Survey Of Consumer Finances Research Articles

Social Security Wealth, Inequality, and Lifecycle Saving

Wealth inequality in the US is high and rising, but Social Security is generally not considered in those wealth measures. Social Security Wealth (SSW) is the present value of future benefits that an individual will receive less the present value of future taxes they will pay. When an individual enters the labor force, they generally face a lifetime of taxes to pay before they will receive any benefits, and thus their initial SSW is generally low or negative. As an individual works and pays into the system their SSW grows and generally peaks somewhere around typical Social Security benefit claim ages. The accrual of SSW over the working life is most important for lower-income workers because the progressive Social Security benefit formula means that taxes paid while working are associated with proportionally higher benefits in retirement. We estimate SSW for individuals in the Survey of Consumer Finances (SCF) for 1995 through 2016 and use a pseudo-panel approach to empirically demonstrate those lifecycle patterns. We also show that including SSW in a comprehensive wealth measure generally reduces estimated levels of wealth inequality but does not reverse the upward trend in top wealth shares. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Job Stability, Earnings Dynamics, and Life-Cycle Savings

Labor markets are characterized by large heterogeneity in job stability. Some workers hold lifetime jobs, whereas others cycle repeatedly in and out of employment. This paper explores the economic consequences of such heterogeneity. Using Survey of Consumer Finances (SCF) data, we document a systematic positive relationship between job stability and wealth accumulation. Per dollar of income, workers with more stable careers hold more wealth. We also develop a life-cycle consumption-saving model with heterogeneity in job stability that is jointly consistent with empirical labor market mobility, earnings, consumption, and wealth dynamics. Using the structural model, we explore the consequences of heterogeneity in job stability at the individual and macroeconomic level. At the individual level, we find that a bad start to the labor market leaves long-lasting scars. The income and consumption level for a worker who starts working life from an unstable job is, even 25 years later, 5 percent lower than that of a worker who starts with a stable job. For the macroeconomy, we find welfare gains of 1.6 percent of lifetime consumption for labor market entrants from a secular decline in U.S. labor market dynamism.

Financial Profiles of Workers Most Vulnerable to Coronavirus-Related Earnings Loss in the Spring of 2020

In spring 2020, the COVID-19 pandemic and related shutdowns had huge effects on unemployment. Using data from the Survey of Consumer Finances, we describe the financial profiles of US families whose workers were most vulnerable to coronavirus-related earnings losses in the spring of 2020, based on whether a particular worker was deemed “essential” and whether a worker’s job could be conducted remotely. We use descriptive analytic techniques to examine how families’ baseline financial situations would allow them to weather COVID-shutdown-related earnings losses. We find that families with non-teleworkable workers who were most vulnerable to layoff also had both demographic and financial profiles that are associated with greater vulnerability to income shocks: non-teleworkable families were more likely to be people of color and single wage-earners, and also to have less savings. The median non-teleworkable family, whether in non-essential or essential occupations, held only three weeks of income in savings, underscoring the importance of policy measures to blunt the financial effect of the COVID crisis.

Consumer Debt and Default: A Macro Perspective

In this survey, we review the quantitative macroeconomic literature analyzing consumer debt and default. We start by providing an overview of consumer bankruptcy law in the US and document the relevant institutional changes over time. We proceed with a comprehensive empirical section, describing key facts about consumer debt, defaults and delinquencies, as well as charge-off and interest rates for the United States. In addition to the evolution of these variables over time, we construct life-cycle profiles using data from the Survey of Consumer Finances and show that debt and defaults display a clear hump-shaped profile by age. Third, we show how credit card debt has evolved along the income distribution. Finally, we document a large amount of heterogeneity in credit card interest rates across consumers. In the second part of the survey, we describe what has by now become the workhorse model of consumer credit and default. We discuss a quantitative version of the model and use it to decompose the main reasons for default. We also use the model to illustrate how the details of default costs matter. The remainder of the survey then discusses the literature centered around two questions. First, what are the welfare implications of various bankruptcy laws? And second, what caused the rise in filings over time? We end with a discussion of open questions and fruitful avenues for future research.

A Penny on the Dollar: Racial Inequalities in Wealth among Households with Children.

The dynamics of racial/ethnic wealth inequality among U.S. families with resident children (child households) have been understudied, a major oversight because of wealth’s impact on child development and intergenerational mobility. Using data from the Survey of Consumer Finances (2004–2016), the authors find that wealth gaps between black and white households are larger in, and have grown faster for, child households relative to the general population. In contrast, black-white income gaps for child households have remained largely unchanged. Wealth trends for black and Hispanic child households have diverged, and by 2016, Hispanic child households had more net worth than black child households. Between 2004 and 2016, home ownership rates and home equity levels for black child households decreased, while educational debt increased. In 2016, black child households had just one cent for every dollar held by non-Hispanic white child households. These findings depict the extreme wealth fragility of black child households.

