Economic Well-Being of U.S. Households

Observations on life Leave a comment

Report on the Economic Well-Being of U.S. Households in 2014
May 2015 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Following are the highlights from the above survey.  While keeping in mind it is a survey based on individual responses, it does contain some scary information, and from my perspective as a somewhat conservative person prone to intense planning with a long-term perspective (otherwise cheap and reserved), some of the responses are downright unbelievable, especially given day-to-today observations of how people are living their lives and spending their money – again from a tightwads perspective.

imagePaul Krugman in an op-ed in the NYTs used this report to point out how bad things are in the process ignoring the 65% of American who say they are doing okay. The Center for American progress says, “The economy has been growing slowly for almost six years (wonder why that is?), but that Americans still feel economically insecure.” Not some Americans, not a minority of Americans, but (all) “Americans.”

I look at this survey and say, what did you expect? Low income households have a more difficult financial time than higher income households.  When was that any different?  But I look at it another way. Before I draw any broad conclusions, I want to know why. I want to know what decisions these people have made that caused their current state. I want to know how they spend their money that does not allow savings. I want to better understand why their household income is under $40,000 and what they have tried to do about it. I find this result especially disturbing and frankly unbelievable “Forty-seven percent of respondents say they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money.” Think about that, 65% say they are doing okay financially, but 47% don’t have $400 in cash, in the bank or under the mattress. At the same time 63% said they have saved at least some money in the last year.

This is not a picture of downtrodden Americans with no hope and stuck in poverty. This is a picture of a population with different priorities, who have made good and bad life decisions and are seeing the consequences of both.  Clearly a growing economy will help everyone, so why aren’t we focused on doing that instead of whining over surveys and the fact people have money to spend on junk, but don’t have $400? Every issue this survey raises could be solved not with more government entitlement programs or higher taxes on the wealthy, but with a growing, robust globally competitive economy. Then the poor decisions people make during their lives, the wrong priorities and their life choices will determine their economic state.

By all means take care of those who cannot take care of themselves. Provide temporary assistance; a helping hand for others to enable them to leave poverty. Eliminate artificial barriers to opportunity if they exist. However, that does not mean individuals should not be primarily responsible for their lives and fortunes and the consequences of their decisions over a lifetime.

  • Sixty-five percent of respondents report that their families are either “doing okay” or “living comfortably” financially, compared to 62 percent in 2013.
  • Forty-nine percent of part-time workers and 36 percent of all workers would prefer to work more hours at their current wage if they were able to do so.
  • Twenty-nine percent of respondents expect their income to be higher in the year after the survey than in the year prior to the survey. In the 2013 survey, 21 percent of respondents expected their income to increase.
  • The most common reasons renters cite for renting rather than owning a home are a perceived inability to afford the necessary down payment (50 percent) or a perceived inability to qualify for a mortgage (31 percent).
  • Forty-three percent of homeowners who have owned their home for at least a year believe that the value of their home is higher than it was in 2013, 37 percent believe the value is about the same, and 13 percent believe that it is now lower
  • Fourteen percent of homeowners with a mortgage believe that they owe more on their mortgage than their house is worth, while 70 percent report that the value of their home exceeds the amount of their mortgage.
  • Forty-seven percent of respondents say they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money.
  • Thirty-one percent of respondents report going without some form of medical care in the
    12 months before the survey because they could not afford it.
  • Just under one-quarter of respondents indicate that they or a family member living with them experienced some form of financial hardship in the year prior to the survey.

       Savings and Spending

  • Most respondents report that they saved at least some of their income in the past year, although a sizeable minority indicate that their spending exceeds their income.
  • Twenty percent of respondents report that their spending exceeded their income in the 12 months prior to the survey
  • Sixty-three percent of respondents indicate that they saved at least some money in the past year.Banking and Credit
  • A majority of individuals believe that credit is available to them should they desire it. However, a sizeable minority of those who applied for credit report that they experienced difficulties getting approved.
  • Sixty percent of respondents indicate they are either somewhat or very confident they would be approved for a mortgage if they were to apply.
  • Just under one-third of those who applied for credit in the 12 months prior to the survey were turned down or given less credit than they applied for.
  • Seventy-six percent of respondents have at least one credit card. Of those with a credit card, a slight majority (56 percent) report that they always paid their credit card bill in full in the previous year.
  • One-fifth of respondents have no bank account or have used some form of alternative financial service in the past year.

