Survey Of Consumer Finances Research Articles

Does employee ownership promote workers’ wealth accumulation? the case of stock options

ABSTRACT This study examines the consequences of employee ownership for workers’ economic outcomes, with a focus on wealth accumulation. Using large-scale, nationally representative data from the US Survey of Consumer Finances, this study focuses on stock options as a pathway into employee ownership and examines the association between stock options and wealth. A difference-in-differences analysis shows that employees with stock options accumulate greater wealth than employees who do not receive stock options, and the differences are larger at longer tenure. The differences remain statistically significant after accounting for a wide range of job characteristics and sociodemographic attributes. Furthermore, the wealth gap between employees with and without stock compensation widened over time. Finally, results show that stock options are more prevalent among already more socioeconomically advantaged employees. Together, these findings suggest that broadening employee ownership – through stock options or similar avenues – might help in addressing increasing wealth inequality in the United States by giving workers, especially middle- and lower-income workers, a stake in US economic growth.

The Problem of Good Conduct among Financial Advisers

Households in the United States often rely on financial advisers for investment and savings decisions, yet there is a widespread perception that many advisers are dishonest. This distrust is not unwarranted: approximately one in fifteen advisers has a history of serious misconduct, with this rate rising to one in six in certain regions and firms. We explore the economic foundations of the financial advisory industry and demonstrate how heterogeneity in household financial sophistication and conflicts of interest allow poor financial advice to persist. Using data on the universe of financial advisers and the Survey of Consumer Finances, we document who uses financial advisers and the prevalence of misconduct in the industry. Our findings suggest that a lack of financial sophistication is a key friction, making enhanced disclosure a potentially effective policy response. Supporting this, we show through a difference-in-differences approach that “naming and shaming” firms with high misconduct rates was associated with a 10 percent reduction in misconduct.

Prioritizing Usage of the Survey Respondent Over the Reference Person or Head in the Survey of Consumer Finances

The Survey of Consumer Finances is the gold standard for researchers interested in the finances of American families, yet it is a complex dataset. One methodological choice regards the use of the respondent’s demographics versus those of the reference person. When the respondent and reference person are not the same (40.4% of couples in 2022), many researchers use the demographics of both individuals (e.g., the race of the respondent and the education of the reference person). This mixed usage can introduce misclassification and androcentric bias, and it can shift results significantly (e.g., net worth estimates by education vary by 5.0%–35.2%). We argue that the optimal solution is to always use the demographics of the respondent. This is especially critical when the analyses include race and ethnicity variables (which from 1989 to 2019 were only collected from the respondent), or when they include sex and marital status because the reference person is almost always male in coupled households.

Trends in the retirement security of Black and Hispanic households in the US: A setback for Black Americans but continued progress for Hispanics

Retirement income security refers to the ability of households to provide an adequate stream of income during the period of their retirement from the labor force. Expected retirement income is based of four components: (i) standard non-pension wealth holdings, (ii) defined contribution (DC) pension holdings, (iii) actual or expected defined benefit (DB) pension entitlements, and (iv) actual or expected Social Security benefits. The first two components are converted into an annuity. All the data (except rates of return) for these calculations are available from the Survey of Consumer Finances. Results indicate that both Black and Hispanic households made remarkable progress in terms of mean and median retirement income, poverty reduction, and replacement rates from 1989 to 2007 in both absolute terms and relative to whites. However, for Black households, this was followed by a reversal of fortune from 2007 to 2019, with expected median retirement income declining, the projected poverty rate rising, and the projected replacement rate falling, though expected mean retirement income does rise. Hispanics also experienced a setback in mean retirement income but continued progress in replacement rates and reducing poverty from 2007 to 2019.

Greater wealth, greater uncertainty: Changes in racial inequality in the Survey of Consumer Finances

Greater wealth, greater uncertainty: Changes in racial inequality in the Survey of Consumer Finances

Personal bankruptcy prediction using machine learning techniques

It has become crucial to have an early prediction model that provides accurate assurance for users about the financial situation of consumers. Recent studies focused on predicting corporate bankruptcies and credit defaults, not personal bankruptcies. Due to that, this study fills the literature gap by comparing different machine learning algorithms to predict personal bankruptcy. The main objective of the study is to examine the usefulness of machine learning models such as random forest, XGBoost, LightGBM, AdaBoost, CatBoost, and support vector machines in forecasting personal bankruptcy. The research relies on two samples of households (learning and testing) from the Survey of Consumer Finances, which was conducted in the United States. Among the estimated models, CatBoost and XGBoost showed the highest effectiveness. Among the most important variables used in the models are income, refusal to grant credit, delays in the repayment of liabilities, the revolving debt ratio, and the housing debt ratio.

The Retirement Plan Dilemma: Who Is Best Prepared for Retirement in Today’s Environment?

