jason brown u.s. department of the …...jason brown trends in household economic security two key...
TRANSCRIPT
U.S. DEPARTMENT OF THE TREASURY
OFFICE OF ECONOMIC POLICY
Trends and Issues in Household Economic Security
JASON BROWN
Trends in household economic security
Two key moments of financial decision-making in the life cycle
o Young adulthood
o At retirement
1
Outline of Remarks
2
Macro indicators show considerable recovery from the
recession.
2017 Q3
673%
0
100
200
300
400
500
600
700
800
89:Q1 93:Q1 97:Q1 01:Q1 05:Q1 09:Q1 13:Q1 17:Q1
Household Net Worth
as a Percent of Disposable Personal Income
Source: Federal Reserve Board, Financial Accounts of the United States Q3 2017
Household net worth has reached a record high.
3
Debt burdens have also fallen.
105%
69%
26%
0
20
40
60
80
100
120
140
89:Q1 93:Q1 97:Q1 01:Q1 05:Q1 09:Q1 13:Q1 17:Q1
Household Debt
as a Percent of Disposable Personal Income
Total Debt
Mortgage
Consumer Credit Debt
Source: Federal Reserve Board, Financial Accounts of the United States Q3 2017
4
The median family has not seen a complete recovery in
terms of wealth.
Median Net Worth
(thousands of 2016 $) Change
2016 1989-2016 2001-2016
All families 97.3 9.8 -20.0
Age of head (years)
Less than 35 11.0 -3.6 -4.9
35–44 59.8 -45.5 -45.3
45–54 124.2 -60.0 -58.2
55–64 187.3 4.7 -63.9
65–74 223.4 80.3 -17.5
75 or more 264.8 129.6 54.4Source: Federal Reserve Board Survey of Consumer Finances, 1989-2016
5
Household wealth rises with age.
Median Net Worth
(thousands of 2016 $) Change
2016 1989-2016 2001-2016
All households 97.3 9.8 -20.0
Age of head (years)
Less than 35 11.0 -3.6 -4.9
35–44 59.8 -45.5 -45.3
45–54 124.2 -60.0 -58.2
55–64 187.3 4.7 -63.9
65–74 223.4 80.3 -17.5
75 or more 264.8 129.6 54.4Source: Federal Reserve Board Survey of Consumer Finances, 1989-2016
6
Recent gains in wealth have accrued to older households.
Median Net Worth
(thousands of 2016$)
Change
(thousands of 2016$)
2016 1989-2016 2001-2016
All households 97.3 9.8 -20.0
Age of head (years)
Less than 35 11.0 -3.6 -4.9
35–44 59.8 -45.5 -45.3
45–54 124.2 -60.0 -58.2
55–64 187.3 4.7 -63.9
65–74 223.4 80.3 -17.5
75 or more 264.8 129.6 54.4Source: Federal Reserve Board Survey of Consumer Finances, 1989-2016
The burden of financing higher education has increasingly fallen
on the students themselves.
Young adults with student debt may delay other major decisions,
like home purchase, with implications for wealth building.
7
Young adults: Student loan balances have quadrupled in the
last 15 years.
0
0.25
0.5
0.75
1
1.25
1.5
2003 2005 2007 2009 2011 2013 2015 2017
Outstanding student debt
Total outstanding student debt (trillions of 2016 dollars)
Source: Federal Reserve Bank of New York, Quarterly Report on Household Debt and
Credit, Q2 2017.
Q1 2003: $0.3 trillion
Q2 2017: $1.3 trillion
College graduates earn twice as much as high school graduates.
8
Higher education is still a good investment, however.
1
1.25
1.5
1.75
2
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Weekly wage ratio, college degree vs. high school
diploma
Wage ratio between workers with college degree vs. high school diploma
Source: Figure 10, Autor (2010). Based on weekly wages from the March CPS, adjusted for worker
characteristics.
1980: 1.50
2008: 1.97
Many students attend schools that have systematically low
repayment rates.
9
While there is a college wage premium, there is considerable
variation in outcomes among individuals.
Student Loan Repayment Rate by Institution
Institution’s cohort
5-year repayment
rate
Implied
repayment
term
Share of
undergraduate
borrowers
Below 0% Neg Am 4%
0% to 15% 20+ years 27%
15% to 20% 15-20 years 19%
20% or above <15 years 51%Notes: Covers undergraduate loans that began repayment in 2009 and observed five years later. Source: Chou, Looney & Watson (2017).
