American Consumers Newsletter
by Cheryl Russell, Editorial Director, New Strategist Press
Another Look at Who Is to Blame
1. Hot Trends: ANOTHER LOOK AT WHO IS TO BLAME
2. Q & A: IS HOMEOWNERSHIP DECLINING?
3. COOL LINKS: NEW DATA ON ALTERNATIVE MEDICINE, READING RISES, TIME AT WORK, NEW DRUGS ARE BETTER
4. All New: HOUSEHOLD SPENDING, WHO’S BUYING REPORTS, BEST CUSTOMERS, AMERICAN MEN, and AMERICAN WOMEN
To see Cheryl Russell’s Demo Memo blog, click here.
1. Hot Trends
Another Look at Who Is to Blame
In a recent online poll, Time magazine asked its readers who was most to blame for the current economic crisis. Readers rated the guilt of 25 different people on a scale of 1 (innocent) to 10 (guilty). On that scale, the American Consumer rated an 8–even guiltier, according to the public, than George W. Bush or Alan Greenspan. “We’ve been borrowing, borrowing, borrowing,” explained Time, “living off and believing in the wealth effect, first in stocks, which ended badly, then in real estate, which has ended even worse.”
But is the American Consumer guilty as charged? Just in time to shed some light on the matter, the Federal Reserve Board has released the long-awaited results of the triennial Survey of Consumer Finances. The latest survey, taken in 2007, reveals the economic status of the average American household at the peak of our supposed profligacy. The survey results turn out to be a friendly witness, presenting evidence not of our guilt, but of our innocence. Yes, the results show our 2007 net worth swollen by inflated housing prices and they reveal the rush of money into real estate. But as in previous years, the results disprove the notion that the average household is deeply in debt.
Let’s hear the evidence.
Exhibit 1: For the average household, debt is modest. The median amount of outstanding debt for households with debt (77 percent of all households) stood at $67,300 in 2007. This figure includes mortgage debt.
Exhibit 2: Most debt is mortgage debt. Seventy-five percent of the debt owed by the average household is the mortgage on their primary residence. Even this debt is not overwhelming. The median ratio of mortgage debt to housing value stood at 53.3 percent in 2007. Only 1 percent of homeowners had mortgage debt greater than the value of their primary residence.
Exhibit 3: Home equity loans are not common. Only 18 percent of homeowners had a home equity line of credit, and an even smaller 12 percent had an outstanding balance on a home equity loan. This proportion has not changed since 2004.
Exhibit 4: Few gambled in the housing market. The percentage of households with debts for “other residential properties” (second homes, rental units, investment properties, etc.) climbed between 2004 and 2007, rising from 4.0 to 5.5 percent. According to the Federal Reserve Board, this was the largest increase in the prevalence of debt among all types of debt, evidence of the rush to real estate during the housing bubble. Yet 94.5 percent of households did not drink the Kool-Aid.
Exhibit 5: Credit card balances are modest. Only 46 percent of households carried a balance on a credit card in 2007–a figure that was unchanged from 2004. The median outstanding debt for those with a credit card balance was just $3,000. Among households with bank-type credit cards, 55 percent say they pay their balance in full each month. The average credit card bill last month? Just $250.
Exhibit 6: Only a handful are in trouble. Only 14.7 percent of debtors owed more than 40 percent of their income, up slightly from the 12.2 percent of 2004. Despite this increase, the percentage of debtor households that were 60 or more days late in making a payment fell from 8.9 to 7.1 percent between 2004 and 2007.
The evidence proves that the average American household was on solid financial footing as of 2007. Consumers did not cause the financial crisis. The widespread belief that overconsumption is responsible for the meltdown is rooted in several factors such as falling prices for clothes, electronics, and many other goods (allowing people to buy more with less) and the presence of the large baby-boom generation in the peak spending lifestage.
But the saga continues. Although the Survey of Consumer Finances was taken in 2007, the Federal Reserve Board’s analysis examines the impact on households of the financial collapse through October 2008. Housing values took a hit. The home equity of homeowners with mortgages fell from $91,000 in 2007 to $71,600 as of October 2008. The median ratio of mortgage debt to housing equity among homeowners with mortgages climbed 5 percentage points to 58.5 percent. The median value of the stock held by households fell from $35,000 to $22,500 between 2007 and 2008. Net worth also fell. In 2007, median household net worth stood at $120,300. By October 2008, the figure was down to $99,000, according to Federal Reserve estimates.
The sky has not fallen–yet. Note that even after the decline, the net worth of the average household is still very much positive–higher, in fact, than it was in 1998 after adjusting for inflation. But if in its soul searching the American public fails to place the blame for the financial crisis squarely where it belongs–on the financial institutions and government regulators who did not do their job–then consumer confidence will continue to fall, the recession will deepen, more will lose their jobs, and household wealth will plummet. The sky will fall.
By Cheryl Russell, editorial director, New Strategist Publications
If you have questions or comments about the above editorial, e-mail New Strategist at firstname.lastname@example.org.
BET YOU DIDN’T KNOW
Percentage of American women who pray at least once a day: 68.
2. Q & A
Is Homeownership Declining?