This study examines the factors affecting retirement preparation through employer-sponsored retirement plans using the Survey of Consumer Finances’ (SCF) 2019 data. Various socio-economic and demographic variables are analyzed for significance regarding employee participation in and contributions to employer sponsored retirement plans. Our results indicate that gender, marital status, age, race, financial literacy, risk tolerance, inheritance expectation, and income are all important factors that affect plan participation rates as well as contribution levels. For minority women, income appears to be the most crucial factor in increasing participation. The results provide some implications for policymakers about improving retirement plan policies for women and minorities. The findings may also help individuals make better retirement planning decisions, especially in the face of possible social security benefit shortages and pension plan changes. This study is of great importance, as current retirement plans place a greater responsibility on both employers and individuals for retirement planning.

Analytic Approaches to Measuring the Black-White Wealth Gap

Does the measurement of the racial wealth gap shift depending on the model, method, and dataset used? We contrast the traditional mean Oaxaca-Blinder decomposition with the distributional Recentered Influence Function (RIF) methods. The untransformed, logarithm-transformed, and inverse hyperbolic sine-transformed versions in both the Survey of Consumer Finances and Panel Study of Income Dynamics datasets exhibit similarities. The Oaxaca-Blinder (mean) decomposition highlights that receiving an inheritance explains a larger portion of the racial wealth gap than educational attainment. Conversely, the RIF method at the median suggests that educational attainment accounts for more of the wealth gap than inheritance receipt.

The Evolution of Redlining in the United States Housing Market

This article explores the lasting effects of redlining in the United States on wealth creation and economic opportunity. Due to rising mortgage rates and low supply, housing costs are growing. Redlining is the practice of discrimination in the homebuying and lending market that resulted in significant housing inequality. While illegal since the 1970s, redlining has not disappeared but rather evolved. Institutional economics provides a framework to understand the history, consequences, and solutions to modern redlining that can generate greater housing equality in the United States. This article uses the latest Federal Reserve Bank’s Survey of Consumer Finances (2023) data to analyze the size and effects of housing inequality resulting from redlining practices and what groups are most affected. From these empirical findings, public policy solutions are presented to create a more financially stable and equitable housing market.

Does it Pay to Send Multiple Pre-Paid Incentives? Evidence from a Randomized Experiment

To encourage survey participation and improve sample representativeness, the Survey of Consumer Finances (SCF) offers an unconditional pre-paid monetary incentive and separate post-paid incentive upon survey completion. We conducted a pre-registered between-subject randomized control experiment within the 2022 SCF, with at least 1,200 households per experimental group, to examine whether changing the pre-paid incentive structure affects survey outcomes. We assess the effects of: (1) altering the total dollar value of the pre-paid incentive (“incentive effect”), (2) giving two identical pre-paid incentives holding the total dollar value fixed (“reminder effect”), and (3) offering multiple pre-paid incentives of different amounts holding the total dollar value fixed (“slope effect”) on survey response rates, interviewer burden, and data quality. Our evidence indicates that a single $15 pre-paid incentive increases response rates and maintains similar levels of interviewer burden and data quality, relative to a single $5 pre-paid incentive. Splitting the $15 into two pre-paid incentives of different amounts increases interviewer burden though lengthening time in the field without improving response rates, reducing the number of contact attempts needed for a response, or improving data quality, regardless of whether the first pre-paid is larger or smaller than the second.

Altruistic Bequests: Giving Motive and Receipt Expectation Using the 2019 Survey of Consumer Finances

This study uses Altruistic Bequest Theory to update research by Kao et al. (1997) exploring the factors driving the giving and receiving of bequests using data collected from the 2019 Survey of Consumer Finances (SCF). Altruistic variables demonstrated significant, although at times weak, relationships across the three categories of the analysis (bequest versus no bequest, bequest versus maybe bequest, maybe bequest versus no bequest). Alternatively, results show economic, attitudinal, and sociodemographic variables as the main drivers for the giving and receiving of bequests.

Is rising student debt affecting retirement savings? Evidence from the survey of consumer finances

AbstractUsing exogenous changes in the personal bankruptcy treatment of student loans as well as the level of student debt, we find that student debt has a negative effect on household retirement savings. This negative relation is present for younger and older individuals, and is larger for the latter group, indicating lower levels of retirement savings for precisely those who can least afford it. We also find that student debt is related to greater borrowing on retirement plans. Households with more student debt expect to have insufficient retirement income and are less able to plan financially for the long term.

Changes in U.S. Family Finances from 2019 to 2022: Evidence from the Survey of Consumer Finances

Changes in U.S. Family Finances from 2019 to 2022: Evidence from the Survey of Consumer Finances

The Rising Importance of Stock-Linked Assets in the Black–White Wealth Gap

Studies have examined the racial disparities in household characteristics, homeownership, and familial transfer as primary drivers of the Black–White wealth gap in the United States. This study assesses the importance of stock-linked assets in generating wealth inequality. As financial assets become a growing component of household portfolios, the Black–White wealth gap is increasingly associated with the racial disparity in stock-linked assets. Using data from the Survey of Consumer Finances and the Panel Study of Income Dynamics, this study shows that the contribution of stock-linked assets to the Black–White wealth gap has expanded in both absolute and relative terms, surpassing those of homeownership and business equity. Furthermore, a substantial disparity in financial wealth exists even for otherwise similar Black and White households. Although the disparity is larger among those with more economic resources, a gap remains among those with less. Lastly, our analysis shows that the combination of lower ownership levels and lower returns on financial wealth among Black households could account for a quarter of the Black–White wealth accumulation gap, net of differences in current net worth and household characteristics. Our findings suggest that considering financial assets is critical for understanding contemporary racial wealth inequality.

