Behavioral finance teaches us that where money is concerned, Americans do two things over and over again. We adapt and we compare. We adapt to how much we have. Ever get a raise only to wonder a few weeks later how you ever lived on less? You adapted. And we compare ourselves to others. How much we have tends not to be as important as whether we have more or less than the colleague in the next office or the family next door.
The newly released 2013 Survey of Consumer Finances offers ample opportunity for the latter. I had the opportunity on Monday to debrief with a group of Federal Reserve economists who worked on the research. Diving in, it’s easy to see why – despite the fact that the recession ended in 2009 — much of the country still feels as if the recovery passed it by. Here are high (and low) points:
It’s not the top 1%, it’s the top 3%.
Although the top 1% of wealthy Americans (and the corresponding 99%) dominate the headlines, the research shows that the top 3% is where the action is – at least as far as income is concerned. The top 3% took a huge hit, proportionately, in income during and following the recession. In 2007, this segment of the population represented 31.4% of the income in the U.S. By 2010, their share had fallen to 27.7%. It has since almost fully recovered, rebounding to 30.5%. Interestingly, the share of income of the rest of the top 10% (the top 4%-10%) has held steady at 17% since 1989. The share of wealth held by the top 3% didn’t swing during the recession. Rather, it has been on a steady climb from 44.8% in 1989 to 54.4% in 2013.
More than ever, a college degree is a must.
On average, median pre-tax income (adjusted for inflation) fell for all families by 4.7% between 2010 to 2013. It dropped even further – 5.6% — for those with a high school education only. The only two groups to show real income growth were the top 20% of earners, where income grew by 4.3% and those with a college degree, where income grew by 1.1%. This, the economists noted, was a reflection of the fact that even though total employment is back above it’s pre-recession level, the jobs created haven’t been quality ones. Rather, they’re of the low-wage variety.
Fear of the stock market prevails.
The percentage of American families that own stocks – which peaked in 2001 before beginning to decline – continued to trend down between 2007 and 2013. In 2013, 48.8% of families owned stocks (most through retirement plans rather than directly). That compares with 53.3% in the 2007 survey (the Survey of Consumer Finances is conducted every three years.) That this happened despite the strong rebound in the stock market is a sign, the economists noted, that the volatility in the markets may simply have proven too much to take, particularly for middle income people. Stock ownership is highly concentrated at the top of the income distribution – and contributed to the rebound in wealth among the top 10% (the mean value of their stock holdings rose from $885,000 in 2010 to $969,000 in 2013.)
A worrisome ancillary finding shows that the percentage of American families with retirement accounts of all types (IRAs, 401(k)s, Keoghs, etc.) slipped below 50% in 2013. This is likely not just market fear, the economists noted, but part of the general jobs trend. Good high paying jobs tend to come with 401(k) options. Those are not the type being created in this country. For those with retirement accounts, the picture was rosier. The median value rose from $47,200 in 2010 to $59,000 in 2013; the mean from $183,400 to $201,300.
Better news on consumer debt.
Finally, although we may not be earning as much, at least we’re managing it a little bit better. How? By borrowing less. We’re paying down our credit card balances. Through 2013, we were slower to take out new car loans (however, that activity has picked up in the past year). And although student debt has indeed continued to grow, the economists point out that the people taking out the largest sums – the percentage of families with outstanding balances in the $50,000 to $100,000 range jumped from 6% in 2001 to 13% in 2013, those with balances of $100,000+ from 1% to 6% over the same time period – are doctors, lawyers and other professionals who are likely to have the wherewithal to pay that money back, raising less concern over the long-run burden on families.