Changes in family finances from 1989 to 1992: evidence from the Survey of Consumer Finances - includes related article on why some families do not have checking accounts

Federal Reserve Bulletin, Oct, 1994 by Arthur B. Kennickell, Martha Starr-McCluer

Using newly available data from the 1992 Survey of Consumer Finances along with previously available data from the 1989 survey, this article provides detailed evidence of the way family income and net worth changed over the three-year period. Although the processing of the 1992 data is not yet complete, the preliminary findings indicate some noteworthy changes in the income and net worth of families.

First, in a development that paralleled declines in interest rates over the period, families tended to shift their asset portfolios away from traditional deposits and toward mutual funds. Second, an important increase occurred in ownership of tax-deferred retirement accounts as well as in the median size of such accounts. Third, despite a decline in real family income over the period, the median ratio of debt payments to family income remained steady, largely because declining interest rates tended to lower payments. Finally, income and net worth for nonwhite and Hispanic families grew substantially relative to the comparatively low levels at which they started the period.

To a large extent, the findings from the survey reflect recent macroeconomic events and other, longer-term trends. In terms of macroeconomic changes, the period from 1989 to 1992 spanned a recession and an evolving expansion. In 1989, the U.S. economy was at the end of a long expansion, with a civilian unemployment rate of 5.4 percent; by 1992, the economy had started its recovery from the 1990-91 recession, but the unemployment rate stood at 7.5 percent.(1) Partially reflecting the effects of recession, the proportion of families headed by persons in blue-collar jobs declined as the proportion headed by persons who were not working rose. Concurrently, interest rates on three-month certificates of deposit fell from 7.7 percent to 3.1 percent while rates on long-term, fixed-rate mortgages declined less sharply, from 9.8 percent to 8.0 percent. At the same time, the Standard and Poor's 500 index of stock prices rose at an annualized rate of 7.1 percent, and real home prices leveled off or, in some areas, even declined. On average, consumer prices rose 4.2 percent per year over this period.

Several longer-term trends also affected family finances. The number and types of mutual funds available to consumers continued to grow as the cost of information processing declined. Continued easing of restrictions on interstate banking, the decline of the savings and loan industry, and the increase in the local presence of national mortgage lenders changed the types of institutions that families faced when obtaining loans. As the tax advantages of individual retirement accounts weakened, employers--responding to a variety of changes in legislation governing pensions--increasingly offered tax-deferred savings plans as a way for workers to accumulate savings for retirement.

A long-running demographic trend is the aging of the large post-World War II cohort. In the three-year period covered by this article, the proportion of families headed by persons between 45 and 54 years of age, a group largely composed of this "baby boom" generation, rose from 14.4 percent to 16.2 percent. A smaller increase also occurred in the fraction of families headed by persons aged 65 and more.

THE SURVEY OF CONSUMER FINANCES

The Survey of Consumer Finances (SCF) is intended to provide detailed information on the assets, liabilities, and demographic characteristics of U.S. families.(2) In its current form, the SCF has been conducted every three years since 1983. The information reported in this article derives from the 1989 and 1992 survey data. Analyses and descriptions of the earlier surveys have been published in previous issues of the Federal Reserve Bulletin.(3)

The sample design for the SCF is complex. Some assets, such as business assets and corporate stocks, are held in large part by a disproportionately small number of families. To provide a sufficient number of cases for the analysis of such variables, the survey oversamples wealthy families and uses weights to maintain the correct proportion of such families in the overall population. Because of the complexity of the sample, computing standard errors for the figures reported here is not possible at the current stage of data processing. However, the data have been carefully inspected for outliers and overly influential cases. Based on this information and on sampling error calculations from earlier surveys, the presentation in this article concentrates on results that are likely to be sustained by more formal significance tests. (See the appendix for a technical description of the survey.)

The Survey Research Center at the University of Michigan collected the data for the 1989 SCF, which was sponsored by the Federal Reserve in cooperation with the Department of the Treasury, the Department of Health and Human Services, the National Institute on Aging, the Small Business Administration, the General Accounting Office, the Comptroller of the Currency, and the Congressional Joint Committee on Taxation. The National Opinion Research Center at the University of Chicago collected the data for the 1992 survey, which was sponsored by the Federal Reserve in cooperation with the Department of the Treasury.