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Plenary One Q&A: A Micro and Macro Look at Younger Americans' Balance Sheets

May 8, 2014

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   James Bullard, Federal Reserve Bank of St. Louis (5:54)

Keynote Address

- Introduction
   Ray Boshara, Federal Reserve Bank of St. Louis (4:05)

- Keynote Address
   Neil Howe, Founding Partner and President, LifeCourse Associates and President, Saeculum Research (36:03)

   Keynote Q&A (11:04)

   Extended Interview with Keynote Speaker Neil Howe (28:43)

Plenary One — A Micro and Macro Look at Younger Americans' Balance Sheets

- The State of the Balance Sheets of Younger Americans
   Lisa Dettling, Board of Governors, Federal Reserve System (14:25)

- Links Between Younger Americans’ Balance Sheets and Economic Growth
   William Emmons, Federal Reserve Bank of St. Louis (21:40)

- Discussant:
   Steve Fazzari, Washington University in St. Louis (18:14)

now playing   Plenary One Q&A (15:06)

Plenary Two — Student Loans

- Student Loans and the Economic Activity of Young Consumers
   Meta Brown, Federal Reserve Bank of New York (21:12)

- Does Parents’ College Savings Reduce College Debt?
   Melinda Lewis, University of Kansas (18:11)

- Discussant:
   Alex Monge-Naranjo, Federal Reserve Bank of St. Louis (19:01)

   Plenary Two Q&A (18:22)


   Michael Sherraden, Washington University in St. Louis (2:52)

   Clint Zweifel, Missouri State Treasurer (6:26)

   Tishaura Jones, City of St. Louis Treasurer (6:14)

Concurrent Session I

- Moderator:
   Julie Birkenmaier, Saint Louis University (4:36)

- Toward Healthy Balance Sheets: The Role of Savings Accounts for Young Adults’ Asset Diversification and Accumulation
   Terri Friedline, University of Kansas (22:23)

- Financial Decisions of Young Households During the Great Recession: An Examination of the SCF 2007-09 Panel
   Wenhua Di, Federal Reserve Bank of Dallas (19:00)

- Discussant:
   John Sabelhaus, Board of Governors, Federal Reserve System (14:38)

   Session One Panel Response (6:57)

   Session One Q&A (5:41)

Concurrent Session II

- Impacts of Child Development Accounts on Change in Parental Educational Expectations: Evidence from a Statewide Social Experiment
   Michael Sherraden, Washington University in St. Louis (13:09)

- Trends and Patterns in the Asset Holdings of Young Households
   Ellen A. Merry, Board of Governors, Federal Reserve System (15:19)

- Discussant:
   Trina Williams Shanks, University of Michigan (7:06)

   Session Two Q&A (28:58)

Plenary Three — Homeownership

- Moderator:
   Todd Swanstrom, University of Missouri–St. Louis (5:54)

- Homeownership and Wealth Among Low-Income Young Adults: Evidence from the Community Advantage Program
   Blair Russell, Washington University in St. Louis (15:57)

- Aggregate and Distributional Dynamics of Consumer Credit in the U.S.
   Don Schlagenhauf, Federal Reserve Bank of St. Louis (21:53)

- Discussant:
   John Duca, Federal Reserve Bank of Dallas (13:59)

   Plenary Three Panel Response (6:40)

   Plenary Three Q&A (8:46)

Plenary Four — Economic Mobility

- Moderator:
   Jason Purnell, Washington University in St. Louis (2:00)

- The Balance Sheets and Economic Mobility of Generation X
   Diana Elliott, Pew Charitable Trusts (17:58)

- Coming of Age in the Early 1970s vs. the Early 1990s: Differences in Wealth Accumulation of Young Households in the United States, and Implications for Economic Mobility
   Daniel Cooper, Federal Reserve Bank of Boston (17:11)

- Discussant:
   Bhashkar Mazumder, Federal Reserve Bank of Chicago (16:15)

   Plenary Four Panel Response (3:14)

   Plenary Four Q&A (19:02)

Closing Reflections: From Research to Policy

   Michael Sherraden, Washington University in St. Louis (15:59)

   Ray Boshara, Federal Reserve Bank of St. Louis (9:30)

Thank You / Adjourn

   Julie Stackhouse, Federal Reserve Bank of St. Louis (5:59)


Below is a full transcript of this video presentation. It has not been edited or reviewed for accuracy or readability.

