Surveying the Aftermath of the Storm: Changes in Family Finances from 2007 to 2009

Abstract

The effects of the recent financial crisis and consequent recession on the household sector as a whole were often starkly apparent and readily measured. Although a great deal was known about some economic outcomes for certain subsets of households, a more complete picture for the full range of households was not available. To fill this gap, in 2009, the Federal Reserve Board (FRB) designed and implemented a follow-up survey of families that had participated in the then most recent wave of the Survey of Consumer Finances (SCF) in 2007, just as the economy started to turn down. Taken together, the information from the pairs of interviews from the two years provides a unique basis for measuring how families were affected. This paper provides the first look at the changes in families' finances captured in the 2007-2009 SCF panel. The panel data allow us to examine how the effects of changes in the value of specific types of assets and debts and other economic disturbances played out at the household level. The data also allow us to consider the potential longer-term consequences of the financial crisis on families' decisions and expectations. The broad contours of changes in households' assets, debts, and wealth align with changes in the corresponding aggregate measures, but the microdata from the panel highlight the substantial variation in families' experiences between 2007 and 2009. Although over 60 percent of families saw their wealth decline over the two-year period, a sizable fraction of households experienced gains in wealth, while some families' financial situation changed little, at least on net. The shifts in wealth do not appear to be correlated in a simple way with families' characteristics: instead, the pattern of mixed losses, gains, and modest shifts in wealth across families generally holds within groups defined by demographic characteristics or by 2007 wealth or income.On the whole, changes in wealth appear to stem from changes in asset values more so than changes in the composition of families' portfolios or their outstanding debt, though, again, the results vary across households. As might be expected, changes in the values of homes, stock, and business equity appear to have been particularly important determinants of changes in many families' wealth. The economic experiences of families that might have been seen as financially vulnerable in 2007, by and large, did not differ dramatically from those of other families, except for families with high debt payments relative to income, who were more likely to have had comparatively large declines in wealth. Finally, at least overall, families appear more cautious in

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