Changes in U.S. Family Finances 2013-2016: Results from the Survey - - PowerPoint PPT Presentation

Changes in U.S. Family Finances 2013-2016: Results from the Survey of Consumer Finances

By Jesse Bricker, Lisa Dettling, Alice Henriques, Joanne Hsu, Lindsay Jacobs, Kevin Moore, Sarah Pack, John Sabelhaus, Jeffrey Thompson and Richard Windle

The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors of the Federal Reserve System.

Background

• Survey of households sponsored by the Federal Reserve Board
• In cooperation with Department of Treasury
• SCF triennial cross-sectional surveys, 1989-2016
• Sample sizes of 4,000 to 6,500 households
• Special sample design
• Area probability sample – randomly selected households
• List sample – specially selected wealthy households

1

Net worth and income trends

2

Real median and mean net worth increased between 2013 and 2016, after falling between the previous two waves

3 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2016 Dollars

Median Net Worth, 1989-2016

100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2016 Dollars

Mean Net Worth, 1989-2016 +16% +26%

Net worth increased throughout the distribution

• 2016 values: $10,300 at 25th, $97,300 at median, $369,100 at 75th

4 100,000 200,000 300,000 400,000 500,000 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2016 Dollars 75th Percentile Median 25th Percentile

Distribution of Net Worth, 1989-2016 +16% +14% +13%

The fraction of total net worth held by the wealthiest households continued to climb between 2013 and 2016

• Primarily driven by the top 1% share increasing 2 percentage points from 2013 to 2016

5 20% 25% 30% 35% 40% 45% 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Share of Total Wealth Top 1% Next 9% Bottom 90%

Net Worth Shares, by Net Worth Group 22.8% 38.6% 38.5%

Real median and mean income increased between 2013 and 2016, after falling or slightly rising between the two previous waves

6 30,000 35,000 40,000 45,000 50,000 55,000 60,000 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2016 Dollars 20,000 40,000 60,000 80,000 100,000 120,000 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2016 Dollars

Median Income, 1989-2016 Mean Income, 1989-2016 +10% +14%

Income rose throughout the income distribution

• 2016 values: $27,100 at 25th, $52,700 at median, $97,600 at 75th

7 20,000 40,000 60,000 80,000 100,000 120,000 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2016 Dollars 75th Percentile Median 25th Percentile

Distribution of Income, 1989-2016 +7% +10% +5%

The fraction of total income received by the highest income households continued to climb between 2013 and 2016

• Primarily driven by the top 1% share increasing 4 percentage points from 2013 to 2016

8 0% 10% 20% 30% 40% 50% 60% 70% 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Share of Total Income Top 1% Next 9% Bottom 90%

Income Shares, by Income Group 23.8% 26.5% 49.7%

Changes by demographic groups

9

Net worth and income rose for all education levels

• Lower education groups rebounded from 2013 low point
• College-educated fell less during financial crisis and have climbed since

50,000 100,000 150,000 200,000 250,000 300,000 350,000 No high school degree High school degree Some college College degree 2016 Dollars 2010 2013 2016 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 No high school degree High school degree Some college College degree 2016 Dollars 2010 2013 2016 10

Median Net Worth, by Education Median Income, by Education

+6% +26% +6% +15% +2% +2% +24% +29%

Net worth and income rose for all race/ethnicity groups

• Net worth increased $24,700 for White, $4,000 for Black, and $6,600 for Hispanic families from 2013 to 2016
• Income growth larger among non-white families

20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 White (Non-Hispanic) Black (Non-Hispanic) Hispanic 2016 Dollars 2010 2013 2016 10,000 20,000 30,000 40,000 50,000 60,000 70,000 White (Non-Hispanic) Black (Non-Hispanic) Hispanic 2016 Dollars 2010 2013 2016 11

Median Net Worth, by Race/Ethnicity Median Income, by Race/Ethnicity

+6% +10% +15% +17% +29% +46%

Net worth by race/ethnicity and education

Median net worth Mean net worth 2013 2016 2013 2016 No bachelor's degree White 87.1 98.1 323.1 367.8 Black 10.3 11.6 78.9 99.3 Hispanic 13.1 17.5 76.3 105.7 Bachelor's degree or higher White 375.5 397.1 1,440.1 1,821.3 Black 36.8 68.2 184.4 271.2 Hispanic 58.0 77.9 401.8 609.6

