The State of Young Adults Balance Sheets: Evidence from the Survey - PowerPoint PPT Presentation

The State of Young Adult’s Balance Sheets: Evidence from the Survey of Consumer Finances Lisa Dettling and Joanne Hsu Federal Reserve Board May 8, 2014 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. Dettling and Hsu (FRB) Young Adult Balance Sheets May 8, 2014 1 / 12

Motivating Questions What do young adult balance sheets look like? ◮ Net worth, asset holdings, debts, credit market experiences In relation to the past : ◮ Are young adults doing better or worse than their predecessors from Generation X did when they were young adults? In relation to other cohorts : ◮ Have young adults fared better or worse than older adults during the Great Recession? Dettling and Hsu (FRB) Young Adult Balance Sheets May 8, 2014 2 / 12

Data Survey of Consumer Finances, triennially 2001-2010 ◮ Comprehensive picture of wealth and income for American Families ◮ The gold standard for research on household balance sheets Focus on young adults age 18-31 ◮ Use 34-54 year olds as a comparison ◮ Compare millenials (18-31 in 2000s) to Gen X (18-31 in 1989) Dettling and Hsu (FRB) Young Adult Balance Sheets May 8, 2014 3 / 12

Trends in Net Worth Distribution of Young Adult Net Worth 50 Total net worth, $1,000s 40 30 20 10 0 2001 2004 2007 2010 1989 Year Median 75th percentile 25th percentile SCF 1989−2010, age 18−31, values in 2010 dollars Dettling and Hsu (FRB) Young Adult Balance Sheets May 8, 2014 4 / 12

Comparison to Older Cohorts Ratio of Median Young Adult to Median Middle Adult Net Worth .2 Ratio of middle to young adult net worth .15 .1 .05 0 2001 2004 2007 2010 1989 Year SCF 1989−2010. Young adults: age 18−31, middle adults 35−50 Dettling and Hsu (FRB) Young Adult Balance Sheets May 8, 2014 5 / 12

Total Assets and Debts Over Time Distribution of Assets of Young Adults Distribution of Debt of Young Adults 150 60 Total assets, $1,000s Total debt, $1,000s 100 40 50 20 0 0 2001 2004 2007 2010 1989 2001 2004 2007 2010 1989 Year Year Median assets P25 assets Median debt P25 debt P75 assets P75 debt SCF 1989, 2001−2010, age 18−31, values in 2010 dollars SCF 1989, 2001−2010, age 18−31, values in 2010 dollars Dettling and Hsu (FRB) Young Adult Balance Sheets May 8, 2014 6 / 12

Fraction Holding and Median Values of Assets Young Adult Bank Deposits Young Adult Homeownership .7 1 3 150 Proportion holding bank deposits .9 .6 Proportion holding houses .8 Bank deposits $1,000s 120 House value, $1,000s .5 .7 2 .6 .4 90 .5 .3 .4 60 1 .3 .2 .2 30 .1 .1 0 0 0 0 2001 2004 2007 2010 1989 2001 2004 2007 2010 1989 Year Year Proportion holding Cond. median value Proportion holding Cond. median value SCF 1989−2010, age 18−31, values in thousands of 2010 dollars SCF 1989−2010, age 18−31, values in thousands of 2010 dollars Young Adult Retirement Accounts Young Adult Stocks .7 .7 .6 .6 9 Proportion holding ret accts Proportion holding stocks 6 Ret accounts, $1,000s .5 .5 Stocks, $1,000s .4 6 .4 .3 .3 3 .2 3 .2 .1 .1 0 0 0 0 2001 2004 2007 2010 1989 2001 2004 2007 2010 1989 Year Year Proportion holding Cond. median value Proportion holding Cond. median value SCF 1989−2010, age 18−31, values in thousands of 2010 dollars SCF 1989−2010, age 18−31, values in thousands of 2010 dollars Dettling and Hsu (FRB) Young Adult Balance Sheets May 8, 2014 7 / 12

