Asset Holdings of Young Households: Trends and Patterns

By Merry, Ellen A.; Thomas, Logan | Federal Reserve Bank of St. Louis Review, Winter 2014 | Go to article overview

Asset Holdings of Young Households: Trends and Patterns


Merry, Ellen A., Thomas, Logan, Federal Reserve Bank of St. Louis Review


Recent research focused on how young households fared throughout the Great Recession has highlighted the losses this group incurred, in part because a large share of their assets was in housing. Emmons and Noeth (2013) find evidence that homeownership rates in 2007 were elevated for younger households relative to earlier years after controlling for other factors. The significant losses in wealth as a result of the Great Recession have prompted many questions about how households, particularly younger households and minorities, can rebuild and invest for the future.

This article builds on the existing work on portfolio choices of young households and focuses on households' decisions to hold a range of asset types, including both financial assets (e.g., bank accounts, stocks, and retirement accounts) and nonfinancial assets (e.g., residential real estate, businesses, and automobiles). While several recent articles on the 2007-09 recession and recovery have focused on the losses and gains experienced by different groups, including the young, the possible changes in household decisions to hold different types of nonhousing assets in recent years have received less attention. The composition of asset ownership is important for both long-term economic mobility and the ability of households to weather temporary financial shocks. For example, stocks have historically provided a greater return over time but also involve a greater risk of loss over shorter time horizons. In contrast, bank accounts grow more slowly over time but offer a ready reserve for emergencies. Recent decades provide examples of both positive and negative impacts of asset price changes on household balance sheets depending on the degree of exposure to different asset classes.

We use the triennial Survey of Consumer Finances (SCF) to examine the composition of the asset portfolios of young households whose head of household is between 18 and 41 years of age over the years 1989 to 2013. While the SCF does not follow the same households over this entire period, it does allow us to study different cohorts or groups of young adults who entered adulthood at different points in time. The next two sections describe the asset categories used in the analysis and the young adults included in the measures of asset ownership constructed with the SCF data. We then describe the patterns of acquisition of broad asset categories in the early part of the life cycle with attention to patterns that appear to have changed over time and explore how the propensity to hold different types of assets varies across households.

DATA AND DESCRIPTIONS OF ASSET CATEGORIES

This article uses data from the Federal Reserve Board's SCF collected from 1989 through 2013 to examine the composition of household assets. The SCF is a triennial cross-sectional survey of households that includes detailed information on assets, liabilities, and income as well as attitudes toward saving, credit, and risk. The SCF uses a two-part sampling frame and oversamples wealthy households in an effort to measure the wealth holdings concentrated among households at the top of the wealth distribution. As Kennickell (2009) notes, since 1989 the SCF has been conducted using comparable methodologies that facilitate comparisons over time. (1)

The SCF measures both assets and liabilities. Although not provided here, a complete treatment of asset ownership would involve examining the relationship between the use of debt--particularly secured debt--and asset holdings. Much recent work on household balance sheets has focused on the role of home leverage and its implications for households' ability to enter, sustain, and benefit financially from homeownership. (2) Other assets, such as businesses and vehicles, are also often financed by loans.

As a complement to this literature on the distribution of and changes in net worth, our focus here is on the composition of household assets to better understand which households are exposed to the potential financial risks and rewards that accompany the decision to allocate wealth to a particular asset type. …

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