12

Net worth and income increased for all age groups

• Double-digit growth in net worth and income among 65+ families
• Despite substantial growth since 2013, net worth of 45-64 year olds remains below levels from 2010

50,000 100,000 150,000 200,000 250,000 300,000 Less than 45 45-64 65+ 2016 Dollars 2010 2013 2016 10,000 20,000 30,000 40,000 50,000 60,000 70,000 Less than 45 45-64 65+ 2016 Dollars 2010 2013 2016 13

Median Net Worth, by Age Median Income, by Age

+5% +8% +19% +10% +20% +19%

Changes by usual income

14

Income by “usual income”

• Usual income has transitory fluctuations smoothed away
• Approximates theoretical concept of “permanent” income in macro models

100,000 200,000 300,000 400,000 500,000 600,000 Bottom 50 Next 40 Top 10 2016 Dollars 2010 2013 2016 15

Mean Income, by Usual Income Group

+19% +11% +8%

Income below usual 25% 18% 15% Income same as usual 69% 74% 76% Income above usual 6% 7% 9% Comparison of actual and usual income 2010 2013 2016

Note: Components may not sum to total due to rounding

Wages are an important driver of income gains

Contributions to overall percentage change in income 2013-2016, by usual income Bottom 50 Next 40 Top 10 Wages 4.4 3.2 10.8 Business 2.0 1.3 4.0 Interest and Capital Gains 0.5 0.4 2.9 Other Sources 1.4 6.4 1.3 Total 8.3 11.3 18.9 Total (2010-2013)

• 4.9

0.4 10.0

16

Note: Components may not sum to total due to rounding

Net worth by usual income

• Double-digit gains in net worth for all usual income groups

500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 4,500,000 5,000,000 Bottom 50 Next 40 Top 10 2016 dollars 2010 2013 2016 17

+32% +14% +19%

Mean Net Worth, by Usual Income Group

Housing, business, corporate equity driving net worth gains

Contributions to overall percentage change in net worth 2013-2016, by usual income Bottom 50 Next 40 Top 10 Housing 6.9 1.5 4.7 (Less) Mortgages 0.7 2.0

• 0.2

Business Plus Corporate Equity 7.8 7.4 21.7 Other Assets 5.2 4.0 6.2 (Less) Non-mortgage Debt

• 1.3
• 1.2
• 0.4

Total 19.3 13.6 31.9 Total (2010-2013)

• 15.1

2.4 1.6

18

Note: Components may not sum to total due to rounding

Decline in homeownership across usual income groups

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Bottom 50 Next 40 Top 10 2010 2013 2016 19

• House values increasing; fewer households sharing that gain

0%

• 2%
• 5%

Homeownership Rates, by Usual Income Group

Net Housing Wealth (Conditional Mean, Thousands) 2010 2013 2016 0-49.9 107.1 95.2 107.7 50-89.9 130.7 130 153.9 90-100 481.6 460.4 576.4

Increase in corporate equity 2013-16

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Bottom 50 Next 40 Top 10 2010 2013 2016 20

Equity Ownership, by Usual Income Group

+2% +5% +11%

Corporate Equity Value (Conditional Mean, Thousands) 2010 2013 2016 0-49.9 37.2 55.3 52.3 50-89.9 116.5 136.4 153.0 90-100 913.7 999.4 1365.5

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0 Bottom 50 Next 40 Top 10 2010 2013 2016

Retirement accounts and plan participation

21

Participation in any retirement plan, Ages 35-64, by usual income

• Participation includes any of the following: IRA, Defined contribution (DC) plans,

(e.g., 401k), or Defined benefit (DB) plans +0% +2% +5%

Retirement Account Value (Conditional Mean, Thousands) 2010 2013 2016 0-49.9 41.8 40.3 53.5 50-89.9 130.9 151.9 156.9 90-100 556.3 460.0 641.4

