The Effects of the Economic Crisis on the Older Population: Changes - - PowerPoint PPT Presentation

▶
the effects of the economic crisis on the older
SMART_READER_LITE
LIVE PREVIEW

The Effects of the Economic Crisis on the Older Population: Changes - - PowerPoint PPT Presentation

Aug 20, 2022 10 likes •341 views

The Effects of the Economic Crisis on the Older Population: Changes in Consumption and Expectations Michael D. Hurd RAND, NETSPAR, NBER and MEA Susann Rohwedder RAND and NETSPAR Data Health and Retirement Study Core survey 2006 and

slide-1
SLIDE 1

The Effects of the Economic Crisis

  • n the Older Population:

Changes in Consumption and Expectations

Michael D. Hurd RAND, NETSPAR, NBER and MEA Susann Rohwedder RAND and NETSPAR

slide-2
SLIDE 2

Data

  • Health and Retirement Study

– Core survey 2006 and 2008 – Internet survey April-June 2009

  • Subsample of HRS
  • Access to Internet and agreed to survey

– Key variable: Expectations

  • Changes in expectations in panel
slide-3
SLIDE 3

Data (continued)

  • Consumption and Activities Mail Survey

– Random sample of HRS – Complete measure of spending in prior 12 months – 2001, 2003, 2005, 2007 and 2009 – Compare change between 2007 and 2009 with earlier change in panel

slide-4
SLIDE 4

HRS 2006, 2008 and HRS Internet 2009

S&P 500 monthly closing prices

200 400 600 800 1000 1200 1400 1600 1800

2003 2004 2005 2006 2007 2008 2009 2010

HRS Internet HRS 2008 HRS 2006

slide-5
SLIDE 5

CAMS 2007 and 2009

S&P 500 monthly closing prices

200 400 600 800 1000 1200 1400 1600 1800

2003 2004 2005 2006 2007 2008 2009 2010

spending period covered

slide-6
SLIDE 6

HRS 2008 and HRS Internet 2009

Case-Shiller House price index, 20-city average

50 100 150 200 250 2003 2004 2005 2006 2007 2008 2009 2010

HRS 2008 HRS Internet HRS 2006

slide-7
SLIDE 7

CAMS 2007 and 2009

Case-Shiller House price index, 20-city average

50 100 150 200 250 2003 2004 2005 2006 2007 2008 2009 2010

slide-8
SLIDE 8

Impact depends on location

50 100 150 200 250 2003 2004 2005 2006 2007 2008 2009 2010

Case-Shiller House price index

Phoenix Los Angeles Denver Detroit

Phoenix, Los Angeles, Denver, Detroit

slide-9
SLIDE 9

HRS 2008 and HRS Internet

U.S Unemployment Rate (%)

2 4 6 8 10 12 Jan 07 Mar May Jul Sep Nov Jan 08 Mar May Jul Sep Nov Jan 09 Mar May Jul Sep Nov Jan 10 Mar May

HRS 2008 HRS Internet

slide-10
SLIDE 10

CAMS 2007 and2009

U.S Unemployment Rate (%)

2 4 6 8 10 12 Jan 07 Mar May Jul Sep Nov Jan 08 Mar May Jul Sep Nov Jan 09 Mar May Jul Sep Nov Jan 10 Mar May

slide-11
SLIDE 11

Will show

  • Change in spending 2007-2009 based on

CAMS

  • Change in subjective spending and

expectations based on HRS 2008 and HRS Internet 2009

slide-12
SLIDE 12

Change in actual spending

  • In older population expect spending decline

because of life-cycle effects

  • Compare two-year change in “normal” times

with two-year change 2007-2009

  • “Normal” times: average of three transitions

– 2001-2003 – 2003-2005 – 2005-2007

slide-13
SLIDE 13

Two-year change in nondurable spending, means, panel

  • 10
  • 9
  • 8
  • 7
  • 6
  • 5
  • 4
  • 3
  • 2
  • 1

Age 51-64 Age 65+ 2001-2007 2007-2009

slide-14
SLIDE 14

Rest of results from HRS 2006, 2008 and HRS Internet 2009

slide-15
SLIDE 15

HRS Internet April-June 2009. Household spending now compared with a year ago. % of households

5 10 15 20 25 30 35

55-64 65-74 75+ Increased Decreased

slide-16
SLIDE 16

Important reasons for spending decline (among those stating decline)