Fraction Holding and Median Values of Debts Young Adult Credit Card Debt Young Adult Housing Debt 150 2.5 .7 .7 Proportion owing credit card debt 120 Proportion owing housing debt .6 .6 Credit card debt, $1,000s 2 Housing debt, $1,000s .5 .5 90 1.5 .4 .4 .3 .3 60 1 .2 .2 30 .5 .1 .1 0 0 0 0 2001 2004 2007 2010 1989 2001 2004 2007 2010 1989 Year Year Proportion owing Cond. median value Proportion owing Cond. median value SCF 1989−2010, age 18−31, values in thousands of 2010 dollars SCF 1989−2010, age 18−31, values in thousands of 2010 dollars Young Adult Vehicle Debt Young Adult Education Debt 12 12 .7 .7 Proportion owing education debt Proportion owing vehicle debt .6 .6 Education debt, $1,000s 9 Vehicle debt, $1,000s 9 .5 .5 .4 .4 6 6 .3 .3 .2 .2 3 3 .1 .1 0 0 0 0 2001 2004 2007 2010 1989 2001 2004 2007 2010 1989 Year Year Proportion owing Cond. median value Proportion owing Cond. median value SCF 1989−2010, age 18−31, values in thousands of 2010 dollars SCF 1989−2010, age 18−31, values in thousands of 2010 dollars Dettling and Hsu (FRB) Young Adult Balance Sheets May 8, 2014 8 / 12

Paying off Debt Not Paying Credit Cards in Full High Payment−to−Income Ratios Young Adults and Middle Adults Young Adults and Middle Adults Proportion don’t pay off credit cards in full .15 .4 Proportion with high PIR .3 .1 .2 .05 .1 0 0 2001 2004 2007 2010 1989 2001 2004 2007 2010 1989 Young adults 18−31 Middle adults 35−50 Young adults 18−31 Middle adults 35−50 Proportion of all respondents, not conditional on holding credit cards Payment to income ratios > 40 percent Late Payments Late on Payments by 2 months Young Adults and Middle Adults Young Adults and Middle Adults .15 .3 Proportion reporting very late payments Proportion reporting late payments .2 .1 .05 .1 0 0 2001 2004 2007 2010 1989 2001 2004 2007 2010 1989 Young adults 18−31 Middle adults 35−50 Young adults 18−31 Middle adults 35−50 Dettling and Hsu (FRB) Young Adult Balance Sheets May 8, 2014 9 / 12

Using the SCF to Study Young Adults The SCF is the gold standard for studying balances sheets of American households ◮ BUT not ideally suited for studying young adults ◮ Young adults living arrangements vary a lot: married, cohabitating, living with room mates, living with parents Assets, debts are collected for the household head and any other financially dependent household members as a whole ◮ Need to scale by number of members to get individual-level (as opposed to household-level) averages Income, wages are only collected for the household head and spouse/partner ◮ Young adults living at home or with older roommates are not counted! Recent increase in parental co-residence (16% increase 05-13) ◮ Sample selection issues? Dettling and Hsu (FRB) Young Adult Balance Sheets May 8, 2014 10 / 12

Bench-marking the SCF SCF versus CPS Median Wage Income Difference Between SCF and CPS Median Wage Income 5000 10000 15000 20000 25000 30000 15000 Difference in Median Income Median Income 10000 0 2001 2004 2007 2010 5000 Year 2001 2004 2007 2010 SCF Wage Income CPS Wage Income Year Dettling and Hsu (FRB) Young Adult Balance Sheets May 8, 2014 11 / 12

Concluding Thoughts Young adults have experienced declines in net worth, increases in debt and declines in asset holding But relative to previous generation of young adults and older adults, young adults are doing relatively well ◮ Relative increases in net worth, declines in delinquency ◮ Need to wait for 2013 data to see if this trend has continued Recent increase in debt holding may have other consequences the SCF can’t capture: ◮ Dettling and Hsu (2014) use FRBNY CCP/Equifax panel to examine relationship between debt holding and living arrangements ◮ Find increases in delinquency, declining credit scores, growing debt burdens increase probability an individual will move in with a parent in the following quarter Dettling and Hsu (FRB) Young Adult Balance Sheets May 8, 2014 12 / 12