The State of Young Adults' Balance Sheets: Evidence from the Survey of Consumer Finances

By Dettling, Lisa J.; Hsu, Joanne W. | Federal Reserve Bank of St. Louis Review, Winter 2014 | Go to article overview

The State of Young Adults' Balance Sheets: Evidence from the Survey of Consumer Finances


Dettling, Lisa J., Hsu, Joanne W., Federal Reserve Bank of St. Louis Review


The past decade has ushered in historic swings in housing, labor, and stock markets. It has also prompted growing interest in how young adults, who are only beginning to interact with credit markets and accumulate assets, have fared in the wake of the Great Recession. Recently, it has been claimed that today's young adults are less financially independent than previous generations of young adults, an assertion most notably captured by the unprecedented increase in the fraction of young adults living with a parent (see, for example, Thompson, 2012; Parker, 2012; Fry, 2013; Dettling and Hsu, 2014). The possibility of delayed financial independence among young adults has raised concerns about potential adverse effects on aggregate consumer spending and economic growth. Financial well-being early in life also has important implications for lifetime wealth accumulation; recent evidence suggests that today's young adults may have accumulated less wealth than their parents had at the same age (Steuerle et al., 2013). However, because they are still in the beginning of the life cycle, today's young adults may be better equipped to weather economic upheaval than older generations, especially in the long run.

In this article, we investigate recent trends in the financial circumstances of young adults. Using individual-level data from household interviews in the triennial Survey of Consumer Finances (SCF) from 2001 to 2013, we examine the net worth of young adults and divide the composition into specific assets and liabilities. In addition, we describe young adults' experiences with credit markets with respect to credit constraints, delinquency, and debt burdens.

Our analysis focuses on three main comparisons. First, we examine trends in young adults' circumstances between 2001 and 2013, a period characterized by large changes in the overall economy. Second, we compare young adults 18 to 31 years of age with older adults 35 to 50 years of age over that period. Finally, we compare young adults in 2013--members of the "Millennial Generation"--with young adults of the same age in the 1989 wave of the SCF--members of "Generation X". (1)

We find that between 2001 and 2013, net worth fell among young adults, primarily because of declines in asset holdings. We also find that net worth was lower for young adults in 2013 than it was for young adults in 1989. However, despite popular accounts of the Millennial Generation's poor economic outcomes during the Great Recession, young adults in the SCF have fared relatively well on many measures. Between 2001 and 2013, debt holdings excluding education loans declined among young adults, as did credit constraints. Compared with older adults, young adults experienced a relatively modest decline in net worth between 2001 and 2013, particularly during the Great Recession. Compared with young adults in 1989, young adults in 2013 were more likely to own homes, stocks, and retirement accounts. Moreover, young adults in 2013 were less likely to have high debt payment burdens than older adults, young adults in 1989, and young adults in 2001.

Our results are not necessarily at odds with popular accounts of how young adults fared in the Great Recession. Our analysis of SCF data focuses on balance sheets and credit market experiences, rather than labor market outcomes. Moreover, because of the SCF sample design, the sample of young adults studied represents only the population of young adults living independently, not the entire population of young adults. (2) We conduct comparisons between SCF young adults and the overall population of young adults from other data sources and find that SCF young adults tend to have higher incomes than the overall population. If income is correlated with wealth, this suggests that the financial circumstances of young adults in the SCF could be better than those experienced by the overall population of young adults.

DATA

We use data from multiple waves of the SCF. …

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