Estimation of Heterogeneous Agent Models: A Likelihood Approach

We study the statistical properties of heterogeneous agent models. Using a Bewley-Hugget-Aiyagari model we compute the density function of wealth and income and use it for likelihood inference. We study the finite sample properties of the maximum likelihood estimator (MLE) using Monte Carlo experiments on artificial cross-sections of wealth and income. We propose to use the Kullback-Leibler divergence to investigate identification problems that may affect inference. Our results suggest that the unrestricted MLE leads to considerable biases of some parameters. Calibrating weakly identified parameters allows to pin down the other unidentified parameter without compromising the estimation of the remaining parameters. We illustrate our approach by estimating the model for the U.S. economy using wealth and income data from the Survey of Consumer Finances.

The Wealth of Generations, with Special Attention to the Millennials

We examine household wealth across birth cohorts and over time using data from the Survey of Consumer Finances. We show that although the Great Recession reduced wealth in every age group, longer-term trends indicate that the wealth of older age groups has increased while the wealth of younger age groups has declined. A substantial share of these changes, in both directions, can be explained by changes in household demographic and economic characteristics. As for the millennial generation, their median wealth in 2016 was lower than the wealth of any similarly aged cohort between 1989 and 2007. Millennials will have several advantages in wealth accumulation relative to previous generations, such as more education and longer working lives, but also several disadvantages, including weak prospects for economic growth and delays in home purchase and marriage. The millennial generation contains a significantly higher percentage of minorities than previous generations. We estimate that minority households have tended to accumulate less wealth than whites in the past, controlling for household characteristics, and the difference appears to be growing over time for Blacks relative to whites. These results apply to the period before the COVID-19 pandemic and are best interpreted as addressing generational wealth patterns through 2016 and providing a pre-COVID benchmark against which future studies can be compared.

The diversity of household assets holdings in the United States in 2007 and 2009: measurement and determinants

We apply diversity indices, such as the Gini-Simpson index and entropy related indices, to the study of the distribution of individual asset holdings in the United States in 2007 and 2009. We examine the impact of the 2008 recession on asset diversity and the way individual socio-economic characteristics as well as important life events affect this measure. The focus of our analysis is on financial assets. We use a unique panel data set that provides us with comprehensive household level data for 2007 and 2009 in the United States—the Survey of Consumer Finances. We find that asset diversity increases between 2007 and 2009. In addition, it increases with age, education and income and it is lower at the bottom of the wealth distribution. Life changing situations such as getting divorced or losing one’s job have a statistically significant negative effect on a change in diversity, while getting married or having deteriorating health have a positive effect. Active money management also affects asset diversity positively.

CUMULATIVE DIS/ADVANTAGE, COHORTS, AND ECONOMIC SHOCKS BEFORE AND AFTER: LIFE COURSE INEQUALITY AND THE RECESSION

We examined age/cohort profiles of income inequality in the Survey of Consumer Finances for 2007, 2010, and 2016. Overall, the Gini coefficient decreased somewhat following the 2008 onset of the Recession, but rebounded by 2016 to a higher level than the 2007 baseline. Within-cohort inequality trends from 2007-2016 differed considerably across cohorts. For late baby boomers and millennials, inequality increased sharply – from .56 to .67 for the 1963-1972 birth cohort and from .49 to .60 for the 1973-1982 birth cohort. Inequality was higher at baseline for early baby boomers than later cohorts but did not increase as they moved into midlife and early late life. The Great Recession, with its large drops in asset values, initially led to slight reductions in inequality, but this effect was temporary. Late boomers and millennials experienced sharp increases in inequality following the Recession, presaging a very high-inequality late-life experience for these cohorts.

Retirement Prospects for the Millennials: What Is the Early Prognosis?