Business ownership rebounded for most groups

22 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Bottom 50 Next 40 Top 10 2010 2013 2016

Business Ownership, by Usual Income Group

+22% +10% +7%

Business Value (Conditional Mean, Thousands) 2010 2013 2016 0-49.9 204.2 157.5 208.0 50-89.9 285.5 283.2 330.2 90-100 2265.0 2685.0 3307.0

Debt by usual income

• Increase in fraction of bottom 50 and next 40 with debt, but mean debt value was flat or declining
• Fraction of top 10 with debt falling, but mean value increased between 2013 and 2016

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Bottom 50 Next 40 Top 10 2010 2013 2016 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 Bottom 50 Next 40 Top 10 2016 Dollars 2010 2013 2016 23

% with Debt, by Usual Income Group Mean Debt, by Usual Income Group

+7% +1%

• 2%

+7%

• 3%

+2%

Education debt increased 2013-16, but increasing share held by higher income families

2013 2016 Percent with education debt 38.8 43.3 Mean education debt 30.7 33.3 Median education debt 17.3 19

24 0.0 10.0 20.0 30.0 40.0 50.0 60.0 Less than $30,000 $30,000 to $60,000 More than $60,000 Level of usual income 2013 2016

Share of Young Families Education Debt, by Income Group Education Debt Among Young Families (<40)

Conclusions, part 1

• Results from the 2016 SCF show broad-based gains in net worth and income

across the distribution and across demographic groups

• However, both net worth and income inequality continue to rise as disparities in

economic resources among race and education groups persist

25

Building an expanded measure of wealth

26

Overview

• Evaluate retirement adequacy of a relatively young cohort of pre-retirement

workers (age 40-59)

• Explore trends in the distribution of wealth using expanded wealth concepts

(net worth + defined benefit pension wealth + Social Security)

• Retirement wealth (DB, DC and Social Security) a huge component of household

balance sheet

• In 2016, $15T for DB and $15T for DC, household net worth $102T
• Current value of future SS benefits is $62.5T
• To do this, we need to estimate lifetime earnings histories and implied Social

Security Wealth in the Survey of Consumer Finances

Previous Literature: Wealth Inequality

• Research on the distribution of wealth has grown in recent years, nearly all of it

showing rising inequality, but to varying degrees

• Most do not include Social Security (Bricker, Henriques, Krimmel, and Sabelhaus

(2016); Saez and Zucman, (2016))

• Use data sources that do not successfully include high wealth households (Pfeffer,

Danziger, and Schoeni, 2013)

• Efforts to incorporate a more complete range of retirement wealth into data that

include high wealth households

• Devlin-Foltz, Henriques, and Sabelhaus (2015) incorporate estimates of DB wealth
• Kennickell and Sunden (1997) estimate DB and SS wealth in early SCF surveys
• Wolff (various)

Approach

• Defined benefit estimation
• Estimate ‘retirees’ PDV of benefits directly
• Estimate accumulated assets of ‘workers’ as residual from Financial Accounts

aggregate household DB assets.

• Use wage, years in plan, and discount factor to allocate residual
• Social Security estimation
• Expected future benefits net expected contributions
• Need earnings histories

Constructing Lifetime Earnings: Current Population Survey (CPS) and SCF

• Using the CPS data, we estimate earnings regressions over all ages for each

cohort-education-occupation type by sex

• 21 (3-year) birth cohorts, 3 education levels, 5 broad occupations giving 315 types for

male and female respondents and spouses

• To construct a full lifecycle of earnings for SCF respondents use current job, past

jobs and projections

• We then apply the growth in earnings over one’s working life implied by the CPS

earnings estimates for that individual’s type as well as FT-PT-SE differentials

Social Security Estimation

• Households eligible for Social Security based on work history
• “Average lifetime earnings” transformed into monthly benefit (progressive

calculation)

• Spouses eligible for a spouse and survivor benefit
• SS wealth is PV of expected future benefits net expected contributions (life

expectancy currently only cohort-based)

