” retirement age difficult.

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Every three years, the Federal Reserve Board’s Survey of Consumer Finances (SCF) collects extensive information about the state of family finances, including data on incomes, assets, debts, and use of financial services, such as banks and credit cards.1 The recently released results for 2013 confirms data from other sources showing that income growth continues to diverge across income groups, with most of the gains going to the higher-income groups.

But analysis across income groups is only one way to consider the data. The survey also allows for analysis across a variety of economic and demographic variables, including family structure, educational attainment, race/ethnicity, and work status. This blog post focuses on finances across age groups to evaluate the retirement prospects for people in the labor force.”2

Figure 1 shows that real median income for all age groups, except for the two oldest categories, fell between 2007 (just before the start of the recession) and 2013.3 Further, among the groups with falling real income, only the 35–44 age group showed any rebound at all between 2010 and 2013. But income was not the only wealth variable adversely affected by the recession: The value of assets such as stocks and homes fell, and families had to make difficult decisions about what they would finance with debt during a time of great economic uncertainty.

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Assets

Between 2007 and 2013, the proportion of households holding some type of asset increased across all age groups, except for the families where the householder was under the age of 35. Indeed, by 2013, almost 100 percent of families headed by someone about the age of 35 had some type of asset. For families where the householder was under the age of 35, the percent holding assets fell from 97 percent to 92 percent. However, the real median value of assets among those who held assets fell over the period for all age groups.

Among the families headed by someone under 35, the proportion owning stocks, vehicles, and a primary or secondary/rental residence fell, with the proportion owning a vehicle declining very sharply. Stock ownership also declined in all the other age groups, even as vehicle ownership rose in all families outside of the youngest. Patterns of ownership of both primary and other residential property diverged among the remaining age groups, with the proportion of those between 35 and 64 investing in real estate declining and the proportion of people 65 and above increasing.

For those holding specific types of assets, the median value of their each type of asset holding remained lower in 2013 than in 2007 in most cases. The real median value of primary residences were lower across all age groups, reflecting the bursting of the housing bubble. The real median value of residential property other than primary residences did rise for the youngest and oldest owners, but only 2.1 percent of those in the youngest group held this type of asset. The real median values of vehicles also remained lower across all age groups, although the differences are slight in most cases. By 2013, the value of the major stock indices were well above their 2007 peaks, so where there are declines in the real median portfolio value (which includes families headed by someone under the age of 65), it therefore most likely reflects reduced holdings.

Table 1: Distribution of assets by type

Percentage of families holding specific types of assets
  Stock holdings, direct or indirect Vehicles Primary residence Other residential property
  2007 2013 2007 2013 2007 2013 2007 2013
Less than 35 41.6 38.6 85.4 61.9 40.6 37.5 5.4 2.1
35–44 55.9 53.9 87.5 85.5 66.1 52.9 12.2 5.8
45–54 63.1 54.9 90.3 92.5 77.3 63.7 15.7 10.1
55–64 60.8 57.2 92.2 95.6 81 80.6 20.8 16.1
65–74 53.1 49.2 90.6 96.4 85.5 88.6 18.5 25.2
75 or more 40.2 34.5 71.5 95.4 77 93.7 13 39.7
Real median value of holdings for families holding asset (2013 dollars)
  Stock holdings, direct or indirect Vehicles Primary residence Other residential property
  2007 2013 2007 2013 2007 2013 2007 2013
Less than 35 7,298 7,129 14,933 12,500 196,490 140,000 95,440 102,500
35–44 28,070 23,500 19,200 16,800 230,170 175,000 168,420 118,000
45–54 50,526 44,000 20,884 19,000 258,240 180,000 168,420 100,000
55–64 87,578 60,000 19,537 17,000 235,790 185,000 185,260 150,000
65–74 62,878 117,400 16,505 16,200 224,560 175,000 170,660 135,000
75 or more 50,526 81,400 10,554 10,500 168,420 145,000 112,280 120,000
Source: Federal Reserve Board, Survey of Consumer Finances, 2013.

Distribution of debt

Between 2007 and 2013, the proportion of all households with any debt declined slightly from 77 percent to 74.5 percent, with the decline coming from the under-65 families (figure 2). As shown in figure 3, among those who had debt, the real median value of that debt also declined for all but the oldest families. The declines were the largest in percentage terms for the under-35 age group (down 24 percent) and the 35–44 age group (down 19 percent). Declines in the middle groups were modest, but the real median debt for those 75 and older increased 37 percent.

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Table 2 shows the percent of families holding debt and the real median value of that debt over selected debt categories. Overall, the proportion of families holding mortgage debt declined between 2007 and 2013 through a combination of falling home ownership rates (home ownership rates across all age classes fell from 68.6 percent to 65.2 percent) and an increase in the proportion of families who owned their homes outright (32.6 percent to 36.3 percent). Although it is not possible to distinguish between these two sources of decline in the proportion of mortgage debt among the age groups, a decline occurred in all age groups except for those 65 and older. The proportion of families with credit card balances and vehicle loans also decreased across all age groups except for the one or two oldest groups. The only major loan category where more families were taking on debt was for education.4

The real median value of specific types of debt followed the same pattern as the changing proportion of the different age groups having the debt. Only the older families increased the value of debt owed; all other age groups decreased the level of debt for all types of debt except education loans.

Table 2: Distribution of debt by type

Percentage of families holding specific types of debt
  Primary mortgages Credit card balances  Education loans Vehicle loans
  2007 2013 2007 2013 2007 2013 2007 2013
Less than 35 37.2 28.6 48.5 36.8 33.6 41.4 44.3 35.2
35–44 59.3 52.7 51.7 41.7 14.7 28.7 42.6 37
45–54 63.8 55.3 53.6 44.3 14.5 18.4 39.1 36.5
55–64 50.2 45.9 49.9 43.4 10.6 12 35.2 30.8
65–74 35.5 38.9 37 32.8   3.1 21.6 24.4
75 or more 11 18.6 18.8 21.1     6.1 10.7
Real median value of holdings for families holding debt (2013 dollars)
  Mortgages Credit card balances  Education loans Vehicle loans
  2007 2013 2007 2013 2007 2013 2007 2013
Less than 35 149,330 120,000 2,133 1,500 14,600 17,300 12,957 11,000
35–44 140,350 140,000 3,930 2,500 14,600 17,000 13,474 12,300
45–54 117,890 120,000 4,042 2,600 13,470 14,000 13,474 12,000
55–64 101,050 107,000 4,042 3,000 7,860 19,000 12,351 12,000
65–74 95,440 87,000 3,368 2,300   17,000 13,474 10,000
75 or more 56,140 59,000 898 1,900     9,881 13,300
Source: Federal Reserve Board, Survey of Consumer Finances, 2013.

Net worth

So with declining median incomes and asset holdings being offset by declining debt balances, how do the various age groupings net out? Unfortunately, particularly for those in the pre-retirement group, not well at all. As shown in figure 4, net worth is lower in all age categories, with the largest percentage declines in the three groups covering families where the householder is between 35 and 64. These groups experienced a drop in real median net worth of between 42 and 53 percent between 2007 and 2013. Prior to 2007, net worth had been rising for these groups. Absent a positive change in direction for incomes or asset values, this will translate into lower net worth for the 65+ age group as these cohorts age—that is, they will have fewer resources from which to fund their retirements. Options will be few outside of working longer or hoping for an inheritance from those better situated in the oldest of the age groups.

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