Gender and Risk-Taking in the Building of U.S. Retirement Wealth

AbstractThe growing weight being placed on self-directed retirement accounts within the United States retirement income policy framework, and the time inconsistency challenge of individuals, particularly women, tending to under-invest in retirement savings accounts motivated the current work. Using data from the United States Federal Reserve Board’s Survey of Consumer Finances, for a period spanning from 1989 to 2019, 11 cross-sections of data, the paper investigated the role of gender in United States retirement risk-taking investment strategies of single (never married) individuals. The analysis documented increasing trends in the risk-taking of both single women and single men but recorded differences in the risk-taking profiles of the two groups, with single men taking more risk than single women in their retirement wealth building in most cross-sections, with the gender risk-taking gap dropping, nonetheless, algebraically in magnitude from 1989 to 2019.

The racial wealth gap, financial aid, and college access

AbstractWe examine how the racial wealth gap interacts with financial aid in American higher education to generate a disparate impact on college access and outcomes. Retirement savings and home equity are excluded from the formula used to estimate the amount a family can afford to pay. All else equal, omitting those assets mechanically increases the financial aid available to families that hold them. White families are more likely to own those assets and in larger amounts. We document this issue and explore its relationship with observed differences in college attendance, types of institutions attended, degrees attained, and education debt using data from the Survey of Consumer Finances (SCF), the National Postsecondary Student Aid Study (NPSAS), and the Panel Study of Income Dynamics (PSID). We show that this treatment of assets provides an implicit subsidy worth thousands of dollars annually to students from families with above‐median incomes. White students receive larger subsidies relative to Black students and Hispanic students with similar family incomes, and this gap in subsidies is associated with disadvantages in educational advancement and student loan levels. It may explain 10 percent to 15 percent of white students’ advantage in these outcomes relative to Black students and Hispanic students.

Changes in U.S. Family Finances from 2019 to 2022: Evidence from the Survey of Consumer Finances

The Survey of Consumer Finances (SCF) is a triennial cross-sectional survey of U.S. families. The survey collects information on families’ balance sheets, income, net worth, credit use, and other financial outcomes.

Household use of financial planners

Using the Certified Financial Planner (CFP) Board’s definition of financial planning, this article evaluates the validity of the measures of financial planner use in publicly available datasets. A review of Financial Services Review, Journal of Personal Finance, Journal of Financial Planning, Journal of Family and Economic Issues, Journal of Consumer Affairs, and Journal of Financial Counseling and Planning identified seven datasets that were commonly used to investigate financial planner use. Of these, the two most promising measures were found in the Survey of Consumer Finances and the National Longitudinal Study of Youth (1979). However, an evaluation of these measures raises significant concerns related to their validity. This article critically evaluates these measures and provides insights into the development of better measures of financial planner use for the future.

U.S. Families’ Experiences of the COVID-19 Pandemic: Evidence from the Survey of Consumer Finances

Between 2019 and 2022, the COVID-19 pandemic caused severe disruptions to the U.S. labor market and broader economic activity, leading to unprecedented levels of fiscal support. Nonetheless, over this period, net changes in major economic indicators were consistent with a robust economy, and according to the 2022 Survey of Consumer Finances (SCF), U.S. families experienced broad-based improvements in their finances, particularly with respect to net worth (Aladangady et al., 2023).

Mortality differentials, the racial and ethnic retirement wealth gap, and the COVID-19 Pandemic

Using the Survey of Consumer Finances, I find that the Black/white gap in standard net worth widened from 1989 to 2019 but narrowed between Hispanics and (non-Hispanic) whites. When the definition of wealth is expanded to incorporate Social Security and defined benefit pension wealth (both the discounted sum of future benefits) to create augmented wealth, the wealth gap is sharply reduced, especially for median wealth. The Black/white and Hispanic/white disparity in Social Security wealth lessened considerably over 1989–2019. In contrast, the Black/white ratio of mean augmented wealth showed no change, though the ratio of median augmented wealth progressed. The Hispanic/white ratio of both mean and median augmented wealth advanced as well. The COVID-19 Pandemic struck in 2020 and hit the minority community much harder than whites in terms of mortality rates. Besides claiming over a million lives overall, it lopped off 4.7 percent of Social Security wealth among whites, 11.5 percent among Blacks, and 13.1 percent among Hispanics. As a result, while mean augmented wealth dipped only 1.2 percent among whites, it fell 6.7 percent among Black households and 7.3 percent among Hispanics. The effect was even stronger on median values – declines of a 2.6, 9.3 and 12.1 percent, respectively.