Various policy developments and long-term economic, social, and demographic trends raise worrisome questions about the financial security of future retirees. An erosion in employer-sponsored defined benefit pension coverage and the increase in Social Security’s full retirement age could shrink future benefits. Stagnating employment and earnings for men could threaten future retirement security, because retirement benefits and the capacity to save depend on lifetime earnings. The financial crisis, Great Recession, and collapse of the housing market in the second half of the previous decade could significantly disrupt retirement savings. This paper assesses retirement prospects for future generations, with a special focus on the late Generation-X and Millennial generations. Because retirement outcomes depend on how much people earned and saved when they were younger, the analysis compares trends in employment, earnings, pension coverage, and wealth during working ages across cohorts, using data from the Current Population Survey and the Survey of Consumer Finances. The analysis also projects age-70 incomes for future generations using DYNASIM4, the Urban Institute’s dynamic microsimulation model. This paper found that: - Many recent trends threaten future retirement security, including continuing declines in men’s employment before age 55, stagnating median earnings for men, and a sharp decline in median household wealth after 2007. - Other trends are more encouraging. Gen-X and Millennial women worked and earned more in their 20s and 30s than now-retired women did at those ages, and Millennial men and women are much more likely to have a four-year college degree than previous cohorts. - Projections show that median age-70 income will be higher for Gen-Xers and Millennials than previous generations as earnings grow over time. - However, a larger share of retired Gen-Xers and Millennials will be unable to replace at least three-quarters of their pre-retirement earnings, according to the projections, and will see their living standards decline when they retire. The policy implications of this paper are: - How employment, earnings, and savings patterns evolve over the next three decades will shape Millennials’ retirement incomes. - Policy choices regarding retirement programs, especially strategies to address Social Security’s long-term financing gap, will significantly affect the retirement security of future generations.

Lifecycle Patterns of Saving and Wealth Accumulation

Empirical analysis of U.S. income, saving and wealth dynamics is constrained by a lack of high-quality and comprehensive household-level panel data. This paper uses a pseudo-panel approach, tracking types of agents by birth cohort and across time through a series of cross-section snapshots synthesized with macro aggregates. The key micro source data is the Survey of Consumer Finances (SCF), which captures the top of the wealth distribution by sampling from administrative records. The SCF has the detailed balance sheet components, incomes, and interfamily transfers needed to use both sides of the intertemporal budget constraint and thus solve for saving and consumption. The wealth change decomposition by age and agent type provides a new set of benchmarks for heterogeneous agent macro models, reconciling observed anomalies about lifecycle saving behavior and emphasizing the importance of generally unmeasured incomes (interfamily transfers and capital gains) in wealth accumulation dynamics.

Wealth structures and income distribution of US households before and after the Great Recession

This paper investigates the empirical relationship between household wealth composition and income inequality in the USA, proxied by households’ relative position in the income distribution. Previous research highlights wealth–income interactions as an important driver of inequality, but less is known about whether wealth composition is conducive to sustained improvements in relative income across households. Using non-parametric median slope analysis on the U.S. Survey of Consumer Finances between, 1989-, 2013, the paper examines patterns of empirical regularities between wealth composition and relative income, finding significant differences over time and between income, gender, racial, and intergenerational groups. Households holding more wealth in other property, business equity, financial investment, retirement and insurance assets, and secured debt are found to occupy higher position in the income distribution compared to households whose wealth is dominated by main residence. However, these positive effects are not experienced equally as they are found to be significantly lower for households in the poorest 20% of the income distribution and for female, Black/Latino, and millennial households.

Trends in Household Portfolio Composition

We use data from the Survey of Consumer Finances (SCF) to explore how household asset portfolios in the United States have evolved from 1989 to 2016. Throughout this period, two key assets—housing and financial market assets—have driven the aggregate household balance sheet evolution. However, aggregates mask great heterogeneity in balance sheet composition across the wealth distribution, and most families hold a relatively small share of assets in financial markets and larger shares in housing and other nonfinancial assets. We also describe the typical life cycle asset accumulation processes among low, middle, and high-income families which—though varying dramatically by level—are quite similar. Finally, we use household balance sheets to describe how financial vulnerability has changed over time.

Optimal Portfolio Choice Over the Life Cycle with Social Security

This paper examines how households should optimally allocate their portfolio choices between risky stocks and risk-free bonds over their lifetime. Traditional lifecycle models in previous work suggest that the allocation toward stocks should start high (near 100%) early in life and decline over a person’s age as human capital depreciates. These models also suggest that, with homothetic utility, the allocation should be roughly independent of a household’s permanent income. The actual empirical evidence, however, indicates more of a “hump” shape allocation over the lifecycle; the lifetime poor also hold a smaller percentage of their portfolio in stocks relative to higher income groups. Households, therefore, appear to be making considerable “mistakes” in their portfolio allocation. Target date funds, which have grown enormously during the past five years, aim to simplify the investment process in a manner consistent with the predictions of this traditional model. We reconsider the portfolio choice allocation in a computationally-demanding lifecycle model in which households face uninsurable wage shocks, uncertain lifetime as well as a progressive and wage-indexed social security system. Social security benefits, therefore, are correlated with stock returns at a low frequency that is more relevant for lifecycle retirement planning. We show that this model is able to more closely replicate the key stylized facts of portfolio choice. In fact, when calibrated to the age-based income-wealth ratios found in the Survey of Consumer Finances, we demonstrate that the portfolio allocation “mistakes” being made by the vast majority of households actually lead to larger levels of welfare relative to the traditional advice incorporated in target date funds.