  • Worried about economic future: 85%
  • Lower income: 74%
  • Need to reduce debt: 70%
  • Stocks down: 59%
  • Lower house value: 52%
  • Worse employment: 47%
  • Age differences: less income, debt, employment

among the oldest

slide-17
SLIDE 17

House value

  • Self-reports in HRS
  • Compare with Case-Shiller 20 city average

normalized to HRS 2006 values

slide-18
SLIDE 18

HRS house value (thous.), panel and Case-Shiller normalized to 2006 HRS

50 100 150 200 250 300 350

Mean Case-Shiller mean Median Case-Shiller median 2006 2008 2009

  • 13%
  • 28%
slide-19
SLIDE 19

HRS house debt (thous.), panel

10 20 30 40 50 60 70 80 90 Mean Median 2006 2008 2009

slide-20
SLIDE 20

Homeowners underwater (%)

1 2 3 4 5 6 7 8 All homeowners Homeowners with debt 2006 2008 2009

slide-21
SLIDE 21

Expectations measured by subjective probabilities

On a scale from 0 percent to 100 percent where 0 means that you think there is no chance and 100 means that you think the event is absolutely sure to happen, what do you think are the chances that by next year at this time your home will be worth more than it is today? Additional targets

10% and 20% up 10% and 20% down

slide-22
SLIDE 22

Average subjective probability of gain in house prices

1 year from now 5 years from now Any increase 32.3 53.5 Increase by 10% or more 21.3 47.0 Increase by 20% or more 10.6 28.0 Decrease by 10% or more 18.5 13.7 Decrease by 20% or more 11.0 9.2 Estimated median change

  • 4%

+6%

In 88% of one-year intervals between 1991 and 2009, housing prices increased. In all five-year intervals housing prices increased.

slide-23
SLIDE 23

Average subjective probability of stock market gain, one-year horizon

  • HRS 2008: 52%
  • HRS Internet 2009: 41%

Cumulative distribution across individuals

slide-24
SLIDE 24

Cumulative distribution. Subjective probability

  • f stock market gain one year ahead

10 20 30 40 50 60 70 80 90 100 20 40 60 80 100 Subjective probability Percentile 2008 2009

slide-25
SLIDE 25

Average subjective probability of bequest less than three target amounts

Targets 2008 2009 10k 16.2 23.9 100k 36.0 44.1 500k 71.2 77.5 Mean expected bequest $535.5k $436.0k

slide-26
SLIDE 26

Possible retirement responses to stock market and labor market

  • Stock market: increase retirement age
  • Labor market: possibly reduce retirement age

– May become unemployed – Difficulty of finding another job – Social Security reported increase in claiming between ages 62 and 66

slide-27
SLIDE 27

Average subjective probability of working past age 62 or 65 among those working in 2008, panel

10 20 30 40 50 60 70

Age 62 Age 65 HRS 2008 HRS 2009 Internet

slide-28
SLIDE 28

Transition rate from working in HRS 2008 to not working in HRS 2009 Internet was 13.7%

slide-29
SLIDE 29

Average subjective probability of working past age 62, among those working in 2008 by work status in 2009, panel

10 20 30 40 50 60 70

Working in 2009 Not working in 2009 HRS 2008 HRS 2009 Internet

slide-30
SLIDE 30

Average subjective probability of working past age 65, among those working in 2008 by work status in 2009, panel

10 20 30 40 50 60

Working in 2009 Not working in 2009 HRS 2008 HRS 2009 Internet

slide-31
SLIDE 31

Conclusions

  • Substantial spending reductions (measured)

– about 7.6% among 51-64 year-olds over two years (deviation from “normal” times) – about 3.4% among 65+

  • Self- reported: 29% of households reduced

spending (17% increased)

– but age 51-64: 33% reported decrease

  • Age differences

– Retired population pretty well insulated – Although their children may have been affected

slide-32
SLIDE 32

Conclusions (continued)

  • Small increase in housing debt at an age when

it should be decreasing

  • Sharp increase in underwater 2008-2009
  • Reduction in expected bequests

– Allocation of losses in stock market and housing market (and possibly future earnings) between consumption and bequests

  • Considerable pessimism in house price and

stock market expectations

slide-33
SLIDE 33

Conclusions (continued)

  • Labor market

– those working in 2009 expect to retire later than they did in 2008...wealth effect? – those not working in 2009 expect to retire earlier than they did in 2008...labor market effect?

  • Although recession is over (NBER) it is not
  • ver