Household Financial Stability and Income Volatility Prosper Canada Policy Research Symposium March 9, 2018 Ray Boshara Director, Center for Household Financial Stability Federal Reserve Bank of St. Louis *These are my own views, and not necessarily the views of the Federal Reserve Bank of St. Louis, Federal Reserve System, or the Board of Governors
The Demographics of Wealth First published in 2015 − Education − Race − Age Updated in 2018 − Adds effects of parents’ education on wealth Explores connection between wealth and a person’s race/ethnicity, education, and age 2
Income and Wealth Over Time Changes in Median Income and Net Worth Over Time Thousands of 2016 Dollars 160 120 97 80 53 40 0 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Median Income Median Net Worth Source: Federal Reserve Board, Survey of Consumer Finances. 3
Racial / Ethnic Wealth Gaps Real Median Family Net Worth, by Race/Ethnicity Thousands of 2016 Dollars 200 White, Non-Hispanic Other 163 160 Black Hispanic, Any Race 120 100 80 40 22 16 0 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Source: Federal Reserve Board, Survey of Consumer Finances. 4
Educational Wealth Gaps 5
Age / Birth Year Wealth Gaps Real Median Family Net Worth, by Age Thousands of 2016 Dollars 300 Old (62+) 236 Middle-aged (40-61) 250 Young (<40) 200 150 131 100 50 17 0 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Source: Federal Reserve Board, Survey of Consumer Finances. 6
Effect of Parents ’ Education On Wealth Real Median Family Net Worth, Middle-Aged Families, by Parental Education Thousands of 2016 Dollars 400 342 350 300 250 200 150 98 100 50 0 Low Parental Education High Parental Education Source: Federal Reserve Board, Survey of Consumer Finances. 7
Data on Household Finances in the U.S. Survey of Household Economics Survey of Consumer Finances and Decision Making (SHED) (SCF) https://www.federalreserve.gov/consumerscommunities/shed.htm https://www.federalreserve.gov/econres/scfindex.htm Annual survey conducted by FRB Triennial survey sponsored by FRB Since 2013 Since 1989 Evaluates economic well-being of Comprehensive data on household balance sheets; considered the “gold U.S. households standard” 2016 survey had 6,643 respondents 2016 survey had 6,248 household Oversamples low-income (<$40k/year) respondents Oversamples high-income respondents Weighted to be representative of the U.S. adult population Weighted to be representative of the U.S. adult population 8
Income Volatility (SHED) Percent of Americans Percent of Respondents Whose Income Varied Income varies month-to- Struggle to pay bills because 32% 40% month of volatility Irregular work schedule Struggling to get by 30% 43% primary cause of volatility 0% 5% 10% 15% 20% 25% 30% 35% 40% 0% 10% 20% 30% 40% 50% 9
Income Volatility by Race and Education (SHED) Month-to-Month Income Volatility 45% 41% 40% 40% 35.7% 34.5% 32.4% 35% 30% 30% 26.8% 25% 20% 15% 10% 5% 0% All Americans White Black Hispanic High school Some college Bachelor's or less or associate degree or degree more Race Education 10
Financial Fragility SHED 2016 SCF 2016 Percent of Americans Percent of Americans Reported they could only cover a $400 expense Would not be able to get $3000 from by selling something, borrowing, or would not be 44% 36% able to (total) family or friends in an emergency Could not cover a $400 emergency expense at all 27% Held debt of any kind 77% Could only cover a $400 emergency expense by 17% selling something or borrowing Did not save out of income 45% Cannot pay current month's bills in full 23% Reported income below "normal" 15% income Had to forgo at least one type of healthcare in 25% 0% 10% 20% 30% 40% 50% 60% 70% 80% past year due to affordability 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 11
Financial Fragility by Age, Race, and Education (SCF) Conditional Median Value of Safe and Liquid Assets $25,000 $20,072 $20,000 $14,240 $15,000 $10,758 $10,000 $7,980 $7,878 $4,702 $4,604 $5,000 $3,012 $3,010 $- All <40 41-61 62+ White Black Hispanic < 4-year 4-year Americans (78.9%) (80.8%) (85.2%) (85.4%) (70.6%) (71.6%) degree degree+ (81.6%) (75.6%) (93.4%) Age Race Education 12
Other Types of Household Fragility (SHED) Retirement Employment 28% of non-retired adults report that they have no 17% of working adults have schedules that vary based on their employer’s needs retirement savings or pension − 53% of these workers are told about their hours less than 3 days in advance 13% of adults with retirement savings either borrowed from those savings, cashed out, or did 15% of working adults indicated they worked at both in the past year multiple jobs 53% of adults with self-directed retirement 28% of all adults report that they or their family accounts are not comfortable or only slightly earned money through informal, occasional comfortable in their ability to make the right activities in the prior month (e.g. babysitting, investment decisions selling items at garage sales, selling items online) − 42% of these adults engage in these activities primarily to earn extra money 13
Cross-Country Comparison of Financial Fragility in 2009 Unable to Cope With $2000 USD Shock 60% 52.2% 50.6% 50.0% 45.9% 50% 37.3% 40% 28.2% 26.9% 30% 20.0% 20% 10% 0% “How confident are you that you could come up with $2,000 if an unexpected need arose within the next month?” Source: TNS Global Economic Crisis Study 2009 data from Lusardi, Schneider, & Tufano, 2011. 14
Conclusion: 1. Is income volatility the hidden culprit? 2. Why are household finances important to the Fed? 3. What are some possible responses to improve household financial stability and balance sheets? 15
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