Survey Of Consumer Finances (SCF)

Every three years the Federal Reserve sponsors a survey of the financial condition of U.S. families. The data from the most recent (1998) survey have just been released in the January issue of the Federal Reserve Bulletin. By comparing the findings from this survey with those from earlier surveys, we can trace major trends in the finances of families over the past decade or so. This discussion focuses on families’ use of consumer and mortgage credit. When dollar figures are used from the four surveys taken between 1989 and 1998, all dollar figures are adjusted to 1998 dollars. Consumers responding to the surveys were asked to report their incomes for the full year preceding the year of the survey. 

Income. The availability of credit is, of course, dependent in large part on a family’s income and assets. Between 1995 and 1998 the median, inflation-adjusted income of all families rose from $32,700 to $33,400. Over the same period the portion of families with incomes of $50,000 or more rose from about one-fifth to 33.8 percent, while the portion of families with incomes below $10,000 fell from about one-sixth to 12.6 percent. 

Nonfinancial assets. A family’s assets that are most likely to provide collateral for debt are their homes and vehicles. Between 1995 and 1998, home ownership rose from 64.7 percent to 66.2 percent, while the median value of the homes rose from $95,600 to $100,000. Over the same period, vehicle ownership by families fell from 84.1 percent to 82.8 percent, a decline that may reflect the growth of leasing. 

Financial assets. Financial assets provide consumers with liquidity to pay their debts. Over the three years from 1995 to 1998, the median value of financial assets held by families rose by 35.8 percent. Probably the most striking change that has occurred in recent years has been the increase in direct and indirect holdings of common stock. Consumers may hold common stock directly or indirectly through mutual funds, through stock options or retirement programs linked to common stock. Over this three-year period, the portion of families with direct and indirect holdings of common stock rose from 40.4 percent to 48.8 percent. By 1998, families’ direct and indirect stock holdings comprised 53.9 percent of their financial assets. At this point, it is reasonable to conclude that more than half of families in the U.S. are “capitalists” in the sense that they have an ownership stake in the equity of U.S. corporations. 

The value of businesses, real estate and common stock held by families rose 71.4 percent from 1995 to 1998. The median unrealized capital gains in 1998 were $10,800 and the mean gain was $96,300. These unrealized gains have led to the “wealth effect;” that is, consumers feel affluent and spend part of their unrealized gains. As a result consumers’ expenditures have recently exceeded their after-tax income, and consumers feel comfortable using credit to close the gap between their income and expenditures. 

Liabilities. About three-fourths of families had some sort of debt in both 1995 and 1998. However, over the same period the median amount owed by families with debt rose 42.3 percent. The significance of various forms of debt over the past decade is shown in the accompanying chart. (In 1998, less than three percent of the “Installment loans & lines” includes other lines of credit, and only 7.3 percent of mortgage loans were on residential property other than the family’s home.)

In view of the media attention to credit cards, it is worth noting that credit cards accounted for only 2.8 percent of total family debt in 1989 and 3.8 percent of family debt in 1998.   This low percentage may seem surprising given that revolving credit accounted for 43.1% of all non-mortgage consumer credit outstandings at the end of 1998 ($560 billion out of $1.3 trillion).   However, the Survey of Consumer Finances asks respondents about their outstanding credit card debt after they made their last payment.  Consequently, the remaining balance which revolves to the next month is a much smaller fraction of total household debt than suggested by revolving credit’s share of total outstandings. 

The chart also shows drainage after 1989 of installment loans into other types of borrowing, such as mortgage and home equity loans. The increase in mortgage debt relative to installment loans may reflect the tax deductibility of the interest on home mortgages. In 1998, 41 percent of all families with first mortgages had refinanced their home at some point and 26.1 percent had tapped some of their home equity. 

How has families’ choice of lender changed over the past decade? There has been a striking increase in the share of mortgage or real estate lenders from about one-fifth to almost 36 percent of the market. Savings and loan associations and savings banks have seen their market share drop by almost two-thirds. Finance companies have increased their market share to the point that they have equaled that of credit unions. The market share of brokerage loans had almost matched that of bank and store credit cards in 1998. 

Market Shares of Family Debt by Type of Lender

What were the characteristics of families that obtained installment loans, regardless of source, and how did borrowing patterns change from 1995 to 1998? Over that period the percentage of families having installment loans dropped from 45.9 percent to 43.7 percent. As shown in the table below, low-income families were less likely to have installment loans at the time of the 1995 and 1998 surveys than those with higher incomes. The percentage of families having installment loans declined between the two surveys, except for those families with incomes of $100,000 or more. 

The percentages of families having installment loans declined with the age of the head of the family. More than half of the families with the household head aged below 55 had installment loans in both 1995 and 1998, though less frequently in the latter year.

The fraction of families having an installment loan fell below 38 percent among families with family head 55 years and older.

Percentage Distribution of Families with

Installment Loans by Income and Age, 1995 and 1998

How risky are families that have installment loans? One measure of risk is their net worth as a percentage of their total assets. The lower the percentage, the higher is the financial leverage and risk. The data in the accompanying chart show clearly that consumers with low percentages of net worth to total assets are much more likely to have installment loans than are those with high percentages. 

Debt Burden. The percentage of total family debt payments to total family income rose from 13.5 percent in 1995 to 14.5 percent in 1998, a percentage slightly higher than the previous high of 14.1 percent in 1992. The level of debt burden varies by income and age. While the percentage of payments to income was highest among families with incomes less than $10,000, it was virtually unchanged at about 19.5 percent in both 1995 and 1998. The aggregate percentage increased the most among families with incomes above $100,000, rising from 8.7 percent to 10.0 percent. There was a sharp increase among families with household head aged 65 to 74, going from 6.9 percent to 7.4 percent of that age group. 

Another measure of debt burden is the percentage of families with debt payments greater than 40 percent of their income. Between 1995 and 1998, the portion of families with this high debt burden ratio rose from 10.5 percent to 12.7 percent. The change in the percentage was especially sharp among families with incomes from $25,000 up to $50,000; up from 8.0 percent to 13.8 percent of all families in that income bracket. 

Still another measure of debt burden is the proportion of any families reporting debt payments more than 60 days past due. From 1995 to 1998, the percentage of families with this level of past due payments rose from 7.1 percent to 8.1 percent. Significantly more families with incomes of less than $10,000 reported that their payments were past due, rising from 8.4 percent to 15.1 percent.