Key financial decision is not just whether to take on student loan
debt, but what education that debt is financing.
Although repayment rates vary by school, it’s not just an issue of
selectivity—lots of unselective schools have excellent repayment
outcomes.
Completion of degree matters.
o Outcomes of “some college” converging with those of high
school only.
Field of study matters.
o Some majors earn more than others. Among mid-career prime-
age workers, the median earnings for STEM majors are $15,000
higher than for all majors ($76,000 compared to $61,000).10
What education the student loan finances matters.
11
Older households: The typical older household has some
wealth, but most of it is concentrated in housing.
Median Household Wealth by Marital Status, and Disability Status (65+)
Total wealth Non-housing wealth
All households $231,311 $87,379
Source: Health and Retirement Study (2000-14) and Treasury calculations
12
Married households with no one disabled are considerably
better off than the median elderly household.
Median Household Wealth by Marital Status, and Disability Status (65+)
Total wealth Non-housing wealth
All households $231,311 $87,379
Married, not disabled $368,928 $163,098
Source: Health and Retirement Study (2000-14) and Treasury calculations
13
Households with a disabled member, however, have much
less wealth.
Median Household Wealth by Marital Status, and Disability Status (65+)
Total wealth Non-housing wealth
All households $231,311 $87,379
Married, not disabled $368,928 $163,098
Married, one or more disabled $157,586 $31,747
Source: Health and Retirement Study (2000-14) and Treasury calculations
Long-term care costs are high and not broadly covered by
traditional health insurance.
14
Single (including widowed) households are also considerably
less wealthy.
Median Household Wealth by Marital Status, and Disability Status (65+)
Total wealth Non-housing wealth
All households $231,311 $87,379
Married, not disabled $368,928 $163,098
Married, one or more disabled $157,586 $31,747
Not married, not disabled $123,752 $31,365
Source: Health and Retirement Study (2000-14) and Treasury calculations
15
The typical single, disabled household has virtually no
wealth.
Median Household Wealth by Marital Status, and Disability Status (65+)
Total wealth Non-housing wealth
All households $231,311 $87,379
Married, not disabled $368,928 $163,098
Married, one or more disabled $157,586 $31,747
Not married, not disabled $123,752 $31,365
Not married, disabled $9,289 $1,255
Source: Health and Retirement Study (2000-14) and Treasury calculations
Disability and widowhood present major risks to economic security
among elderly households, even more than aging itself.
16
Older women are especially vulnerable.
6%
21%
6%
9%
29%
12%
0% 20% 40%
Disabled (65+)
Overextended
(65+)
In poverty (65+)
Economic security of the 65+
population, by gender
Women Men
Source: Health and Retirement Study, Treasury calculations
Older women are twice as
likely to be in poverty than
men.
Nearly 30 percent of women
are overextended—their
spending exceeds what their
income and wealth can sustain.
Women are more likely to be
disabled.
17
The vulnerable older population is mostly women.
Because women make up a
large share of the older
population, they also make up
a disproportionate share of the
vulnerable population.
Along many metrics, women
make up over 2/3 of the
vulnerable older population. 68%
68%
71%
68%
58%
32%
32%
29%
32%
42%
Disabled (65+)
Overextended
(65+)
In poverty (65+)
85+
65+
Gender distribution of age
and economic security
indicators among the 65+
Women Men
Source: Health and Retirement Study, Treasury calculations
A lot of wealth is tied up in housing, but reverse mortgages have not
been widely taken up.
o Only about 50,000 reverse mortgages are sold each year.
The decline in defined benefit plans has not been offset by private
annuities.
o The median elderly household receives no income from private
pensions or annuities.
Only about 12 percent of the elderly population has private long-
term care insurance.
18
Strategic wealth decumulation is key in mitigating risks in
retirement, but there is low take-up of relevant products.
With weak wealth accumulation across most households, financial
decision-making becomes even more important.
Households face different issues at different stages of the life cycle.
o Early adulthood decisions have long-term repercussions for
wealth building.
o Decisions made at the time of retirement can shape economic
security for the remainder of one’s life.
19
Concluding thoughts