    Education and Student Loans

  • The perceived value of a postsecondary education varies widely depending on program completion, type, and major. In addition, respondents who fail to complete a degree are disproportionately likely to fall behind on their student loan payments.
  • Twenty-three percent of adults report currently having education debt of some kind, with 15 percent of all respondents having such debt for their own education, 6 percent for their spouse’s/ partner’s education, and 6 percent for their child’s or grandchild’s education.
  • Education debt is not exclusively financed through student loans, as 14 percent of respondents with education debt report that they have credit card debt from educational expenses, 5 percent used a home equity loan to pay for education, and 11 percent have some other non-student loan debt that was used to pay for education.
  • Among respondents who borrowed for their own education, those who failed to complete an associate degree or bachelor’s degree, those who attended for-profit institutions, and those who were first generation college students are more likely to be behind on their payments than others.
  • Family responsibilities are the most common reason given for not completing a degree after starting college, cited by 38 percent of the respondents who dropped out as a reason for not continuing their education.

    Retirement

  • Many individuals report that they are not planning for retirement and not saving for retirement. Additionally, even among those who are saving, respondents indicate that they lack confidence in their ability to manage their retirement investments.
  • Thirty-nine percent of non-retirees have given little or no thought to financial planning for retirement and 31 percent have no retirement savings or pension.
  • Over one-half of non-retirees with self-directed retirement accounts are either “not confident” or only “slightly confident” in their ability to make the right investment decisions when investing the money in these accounts.
  • Forty-five percent of non-retirees who plan to retire expect to continue working in some capacity during retirement to generate additional income to cover expenses.

    Differences in Well-Being by Household Income Level

  • Across a range of dimensions, individuals in lower income households express a higher frequency of financial challenges. These lower-income respondents are less prepared for financial hardship, less likely to be saving, and more likely to expect to never stop working.
  • Twenty-two percent of respondents with a household income under $40,000 expect that their income will be higher in the 12 months following the survey, whereas 36 percent of those whose income is over $100,000 expect income growth over the same period.
  • Over two-thirds of respondents with a household income under $40,000 report that they would sell something or borrow money to cover a $400 emergency expense or could not cover the expense at all.
  • Among respondents who save, those with a household income under $40,000 are most likely to be saving for unexpected expenses, while those with an income over $100,000 are most likely to be saving for retirement.
  • Note: The survey is conducted using a sample of adults ages 18 and over from KnowledgePanel®, a probability-based web panel designed by GfK that includes more than 50,000 individuals from randomly sampled households. The sample for the survey was drawn from the overall panel based on three criteria. As shown in table 1, e-mails were sent to 2,190 randomly selected respondents from the 2013 SHED (“re-interviewed respondents”) and 4,059 randomly selected respondents from the remaining members of KnowledgePanel® (“fresh respondents”). The survey also includes an oversample of lower-income individuals by sending e-mails to 2,726 randomly selected respondents with a household income under $40,000 per year who are not included in the initial sample of re-interviewed respondents or fresh respondents. This oversample improves the precision of estimates among the low-income population and allows for a sufficient sample size to reliably compare results for certain questions of interest across segments of the population. Overall, of the 8,975 respondents contacted for the survey, 5,896 respondents completed it, yielding an overall final stage completion rate of 65.7 percent. The respondents completed the survey in approximately 19 minutes (median time). Recognizing that the sample demographics may differ from that of the overall U.S. population, especially given the oversample of respondents making under $40,000, survey results are weighted based on the demographic characteristics of the respondents to match characteristics from 2014 March Current Population Survey.

Leave a Reply