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posted on 03 July 2015

Household Finances Improving, But Pockets Of Concern Remain

by Atlanta Fed

As the U.S. economy continues to strengthen, household finances are also on the mend. Yet despite this modest improvement, sizable pockets of the population remain financially vulnerable, according to a recent report from the Federal Reserve Board of Governors.

Now in its second year, the 2014 Survey of Household Economics and Decisionmaking (SHED) polled more than 5,800 households on such issues as well-being, saving and spending, access to credit, housing, and retirement planning. The results of the October survey are included in the Board's Report on the Economic Well-Being of U.S. Households in 2014.

The survey results show a consumer who is slightly better off financially than a year ago - 65 percent of respondents said they were "living comfortably" or "doing okay." That level is higher than in 2013, when 61 percent responded that way. Americans were also more optimistic about their financial futures, with 29 percent expecting their incomes to rise in the following year.

Financial safety net fragile for many

Despite these bright spots, the survey also shed light on the financially precarious situation in which many U.S. households find themselves.

Nearly a third of respondents were not prepared to withstand a three-month financial disruption - such as the loss of a job or government benefits - either by drawing on personal savings, selling assets, or borrowing from friends and family.

Many individuals would also have trouble covering a $400 emergency expense, with nearly half of respondents reporting that they would not cover the cost or would have to sell something or borrow money to pay it.

Financial, credit barriers holding back homeownership

A series of questions on housing-related issues highlighted increased optimism among homeowners while also providing insight into the financial challenges that may be holding back more Americans from homeownership.

Homeowners were generally optimistic about the current and future value of their homes, with 39 percent saying that they expected prices to rise in the year following the survey. Reflecting further improvement in housing, a relatively small share of respondents said they had either kept their home off the market despite wanting to sell or had listed their home but been unable to sell.

Among renters, the vast majority (81 percent) indicated a preference for homeownership, yet many cited financial and credit challenges that prevented them from doing so. The most common reasons given for not owning a home were that they could not afford the down payment or would not qualify for a mortgage. "This suggests that perceived financial and credit barriers to homeownership are a crucial driver of why some individuals are renting rather than owning, despite the stated preference of many renters for homeownership," the report noted.

The survey highlighted several other "pockets of concern," including:

  • Access to credit: A sizable share of the population reports being unable to secure credit through traditional channels such as a bank loan. Among those who were denied credit, who were offered less credit, or who expected credit to be denied, 38 percent turned to alternative financial services such as payday loans or check cashing services.
  • Education: People who attend college but do not finish an associate's or bachelor's degree are disproportionately likely to be behind on their loan repayments and feel that their education was not worth the cost, according to the report.
  • Retirement: Many individuals lack confidence in their ability to manage their nest eggs. More than half of those with retirement savings in an IRA, 401(k), or some other self-directed account said they were "not confident" or only "slightly confident" in their ability to make the right investment decisions. "This lack of confidence poses a potential risk on the path to retirement for younger generations of workers for whom self-directed retirement accounts are increasingly the norm," the report noted.


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