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Congressional Budget Office January 18, 2017 Changes in Family - - PowerPoint PPT Presentation

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Congressional Budget Office January 18, 2017 Changes in Family Wealth, 1989 to 2013 Savings and Retirement Foundation Washington, D.C. Nadia Karamcheva Microeconomic Studies Division The information in this presentation is drawn from Trends in

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Congressional Budget Office Changes in Family Wealth, 1989 to 2013

Savings and Retirement Foundation Washington, D.C.

January 18, 2017

Nadia Karamcheva Microeconomic Studies Division

The information in this presentation is drawn from Trends in Family Wealth, 1989 to 2013 (Congressional Budget Office, August 2016), www.cbo.gov/publication/51846.

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CONGRESSIONAL BUDGET OFFICE

Research Questions

■ How is family wealth distributed? ■ How did the distribution of family wealth change from 1989 to 2013? ■ How did changes in families’ assets and debt contribute to changes in the wealth distribution from 1989 to 2013?

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CONGRESSIONAL BUDGET OFFICE

Preview of Results

■ Family wealth in the United States is unevenly distributed. In 2013:

– Families in the top 10 percent of the wealth distribution held 76 percent

  • f all family wealth,

– Families in the 51st to the 90th percentiles held 23 percent, and – Families in the bottom half of the distribution held 1 percent.

■ Over the period from 1989 through 2013, family wealth grew at significantly different rates for different segments of the U.S.

  • population. The distribution of wealth among the nation’s families

was more unequal in 2013 than it had been in 1989. ■ In 2013, average wealth for families in the top half of the distribution was greater than it had been in 1989. The opposite was true for families in the bottom half.

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CONGRESSIONAL BUDGET OFFICE

Data: Survey of Consumer Finances

■ This study uses data from the Survey of Consumer Finances (SCF), which:

– Is conducted every three years; – Includes detailed information on family wealth, income, and pensions; and – Covers nearly the full distribution of family wealth (but excludes the nation’s 400 wealthiest people, as listed by Forbes magazine).

■ CBO supplemented the SCF with aggregate wealth data from Forbes. ■ The study uses the cross-sectional waves in the SCF from 1989 through 2013. ■ The unit of analysis is the family.

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CONGRESSIONAL BUDGET OFFICE

Definition of Wealth

■ The measure of wealth in this study is marketable wealth—the difference between a family’s assets and its debt.

– Assets consist of financial assets (including 401(k)-type plans and IRAs), home equity, and other assets (such as real estate, vehicles, and business equity). – Debt is nonmortgage debt, which consists of a family’s consumer debt (including credit card debt and auto loans) and other debt (including student loans). – Mortgage debt is subtracted from the value of a family’s primary residence and is therefore accounted for in the family’s assets.

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CONGRESSIONAL BUDGET OFFICE

Alternative Analytical Approaches and Measures of Wealth

■ Sources of data

– SCF and the Forbes 400 – Tax data

■ Ways to define wealth

– Marketable wealth – Nonmarketable wealth

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CONGRESSIONAL BUDGET OFFICE

Holdings of Family Wealth, by Wealth Group

Trillions of 2013 Dollars

1989 1992 1995 1998 2001 2004 2007 2010 2013 15 30 45 60 75 Top 10 Percent 51st to 90th Percentiles Bottom 50 Percent

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CONGRESSIONAL BUDGET OFFICE

Shares of Family Wealth, by Wealth Group

3 3 4 3 3 3 2 1 1 30 29 28 28 27 27 25 24 23

67 67 69 69 70 70 72 75 76 20 40 60 80 100 1989 1992 1995 1998 2001 2004 2007 2010 2013 Percent

Top 10 Percent 51st to 90th Percentiles Bottom 50 Percent

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CONGRESSIONAL BUDGET OFFICE

Wealth of Families at Selected Percentiles of the Wealth Distribution

Thousands of 2013 Dollars

1989 1992 1995 1998 2001 2004 2007 2010 2013 200 400 600 800 1,000 1,200 90th Percentile 75th Percentile 25th Percentile 50th Percentile

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CONGRESSIONAL BUDGET OFFICE

Average Wealth of Families in the Top 10 Percent of the Wealth Distribution

Thousands of 2013 Dollars

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 1989 1992 1995 1998 2001 2004 2007 2010 2013