The tail that wags: differences in effective right tail coverage and estimates of wealth inequality

This paper focuses on the sensitivity of survey-based estimates of wealth inequality to the quality of the measurement of the upper tail of the distribution. Using data from the 2013 Survey of Consumer Finances (SCF), it develops a series of illustrative examples to highlight some of the problems in making comparisons of wealth inequality measures when there are specific defects in the measurement of the upper tail of the distribution. The results presented strongly indicate that in the absence of effective controls on the measurement of the upper tail of the wealth distribution, great caution should be the rule in the interpretation of most commonly used measures of wealth inequality from a given survey, comparison of such measures across the waves of the survey, and perhaps even more strongly, comparison across independently designed and managed surveys. A graphical decomposition of the 2013 SCF wealth distribution provides additional insight into the underlying cause of the sensitivity of the inequality measures. The paper concludes with a brief outline of a research program for improving the ability of surveys to provide more meaningful estimates of inequality measures.

Inequality and market concentration, when shareholding is more skewed than consumption

AbstractEconomic theory suggests that monopoly prices hurt consumers but benefit shareholders. But in a world where individuals or households can be both consumers and shareholders, the impact of market power on inequality depends in part on the relative distribution of consumption and corporate equity ownership across individuals or households. The paper calculates this distribution for the United States, using data from the Survey of Consumer Finances and the Consumer Expenditure Survey, spanning nearly three decades from 1989 to 2016. In 2016, the top 20 per cent consumed approximately as much as the bottom 60 per cent, but had 15 times as much corporate equity. Because ownership is more skewed than consumption, increased mark-ups increase inequality. Moreover, over time, corporate equity has become even more skewed relative to consumption.

Financial markets and the working class in the USA: an empirical investigation of financial stress

AbstractThis paper investigates the relationship between financial stress and the working class in the USA. Employing a financial stress index created from the Survey of Consumer Finances, I show that working class households are nearly twice as likely to be financially stressed than wealthier non-working class households from 1992 to 2016. A possible explanation of this result could be that the financial expropriation of personal income among the working class has the effect of increasing that group’s financial stress relative to wealthier classes. Working class households in the USA have struggled to afford means of subsistence in lieu of lacklustre wage growth and a tattered safety net. Financial expropriation of these households has operated in tandem with this precarity, increasing financial stress in a time of financialised capitalism.

Divergent fortunes: growing wealth inequality and widening entrepreneurship by age

ABSTRACTEntrepreneurship can offer people control over their working lives. Yet, it has declined among households younger than 50 years and grown among older households. We examine the relationship between growing wealth inequality and this widening entrepreneurial age disparities by focusing on wealth as a source of income diversification. Our main hypothesis is that younger households have less capital income from wealth holdings leading to less diversification as compared to older households. Using descriptive statistics and multinomial logistic regressions based on data from the Federal Reserve’s triennial Survey of Consumer Finances (SCF), we conclude that the gap in households’ entrepreneurial responsiveness to income diversification has widened by age. We also find that households’ capital income receipt follows from wealth such that rising wealth inequality may have impeded income diversification and reduced entrepreneurship among households with less wealth, especially younger ones. We rule out three alternative explanations: increasing economic pressures from labor market instability, tightening of liquidity constraints, and in declines in nonpecuniary rewards – for the divergent entrepreneurship trends.

Item Response Rates for Composite Variables

Abstract Item response rates frequently serve as indicators of data quality and potential nonresponse bias. However, key variables from surveys, such as total household income or net worth, are often composite variables constructed from several underlying components. Because such composite variables do not have clearly identifiable response rates, inference on the data quality of these key measures is more difficult. This article proposes three new methods for aggregating data on response rates across questions to create a measure of item response for composite variables. To compare the three methods and illustrate how they can be used (both individually and collectively) to investigate data quality, I analyze item response for net worth in the Survey of Income and Program Participation (SIPP) and the Survey of Consumer Finances (SCF). These new measures provide detailed information about net worth estimates that would be difficult to assess without an item response aggregation method. Overall, these new item response rate methods provide a new way of describing data quality for key measures in surveys and for analyzing changes in data quality over time.

Loan Type and Debt Delinquency among Millennial and Non‐Millennial Households

This study used the 2016 Survey of Consumer Finances (SCF) and focused on whether holding different types of loans influenced debt delinquency among Millennial and non‐Millennial households. When the total sample was analyzed, there was a difference in debt delinquency between the two groups, and holding different types of loans was associated with debt delinquency. In subsample models, the logistic results showed that while auto loans’ effect on debt delinquency was negative, student loans and other installment loans’ effects on debt delinquency were positive for both groups. In addition, Millennials who held housing loans were less likely to be delinquent on debt payments overall. These findings have implications for debt management education and attention from policymakers in assisting households with a debt burden.