Banking and Financial Services
Congressional Newsletter
A series of periodic updates to Congress on RAND's work in banking and financial services

Understanding How Families Are Faring and Coping with the Financial Crisis

mother and child doing paperwork

The recession that began in December 2007—and that later became the Great Recession—has dramatically impacted American households, more so than previous recessions because of simultaneous shocks to the stock market and to the housing and labor markets. While government statistics track the trends in each market, they cannot tell us how the repercussions of the Great Recession have played out within households—e.g., how much the same households experienced both hardship caused by unemployment and related to housing. To answer questions of this kind, we need to both survey households and, ideally, follow-up with the same households over time. As the Great Recession unfolded, RAND researchers did just that, conducting high-frequency surveys to get at household effects over time.

The American Life Panel—A Unique Tool

To do this, RAND relied on the American Life Panel (or ALP)—an Internet survey run by RAND's Labor and Population unit. To get around the problem of potential selection bias, those who do not have access to the Internet receive a Web TV, including an Internet access subscription with an e-mail account. The first survey on the financial crisis was fielded at the beginning of November 2008—immediately after the large declines in the stock market of September and October—while the next survey followed in February 2009. Since May 2009, RAND has collected monthly data on the same households—eliciting information from a broad area of topics, including details of labor force status, recent actual job loss and ways of coping, mood and affect, financial help (received and given), detailed information on spending in 25 categories, home equity, credit card balances, retirement savings, stock ownership and value, recent stock transactions, and expectations about the stock market, the housing market, and unemployment. The resulting data—20 waves in total so far—are truly unique, allowing detailed studies of events and households' responses and how they cope with adverse events such as unemployment.

The ALP is not like the ubiquitous opinion surveys out there. While they can capture opinions quickly, they are essentially surveying different people each time; the ALP is surveying the same people over and over again, so we can track their responses over time and understand their responses to sequences of events. The ALP also provides a much richer set of variables to draw on, as noted above.

Taking the Pulse of American Households

By late 2008, the financial crisis had left few Americans untouched, with nearly 80 percent of households saying in November 2008 or in February 2009 they had been affected and almost 30 percent saying they had been affected "a lot." By April 2010, 40 percent of households experienced at least one of the following: unemployment, falling behind more than two months on their mortgage payments, negative home equity, or foreclosure. Younger households—and those with lower incomes—were more likely to have experienced at least one of those forms of "financial distress."

The most widespread response among households to the rapidly changing economic environment in late 2008 when the financial crisis unfolded was reducing spending. In the first survey in November 2008, 73 percent of households said they had reduced spending because of the economic crisis. Further spending reductions followed, as revealed by the detailed monthly spending measures the ALP picks up: Average household spending declined by about 10 percent between April 2009 and March 2010, with more concentration again among younger households and sharper reductions among those undergoing severe hardship such as unemployment.

Relying on Families to Make Ends Meet

Beyond reducing spending, families have relied on intrafamily giving to help cope with financial distress. In the midst of the financial crisis—from November 2008 through February 2009—nearly 30 percent of households said they had given more than $500 to family, grown children, relatives or friends. Those giving help far outnumbered those receiving it (only about 13 percent), suggesting that transfers tend to be received from more than one source. In the event of job loss, which has caused economic hardship among a large fraction of families, 27 percent of households received help from family or friends—a number computed over all households who reported a job loss (respondent and/or spouse) between April 2009 and April 2010. The direction of the flow of aid is predominantly from parents to their adult children. Such transfers of wealth from parents to children may affect the parents' own preparation for retirement or their financial security more broadly.

READ THE OCCASIONAL PAPER: Helping Each Other in Times of Need: Financial Help as a Means of Coping with the Economic Crisis



How Do American Households View Their Prospects Moving Forward?

Susann Rohwedder

Susann Rohwedder is a RAND senior economist, the associate director of the RAND Center for the Study of Aging, and an affiliate member of the faculty of the Pardee RAND Graduate School. Her research focuses on the economics of aging in the areas of household consumption and saving behavior, retirement, and expectation formation. She has written on the impact of pension reforms on household saving in the UK; the adequacy of retirement resources of U.S. households near retirement; the effect of retirement on cognitive ability; spending and saving patterns among the older population; consumption- and income-based poverty measures at older ages; and individuals' expectations about future Social Security benefits and longevity. Other papers deal with data quality and survey methods. She is leading the collection of high-frequency household data to assess and track the effects of the Great Recession. She holds master's degrees from the University of Warwick (UK) and the Sorbonne in Paris and a Ph.D. in economics from University College London.

The recession was declared over in June 2009. How does this square with what you see in your high-frequency data?

Many criteria are used to assess whether a recession is over. Based on our data, the economic situation of the typical household is no longer worsening, which is consistent with the end of the recession if we define the end to mean "no more negative change." But for American households—after an extended period of decline—things have not gotten noticeably better either, except that the stock market has recovered some of its losses. So for most households, it does not feel like the recession is over. Even when the economy improves, the effects of the Great Recession will be felt for many years.

What are those effects?

For example, some younger workers who have suffered unemployment will not reach the level of lifetime earnings they had expected before the recession and will have reduced resources during working years and in retirement. And some retired unexpectedly early because they lost their jobs, leading to a reduction of economic resources in retirement.

You ask about people's expectations for the future. Is there any sign people expect improvements any time soon?

We're still seeing widespread pessimism. When we surveyed people about their expectations that stocks will be higher "in about a year from now," the low point in respondents' beliefs was reached at about the same time as the bottom of the market in Spring 2009; there has been a small recovery since, but people still think that the chances are well below 50 percent that stocks will be higher a year later. And long-term expectations—chances of a gain over the next 10 years—have continued to decline, suggesting people are pessimistic for the long-term prospects of the U.S. economy.

What about unemployment expectations?

Those have improved somewhat from their low point in May 2009, but they remain high: Those expectations predict that about 17 percent of workers will experience unemployment over a 12-month period. Despite the public discussion of people needing to work longer, expectations about working to age 62 among those age 45 to 52 and not now working declined by 10 percentage points. We feel this decline reflects long-term pessimism about the likelihood of a successful job search. This overall pessimism about the future is also reflected in the fact that household spending has been approximately constant since it reached its minimum in about November 2009; there is a hint of an increase lately, but we will have to see whether it persists.

First Annual Conference of the Financial Literacy Research Consortium

New Insights and Advances in Financial Literacy: Translation, Dissemination, Change

On November 18 and 19, 2010, the Social Security Administration (SSA) is sponsoring a conference that will bring together scholars from the new Financial Literacy Research Consortium. At the conference—which will be at the Ronald Reagan Center Building in Washington D.C.—researchers from the consortium will present their research and discuss how programs, educational products, and policies can best promote financial planning and financial security.

The Financial Literacy Center is hosting the conference. It was established with support from the SSA in October 2009 by the RAND Corporation, Dartmouth College, and the Wharton School of the University of Pennsylvania to develop educational tools and programs that help individuals prepare their long-term financial stability. Also participating are two other centers in the consortium: the Center for Financial Literacy (Boston College) and the Center for Financial Security (University of Wisconsin).

Register for the Conference »


Lindsey Kozberg
Vice President, Office of External Affairs

Shirley Ruhe
Director, Office of Congressional Relations

Nancy Camm
Senior Financial Services Legislative Analyst, Office of Congressional Relations

RAND Office of Congressional Relations
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