Fed Survey Examines Recession's Impact on Family Finances

American families' net worth and income—measured by the median and mean levels—have fallen sharply since 2007, according to the Federal Reserve Board's Survey of Consumer Finances for 2010. The survey report, released this June, provides several indicators of the impact of the housing crisis and economic recession on U.S. family finances.

Over the 2007–2010 period, the median value of real (inflation-adjusted) family income before taxes fell 7.7 percent, following a slight decrease in the preceding three-year period. The decline in median income was most pronounced among more highly educated families, families with heads of households who are younger than 55, and families living in the South and West (although median incomes fell across all regions of the country). However, median net worth fell 38.8 percent overall, driven primarily by the broad collapse in housing prices, according to the survey analysis. The survey report notes that during the final years of the housing boom, which disproportionately affected the South and West, median incomes were rising in those regions but falling elsewhere. During the subsequent housing bust, which also disproportionately affected the South and West, median incomes were falling there but rising in other parts of the country.

In addition to providing a snapshot of family financial practices and conditions, the survey includes information on how consumers shop for financial services. The 2010 survey shows that more families turn to friends, family members, or associates for financial information than any other source of information on borrowing or investing. But among families headed by a person younger than age 35, 80 percent reported using the Internet for financial information or services.

An aggregate 25.6 percent of survey respondents in 2010 reflected that their spending usually exceeds their income or is usually about the same. Some 39.6 percent of survey participants reported saving money regularly, and 34.8 percent reported typically saving "left over" income at the end of the year, income of one family member, or "unusual" income. While savings estimates show a small decrease in savings from 2007 to 2010, the report concludes that the small change suggests that economic conditions over that period had only modest effects on the longer-run savings plans of families. Savings were primarily reported to be related to liquidity for precautionary reasons, 35.2 percent, and retirement, 30.1 percent. Since 2001, though, savings dedicated to education, retirement, and homeownership have decreased.

Survey responses related to decisions about checking accounts indicate that the percentage of families with some type of transaction account has increased. In 1989, 18.7 percent of families reported that they did not have a checking account. That figure dropped to 9.6 percent in 2010. Reasons cited for not having a checking account in 2010 included do not like dealing with banks (27.8 percent), do not write enough checks to make it worthwhile (20.3 percent), consider service charges too high (10.6 percent), and do not have enough money (10.3 percent). When respondents with a checking account were asked why they chose a particular financial institution, 46 percent said the institution's branch locations were of primary importance.

By Ana Cruz-Taura, Atlanta Fed senior regional community development manager, Miami Branch