Changes in family finances from 1983 to 1989: evidence from the Survey of Consumer Finances

Federal Reserve Bulletin, Jan, 1992 by Arthur Kennickell, Janice Shack-Marquez

Arthur Kennickell and Janice Shack-Marquez, of the Board's Division of Research and Statistics, prepared this article.

Between 1983 and 1989, family finances in the United States were affected by many factors. Financial deregulation altered the availability and the cost of financial services to consumers. Banks moved to explicit pricing of checking services and the payment of interest on transactions accounts, and money market accounts and other mutual funds became more available. The progressive elimination of tax deductions for consumer interest other than the deduction on home mortgages influenced the effective price of borrowing. Other tax changes, such as the elimination of general deductions for individual retirement accounts, altered the return to various forms of saving.

Macroeconomic and demographic changes also affected the financial opportunities for families. In 1983, the U.S. economy was at the end of a recession; in 1989, it was near the end of a long expansion. Over the intervening six years, aggregate real disposable personal income, as measured in the National Income and Product Accounts, increased by 21 percent; the price level, as measured by the consumer price index, rose about 25 percent; and, as measured in nominal terms by the Federal Reserve flow of funds accounts, total assets and net worth for the household sector grew 61 percent and 56 percent respectively. The overall population of households grew 9 percent; the largest growth was in families headed by individuals between the ages of 35 and 45 years, a group that tends to have a relatively high rate of saving. Other important demographic changes were an increase in the proportion of dual-earner families from 26 1/2 percent of all families in 1983 to 29 percent in 1989 and a small increase in average family size.

With these changes came alterations in the income, assets, and liabilities of U.S. families. Using data from the 1983 and 1989 Surveys of Consumer Finances, this article looks at those alterations and analyzes them according to a variety of economic and demographic characteristics. Several findings are noteworthy. The small rise in the median values of income and net worth and the simultaneous substantial rise in the mean values indicate that the distributions of income and net worth became more concentrated between 1983 and 1989.(1) Also, the use of debt increased; much of that increase was in families reporting the most financial assets.(2)

THE SURVEYS

Widely regarded as a reliable source of data on family finances, the Survey of Consumer Finances (SCF) is designed specifically to gather detailed and comprehensive information on assets, liabilites, and in come flows from a representative sample of the population of U.S. families. Because the ownership of some assets, such as corporate stocks, is relatively concentrated in a small numver of families, the survey makes a special effort to ensure proper representation of such assets by systematically oversampling wealthier families.

Surveys of consumer finances were conducted regularly with support from the Federal Reserve from 1946 through 1970. Another such survey was conducted in 1977 to gather information on the use of consumer credit. The current series of surveys has been ongoing on a triennial basis since 1983. However, because the SCF conducted in 1986 was limited in scope, this article uses data only from the 1983 and 1989 surveys.

The data for both these surveys were collected by the Survey Research Center at the University of Michigan. The 1983 SCF was sponsored by the Federal Reserve in cooperation with several other agencies. This survey was described and information from it was reported in previous issues of the Federal

Reserve Bulletin (September 1984, December 1984, and March 1986). The data reported here for 1983 may differ from the figures reported in the earlier articles because of revisions of the data and of the sample weights. The 1989 SCF 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. A technical description of this survey appears in the appendix to this article.

FAMILY INCOME

According to the SCF, real median pre-tax income for families was virtually unchanged between 1983 and 1989 (table 1). This finding is supported by data from the Current Population Survey conducted by the Bureau of the Census. Over the same period, mean real family income rose from $33,400 to $35,700. These findings suggest that incomes above the median grew faster than those below the median and that the distribution of family income became somewhat more concentrated among families with higher income.

Although in the aggregate median family income did not change, a breakdown of the population by demographic groups shows mixed changes. The median income for families headed by persons with at least some college experience rose, but this increase was offset by declines in all other education categories. A moderate increase for white families was offset by a decline for nonwhite and Hispanic families. The difference by racial group may partly reflect changes in the way race was ascertained in the two surveys. In the 1983 SCF, race was based on the survey interviewer's observation, whereas in the 1989 SCF, the survey respondent reported his or her own race, the procedure routinely followed by the Census Bureau. Consequently, the 1989 SCF race classification matches Census estimates, whereas the 1983 data overstate the proportion of nonwhites and Hispanics. This difference may cast some doubt on comparisons between 1983 and 1989 SCF results based on race classifications.