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CONGRESSIONAL BUDGET OFFICE

  • 5

5 10 15 20 25 30 35 40 45 50 55

  • 5

5 10 15 20 25 30 35 40 45 50 55 1989 1992 1995 1998 2001 2004 2007 2010 2013

Aggregate Wealth of Families in the Top 10 Percent of the Wealth Distribution (Excluding the Forbes 400)

Trillions of 2013 Dollars Other Assets Financial Assets Home Equity Nonmortgage Debt

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CONGRESSIONAL BUDGET OFFICE

  • 500

500 1,000 1,500 2,000 2,500

Home Equity Financial Assets Other assets Debt

Changes in the Assets and Debt of Families in the Top 10 Percent

  • f the Wealth Distribution (Excluding the Forbes 400)

Thousands of 2013 Dollars

Home Equity Financial Assets Other Assets Nonmortgage Debt

Percentage of Families That Hold Each Category of Asset or Debt

1989 2007 2013 1989 2007 2013 1989 2007 2013 1989 2007 2013 93 97 97 100 100 100 97 98 98 57 59 43 +101%

  • 24%

+135% +7% +87%

  • 21%
  • 1%
  • 9%
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CONGRESSIONAL BUDGET OFFICE

Average Wealth of Families in the 51st to 90th Percentiles

  • f the Wealth Distribution

Thousands of 2013 Dollars

1989 1992 1995 1998 2001 2004 2007 2010 2013 50 100 150 200 250 300 350 400 450

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CONGRESSIONAL BUDGET OFFICE

  • 2

2 4 6 8 10 12 14 16 18 20

  • 2

2 4 6 8 10 12 14 16 18 20 1989 1992 1995 1998 2001 2004 2007 2010 2013

Aggregate Wealth of Families in the 51st to 90th Percentiles of the Wealth Distribution

Trillions of 2013 Dollars Other Assets Financial Assets Home Equity Nonmortgage Debt

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CONGRESSIONAL BUDGET OFFICE

Changes in the Assets and Debt of Families in the 51st to 90th Percentiles of the Wealth Distribution

–31% +58%

Home Equity Other Assets Financial Assets Nonmortgage Debt

99 99 100 93 91 94 97 95 96 72 62 72

  • 50

50 100 150 200 1989 2007 2013 1989 2007 2013 1989 2007 2013 1989 2007 2013 –8% +98% –19% +50% 0% –49%

Percentage of Families That Hold Each Category of Asset or Debt

Thousands of 2013 Dollars

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CONGRESSIONAL BUDGET OFFICE

Average Wealth of Families in the 26th to 50th Percentiles of the Wealth Distribution

Thousands of 2013 Dollars

1989 1992 1995 1998 2001 2004 2007 2010 2013 10 20 30 40 50 60 70

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CONGRESSIONAL BUDGET OFFICE

  • 1

1 1 2 2 3

  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5 1989 1992 1995 1998 2001 2004 2007 2010 2013

Aggregate Wealth of Families in the 26th to 50th Percentiles of the Wealth Distribution

Trillions of 2013 Dollars Other Assets Financial Assets Home Equity Nonmortgage Debt

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CONGRESSIONAL BUDGET OFFICE

Changes in the Assets and Debt of Families in the 26th to 50th Percentiles of the Wealth Distribution

–44% +51%

Home Equity Other Assets Financial Assets Nonmortgage Debt

94 97 96 61 58 72 89 92 93 77 69 78 1989 2007 2013 1989 2007 2013 1989 2007 2013 1989 2007 2013

Percentage of Families That Hold Each Category of Asset or Debt Thousands of 2013 Dollars

–34% +64% –23% +58% +10% –77%

  • 40
  • 30
  • 20
  • 10

10 20 30 40 50

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CONGRESSIONAL BUDGET OFFICE

Average Wealth of Families in the Bottom 25 Percent of the Wealth Distribution

Thousands of 2013 Dollars

1989 1992 1995 1998 2001 2004 2007 2010 2013

  • 15
  • 10
  • 5

5 10 15

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CONGRESSIONAL BUDGET OFFICE

  • 1.0
  • 0.8
  • 0.6
  • 0.4
  • 0.2

0.0 0.2 0.4

  • 1.0
  • 0.8
  • 0.6
  • 0.4
  • 0.2

0.0 0.2 0.4 1989 1992 1995 1998 2001 2004 2007 2010 2013

Aggregate Wealth of Families in the Bottom 25 Percent of the Wealth Distribution

Trillions of 2013 Dollars Other Assets Financial Assets Home Equity Nonmortgage Debt

