March 27, 2014
Post Recession: Strugglers vs Thrivers
The Federal Reserve Bank of St. Louis, based on its analysis of data from the Survey of Consumer Finances, estimates that the recession has ended for only about one-quarter of the U.S. population – the thrivers, who have paid down their debts and restored their savings. That would leave three out of four Americans who are still struggling. Squared Away interviewed Ray Boshara, director of the Center for Household Financial Stability at the bank; Bill Emmons, senior economic adviser; and Bryan Noeth, policy analyst, for their insights into why most Americans’ net worth – their assets minus debts – hasn’t recovered.
Q: You distinguish “thrivers” from “strugglers.” Who are these two groups?
Boshara: The thrivers versus strugglers construct is a simple way to make the point that some demographically defined groups are doing better, on average, than others in terms of net worth – what you save, own, and owe, or your entire balance sheet. We found that age, race, ethnicity and education levels are pretty strong predictors of who lost wealth and who’s recovered wealth over the past few years, as well as over a longer period of time.
Q: Describe the typical thrivers.
Emmons: Whites and Asians with a college degree who are over 40 – that’s the typical thriver. Remember, this is a construct, and it’s not 100 percent foolproof. But you would tend to say these groups are more likely to have outcomes consistent with recovering.
Q: How about the typical strugglers?
Emmons: By age – they’re younger – and they’re African-American or Latino. They also do not have a college degree, and they have too much debt. They’re the other three-fourths of the population. They are not holding enough liquid assets, so they’re just one paycheck away from a crisis. They do not have a diversified portfolio and aren’t benefitting from the stock market gains. They’ve got too much in the house, which has declined in value.
Q: What have you learned about young adults and their wealth – or lack of it?
Emmons: It jumps off the page in our analysis: It doesn’t matter if you’re white or college educated. If you’re young, you’re vulnerable, and you’ve made the same portfolio mistakes as people with less education: low levels of liquid assets, too much in the house, an issue that is related to portfolio diversification, and more leverage. …Learn More
February 20, 2014
Minimum Wage Workers: Who are They?
Whether or not you agree that the minimum wage should be raised, there are very real financial strains on the 5 percent of U.S. hourly workers who earn no more than $7.25 per hour, the current federal minimum wage.
This video, produced by Bloomberg TV, puts a human face on a few of these 3.5 million workers. Data from the U.S. Bureau of Labor Statistics provides more information about who they are:
- Nearly half are over age 25.
- Two-thirds are women, and one-third are men.
- About three-fifths of minimum-wage workers are in service occupations, such as food preparation and food service.
January 28, 2014
Gen-X Retiree Income Inequality to Widen
There’s a growing awareness of the chasm between average working Americans and those at the top of the earnings scale.
What isn’t widely recognized is that this broad economic trend is spilling over into retirement incomes, which depend on how much people earn and save while they’re still working.
“The increasing wage inequality we see during the working years plays out over the life course and will result in more unequal incomes at older ages,” said Richard Johnson, an economist with the Urban Institute in Washington.
Johnson recently compared the incomes of today’s retirees with his income projections for the youngest members of Generation X who will enter retirement in about 30 years. He found that the imbalance between those at the top and bottom is expected to be wider for Gen-X.
In his study, retiree income includes Social Security benefits, pensions from traditional defined benefit plans, and employment earnings. Johnson also assumes that people spend down their 401(k)s, but he does not include equity in one’s home, which retirees can also convert to income. …Learn More
January 23, 2014
Retirement Delayed to Pay the Mortgage
Older Americans who are in debt are choosing to delay their retirement, researchers conclude in a new working paper.
In earlier findings released last summer, the researchers, Barbara Butrica and Nadia Karamcheva of the Urban Institute, documented the growing prevalence of borrowing since the late 1990s among adults ages 62 through 69. Median debt levels among those who owe also surged from $19,000 to $32,100, adjusted for inflation – and debts as a share of their assets increased.
Now comes the rest of the story. When the researchers controlled for health, financial assets, home values, and other forms of wealth, as well as spouses’ earnings and other factors that play into decisions about retiring, they found that individuals with debt, especially mortgages, behave differently than those who are debt-free.
Here are their main findings:
- Nearly half of all people in their 60s with debts continue to work, compared with only one-third of those who have no debt. …
January 2, 2014
Resolve Amid the Financial Adversity
More than 60 percent of Americans who participate in their 401(k) retirement plans at work are adding more dollars to their debts than they’re socking away in those plans, according to HelloWallet’s analysis of recent federal data.
This shocking statistic suggests the need for some serious financial planning. Yet the vast majority of people in a recent survey said making a financial plan would not be among their 2014 resolutions.
Why not? Many said they “don’t make enough money to worry about” a financial plan, according to Allianz Life Insurance Company, which conducts the survey.
Okay. But if you feel unable or unwilling to write up a full-blown plan, perhaps you’ll consider one small step: …Learn More
October 24, 2013
Oldest Americans Are Lucky Generation
Americans in their 70s and 80s have earned more and are wealthier than the baby boom generation – for the simple reason they were born at the right moment in history.
It was easier for members of this older generation to get ahead, because they came of age in the aftermath of World War II, when economic and demographic trends were strongly working in their favor, contends new research by William Emmons and Bryan Noeth of the Federal Reserve Bank of St. Louis. The emergence of a modern social safety net and the rise of unions may’ve also contributed to their relative prosperity, they said.
Baby boomers born after about 1950 do not seem to have the same income and wealth over their working and retired lives that their parents have enjoyed, even after the research takes into account numerous things that determine an individual’s prosperity, such as their level of education. If the current trend continues, these younger boomers just won’t be as lucky.
Birth year “comes up as a significant variable in terms of influencing income and wealth,” Emmons, a senior policy adviser, said about the study, which analyzed decades of U.S. data on household finances. …Learn More
September 17, 2013
Workers Struggle Day to Day
There’s a growing concern that working people aren’t saving for the future, but the reality is that many of them can barely get by in the here and now.
A sizable minority of Americans say they are spending more than they earn, have overdue medical bills, or pay only the minimum on their credit cards. These were among the findings in the 2012 National Financial Capability Study (NFCS) conducted by the FINRA Investor Education Foundation, its second survey to illuminate the day-to-day financial issues facing average working people.
Pulling together $2,000 may seem like only a modest challenge for someone with good pay and benefits. But 40 percent of the people surveyed also indicated they would be hard-pressed to find that much money if they needed it, according to a September report on the NFCS survey.
FINRA identified indicators of what it called the “financial fragility” of the average American:
• More than half of those surveyed were in a poor position to save: 19 percent spend more than they earn, and 36 percent just break even.
• More than half have no rainy day fund and live paycheck-to-paycheck. …Learn More