• Everyone claims at 62 – lower bound for SSW overall
• Larger penalty relative to NRA claiming for younger cohorts due to rule changes

Trends in Pension Plan Participation

(working household heads, age 40-59)

0% 10% 20% 30% 40% 50% 60% 70% 80%

1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Only DB Only DC DC and DB

Results: Components of Retirement Wealth

(mean, 2016$)

50,000 100,000 150,000 200,000 250,000 300,000

DC wealth DB wealth SS wealth DC wealth DB wealth SS wealth Age 40-49 Age 50-59

1989 1998 2007 2016

Results: Combined Wealth by Concept

(mean 2016$)

200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000

Non-retirement wealth Networth + DB + DC Combined Wealth (including Net SS) Non-retirement wealth Networth + DB + DC Combined Wealth (including Net SS) Age 40-49 Age 50-59 1989 1998 2007 2016

Wealth Concentration

• How does the combined wealth concept effect wealth concentration?
• 90/50 ratios
• Wealth shares

90/50 Ratio of Wealth Concept Levels

2 4 6 8 10 12

Non-retirement wealth Networth + DB + DC Combined Wealth (including Net SS) Non-retirement wealth Networth + DB + DC Combined Wealth (including Net SS) Age 40-49 Age 50-59

1989 1998 2007 2016

Share of Wealth Held by Top 5%

(Ranked by wealth concept, within age group)

30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016

Ages 40-49

Non-Retirement Wealth Networth + DB + DC Combined Wealth (including Net SS) 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016

Ages 50-59

Conclusions, part 2

• Including DB pension and Social Security wealth results in markedly lower

measures of wealth concentration

• Trends toward higher concentration over time are also somewhat moderated but still

increasing

Future Work

• Lifetime Earnings/Wealth Estimates:
• More complex DB estimates
• Extend to growth in DB and non-retirement wealth to say more about preparedness
• More work on lifetime earnings profiles
• Distributional Analysis:
• Explore levels/trends for groups using total wealth (NW + DB + SS)
• Race, education, occupation
• Expand combined wealth to all households
• Need earnings histories for younger households
• Include combined wealth measure in the public data

SCF website

https://www.federalreserve.gov/econres/scfindex.htm

Questions?

kevin.b.moore@frb.gov

40

APPENDIX SLIDES

41

A.1 Decomposition of changes in income, 2010-13 and 2013-16

Contributions to overall percentage change in income 2010-2013, by usual income Bottom 50 Next 40 Top 10 Wages

• 6.5
• 2.7
• 2.0

Business

• 0.1
• 1.1

3.5 Interest and Capital Gains 0.3 1.5 8.5 Other Sources 1.3 2.7

• 0.1

Total

• 4.9

0.4 10.0 Contributions to overall percentage change in income 2013-2016, by usual income Bottom 50 Next 40 Top 10 Wages 4.4 3.2 10.8 Business 2.0 1.3 4.0 Interest and Capital Gains 0.5 0.4 2.9 Other Sources 1.4 6.4 1.3 Total 8.3 11.3 18.9

42

Note: Components may not sum to total due to rounding

A.2 Decomposition of change in net worth 2010-13 and 2013-16

Contributions to overall percentage change in net worth 2010-2013, by usual income Bottom 50 Next 40 Top 10 Housing

• 14.6
• 2.7
• 2.3

(Less) Mortgages 5.0 3.2 1.5 Business Plus Corporate Equity

• 4.8

2.3 3.6 Other Assets

• 0.7
• 0.7
• 1.4

(Less) Non-mortgage Debt

• 0.1

0.3 0.3 Total

• 15.1

2.4 1.6 Contributions to overall percentage change in net worth 2013-2016, by usual income Bottom 50 Next 40 Top 10 Housing 6.9 1.5 4.7 (Less) Mortgages 0.7 2.0

• 0.2

Business Plus Corporate Equity 7.8 7.4 21.7 Other Assets 5.2 4.0 6.2 (Less) Non-mortgage Debt

• 1.3
• 1.2
• 0.4

Total 19.3 13.6 31.9

43

Note: Components may not sum to total due to rounding