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

Consistent with aggregate income and population data, the SCF shows that the aggregate mean family income rose. Increases for families headed by persons less than 55 years old were partly offset by declines for families with heads between 55 and 74 years of age. Workers in highly skilled occupations fared better than other workers. Mean family income increased for managers; technical workers; and precision production, craft, and repair workers. Mean income of homeowners and of whites rose, whereas that of renters and of nonwhites and Hispanics fell. In the age group under 55 years, mean income rose most rapidly for married couples; among older families, mean income rose for families with retired heads and declined for other families.(3)

NET WORTH

Changes in the overall real net worth of families - the difference between families' total assets and their total debts-were more dramatic than changes in family income. Mean real net worth rose more than 23 percent, whereas median real net worth rose only 11 percent (table 2) As with income, the contrast between the mean and median suggests an increase in the concentration of net worth among wealthy families.

While small increases in median net worth were widespread, some marked declines also occurred. The decline was especially sharp for single parents and for nonwhites and Hispanics. The median net worth of farm families fell sharply as prices for farmland plummeted in the early 1980s. (Even with an increase in the price of farmland after 1985, the price level of farmland in 1989 was about 30 percent below the level in 1983.) Among families headed by persons 55 years of age and over, those whose heads were retired had the only increase in median net worth. Families with heads in this age group who remained in the labor force experienced declines in median net worth.

The change in mean net worth varied widely across demographic groups. Families headed by persons having some higher education and married couples headed by persons under 55 years of age showed particularly large increases. In contrast to the decline in median net worth for nonwhites and Hispanics, the mean net worth of this group rose; indeed, the percentage increase exceeded that of white families.

Changes in net worth may be attributed to changes in the value of the holdings of assets or in the amount of debt carried. The coverage of assets and liabilities in the survey is highly detailed; the aggregations presented in this article have been chosen to illustrate trends in the data.

ASSETS

The composition of assets held by all families, as recorded in the SCF, changed slightly between 1983 and 1989 (table 3). The small shift away from nonfinancial assets reflects declines in business and real estate assets as a share of total assets.(5)

Financial Assets

Despite the increase in financial assets as a proportion of total family assets, the ownership of several types of financial assets fell sharply (tables 3 and 4). In 1983, nearly 79 percent of families owned checking accounts-including conventional checking accounts, NOW accounts, and money market accounts used for checking - whereas by 1989 about 75 percent of families owned them. The decline was spread over virtually all groups shown here. Over this period, the movement of financial institutions toward more explicit prices for checking services may have made these accounts less attractive to many families. Nevertheless, data from the SCF indicate that only 16 percent of families without checking accounts in 1989 reported that service fees or balance requirements deterred them from maintaining an account. The proportion of families owning savings accounts also fell dramatically over this period, partly because families shifted assets to other investment vehicles. Again, the decline was pervasive. While the proportion of families holding checking and savings accounts declined over the period, the families that held these accounts in 1989 maintained them at about the same real level as that in 1983, with the median value of checking accounts rising only from $600 to $900 (tables 4 and 5).