Yes, the homeownership rate is down. According to the the latest numbers from the Census Bureau, 67.8 percent of households owned a home in 2008, down from 68.1 percent in 2007–a small decline, considering all the ink that has been spilled over the housing crisis. The 2008 homeownership rate remains close to the record high of 69.0 percent reached in 2004 and still exceeds the 67.4 percent of 2000.
Homeownership fell in most age groups, but not by much. The biggest decline occurred among householders aged 30 to 34. Many were first-time homebuyers who bit off more than they could chew during the housing bubble and have been forced to give up the dream of homeownership for now.
The biggest lesson to be learned in the statistics on homeownership is the comforting stability of demographics, which offer a way to approach the future that is resistant to “black swans” (unanticipated radical change, a term popularized by Nassim Nicholas Taleb in his book The Black Swan). In the absence of natural disasters such as Katrina, demographic trends offer a stability that is sorely needed as Americans confront a chaotic economy.
By Cheryl Russell, editorial director, New Strategist Publications. If you have any questions or comments about the above Q & A, e-mail New Strategist at email@example.com.
BET YOU DIDN’T KNOW
Percent change in average household spending on cable service, 2000 to 2006, after adjusting for inflation: +43.
3. Cool Research Links
To keep up-to-date on ever-changing demographics and lifestyles, check out these useful links.
New data on alternative medicine
Sometimes your tax dollars are hard at work. That is the case with this new report on Americans’ use of alternative medicine, which examines everything from acupuncture to tai chi and the South Beach diet. Complementary and Alternative Medicine Use Among Adults and Children: United States, 2007, not only presents a rare look at how many children use alternative medicine, but also examines trends among adults over the past five years. The report finds that 38 percent of adults and 12 percent of children used complementary or alternative medical treatments in 2007. Some of the most popular therapies are meditation, yoga, massage, and fish oil supplements. Among adults, those most likely to use alternative medicines are affluent, educated, women with private health insurance and multiple health problems. Chlidren who use alternative therapies are likely to have parents who also use them.
Reading: Disaster Averted
After years of handwringing about a small decline in the percentage of the population that reads literature (novels, short stories, poems, or plays either in print or online), the National Endowment for the Arts has discovered in its latest survey that literary reading is now on the rise. Between 2002 and 2008, the proportion of all adults who read literature in the past 12 months climbed from 46.7 to 50.2 percent. The biggest gain was among 18-to-24-year-olds. The percentage of young adults who read literature in the past year rose from 42.8 to 51.7 percent between 2002 and 2008.
Who Is at Work Right Now?
Who is most likely to be on the job at midnight? How about noon? The answers can be found in an analysis from the American Time Use Survey (see table A-4). Protective service worker are most likely to be at work in the middle of the night–19.7 percent are at work at midnight compared with only 0.9 percent of lawyers, for example. Among all workers, the largest share are on the job at 11:00 a.m., when 69.3 percent are at work.
New Drugs Save Lives
Your insurance company might want you to use generics, but newer drugs may lengthen your life. That is the finding from a National Bureau of Economic Research study that examined the costs and benefits of using newer pharmaceuticals, which typically are not available in generic form. Based on Australian prescription data from 1995 to 2003, researchers Frank Lichtenberg and Gautier Duflos find that newer drugs increase life expectancy by 1.23 years. “Using newer drugs to treat diseases apparently accounted for 65 percent of the two years of increased life expectancy enjoyed by Australians during the period studied,” reports the National Bureau of Economic Research.
BET YOU DIDN’T KNOW
Percentage of men who favor requiring a police permit before a person can buy a gun: 73.
Consumers are slashing their spending, making it vital to get the answers to Who buys? What do they buy? How much do they spend? And, most important, what will they cut as expenses rise?
Now you can get accurate and reliable answers to these questions from the following just-published resources from New Strategist, which are based on data from the Bureau of Labor Statistics that you cannot get anywhere else–including online!
- The new 13th edition of the annually updated Household Spending: Who Spends How Much on What, is your exclusive guide to dollar-for-dollar answers to who is buying hundreds of products and services ranging from laundry detergent and phone cards to big-ticket items like homes and cars.
- Best Customers: Demographics of Consumer Demand, 5th ed., is your one-stop resource for finding out who spends the most and who controls market share–often surprisingly different–for over 300 products and services.
- The 14 volumes in the Who’s Buying Series, which can be purchased individually or as a set, give you the big picture about consumer spending by age, income, household type, race, Hispanic origin, region of residence, and education. Each volume focuses on an individual product category, ranging from apparel and beverages to restaurants, transportation, and travel.
Also new from New Strategist are two volumes that examine the many dimensions of men’s and women’s lives as the first decade of the 21st century comes to a close:
- American Men: Who They Are and How They Live, 3rd ed.
- American Women: Who they Are and How They Live, 4th ed.
For your convenience, all New Strategist titles are available as searchable single- and multiple-user pdfs that are linked to spreadsheets of all the data tables in the book so you can do your own analysis and PowerPower presentations.
BET YOU DIDN’T KNOW
Householders aged 55 to 64 spend 25 percent more than the average household on women’s shoes, more than any other age group.