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CONGRESSIONAL BUDGET OFFICE

Changes in the Assets and Debt of Families in the Bottom 25 Percent of the Wealth Distribution

–247% +352%

Home Equity Other Assets Financial Assets Nonmortgage Debt

64 83 80 9 18 14 60 67 70 61 68 68 1989 2007 2013 1989 2007 2013 1989 2007 2013 1989 2007 2013

Percentage of Families That Hold Each Category of Asset or Debt

Thousands of 2013 Dollars –7% +99% –5% +76% –40% –114%

  • 40
  • 30
  • 20
  • 10

10 20 30 40 50

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CONGRESSIONAL BUDGET OFFICE

Share of Families in Debt and Average Indebtedness for Those Families

1989 1992 1995 1998 2001 2004 2007 2010 2013

  • 50
  • 25

–9 –20 –32

25 50

  • 20
  • 10

10 20 Average Indebtedness (Left axis) Share of Families in Debt (Right axis)

7 8 12

Thousands of 2013 Dollars Percent

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CONGRESSIONAL BUDGET OFFICE

Changes in Categories of Debt for Families in Debt

■ The increase in average indebtedness between 2007 and 2013 for families in debt was mainly the result of falling home equity and rising student loan debt.

2007 2013 Share of families in debt who had negative home equity (Percent) 3 19 Average home equity for families in debt who had negative home equity (2013 dollars)

  • $16,000
  • $45,000

Share of families in debt who had outstanding student loans (Percent) 56 64 Average student loans for families in debt who had student loans (2013 dollars) $29,000 $41,000

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CONGRESSIONAL BUDGET OFFICE

Age Distribution of Families in Debt and Families Not in Debt in 2013

44 29 20 7 18 26 30 26

10 20 30 40 50

Younger Than 35 35 to 49 50 to 64 65 or Older Percent

Families In Debt Families Not In Debt

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CONGRESSIONAL BUDGET OFFICE

Education Distribution of Families in Debt and Families Not in Debt in 2013

8 26 34 21 11 11 32 24 19 14 10 20 30 40 50 Less Than High School High School Some College Bachelor's Degree Graduate Degree Percent Families In Debt Families Not In Debt

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CONGRESSIONAL BUDGET OFFICE

Median Family Wealth, by Age Group

Thousands of 2013 Dollars

1989 1992 1995 1998 2001 2004 2007 2010 2013 50 100 150 200 250 300 65 or Older 50 to 64 Younger Than 35 35 to 49

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CONGRESSIONAL BUDGET OFFICE

Median Family Wealth, by Education Group

Thousands of 2013 Dollars

Graduate Degree Bachelor’s Degree Less Than High School High School Some College 100 200 300 400 500 1989 1992 1995 1998 2001 2004 2007 2010 2013

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CONGRESSIONAL BUDGET OFFICE

Effects of Aging and Increases in Educational Attainment

  • n Family Wealth

■ The aging of the population and increases in educational attainment contributed to an increase in overall family wealth between 1989 and 2013. ■ CBO performed a counterfactual analysis, using a reweighting technique developed by John DiNardo and colleagues.

– See John DiNardo, Nicole M. Fortin, and Thomas Lemieux, “Labor Market Institutions and the Distribution of Wages, 1973–1992: A Semiparametric Approach,” Econometrica, vol. 64, no. 5 (September 1996), pp. 1001–1044, http://tinyurl.com/zyhcdbf.

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CONGRESSIONAL BUDGET OFFICE

Effects of Aging and Increases in Educational Attainment

  • n Family Wealth (Continued)

■ Had the population not aged as it did, median family wealth would have been 19 percent lower in 2013 than in 1989.

– In 1989, 21 percent of families were headed by someone over the age

  • f 65; in 2013, 24 percent were.

■ Had the average educational attainment of families not increased as it did, median family wealth would have been 16 percent lower in 2013 than in 1989.

– In 1989, 23 percent of families were headed by someone with at least a bachelor’s degree; in 2013, 32 percent were.