Jason Purnell: We do have time for questions but first I'm going to offer Lisa and Joanne and Bill and Brian the opportunity to, if they'd like to say another word or two, and there are mics on the table, speakers, so.

Joanne Tsu: Thank you very much for your remarks. I think you brought up a lot of very interesting points about both of our papers. I think that it'll be very interesting to take a look at the cut between homeowners and those who don't own homes. I think a lot that we hear about the housing crisis and how it impacts young adults are kind of conditional on these young adults owning homes. One thing that I don't know if it was clear necessarily from the presentation itself, but all of our analysis was looking at all the young adults. We're not doing any sort of conditional cuts because we want to look at how young adults, as an entire group, are faring and I think your points on, particularly about the heterogeneity of who owns, who's holding debt and what kind of debt they're holding, will be very interesting things for us to look at going forward.

Lisa Dettling: So I just had one additional comment. So you asked, sort of, what's going on at the 75th percentile, and I will say that it wasn't in the presentation, but it's in the paper. Really the two big debt burden changes were in housing and student loans. So you were right, I mean, but it's also quite pronounced in student loans.

William Emmons: I'll just make the point that yes we do know young people are different and yet we don't treat them differently in our models. We don't assign different discount rates to young people in life cycle kinds of models, or assume they're going to make more mistakes, I don't think. So, you know, and that's what we mean I think by the researchers are not taking seriously that young people are different.

Jason Purnell: Okay, thank you. We have time for questions so, as before, please use your microphones and identify yourselves and your affiliations. So in the back there.

Mike Goodell [phonetic 00:02:26]: Hi. Mike Goodell, New York Fed. So this is really interesting, important research. One thing that I thought of while Bill was talking, but this is question directed to everyone, I guess, is there's been a lot of talk about mortgages and then, to a lesser extent, past student debt. One important difference between those two types of debt is how they're treated when they go bad. Student debt, it's a lot harder to write it off even if you've declared bankruptcy, whereas mortgage debt, especially in selective states, can be relatively easily written off. And I was just wondering how that might inform the policy discussion in terms of the Generation X recommendation from before? Thank you.

Joanne Tsu: I think that really is a great point that these different forms of debt are not treated identically and they're not quite substitutes. So in our ongoing research, kind of looking at the impact of delinquency on particular forms of debt on moving in with your parents, we do see a differential effect of different kinds of loans. We do see that delinquency on auto loans has a greater effect on further the decision to move back in with a parent. And so we know that young adults are, don't treat these different kinds of debt identically and I think that's a great thing to look at going forward.

Steve Fazzari: I just want to add one broader comment about that. I think it really is an interesting point and, you know, one of the issues that we talk about from a macroeconomic perspective is deleveraging and the importance of the robo kinds of issue that financial crisis are deeper when there's a finance, the recessions are deeper when there's a financial crisis because we have to through the deleveraging process. But if you think about a financial crisis of the more traditional kind, and I'm thinking particularly Hyman Minsky, a financial crisis that comes in the business side. There is not only can you discharge debt, but you go bankrupt and the firm is gone. It's there. It's brutal but it's a cleansing process. When it's the household, first off the household continues to exist, which is, in the broad sense a good thing, but it makes the recovery more difficult. And then if you add on to that the in ability to discharge debt, then the deleveraging process could be that much more protracted.

Jason Purnell: Other questions? Here. Yes.

David Stoesz [phonetic 00:05:06]: David Stoesz from the University of Illinois. It's impossible not to put some of these charts together and see them as validating Thomas Piketty’s chronical of the deterioration of opportunity for populations since the 1980s, not just in the United States, but in Europe. So that what we see happening is increasing economic inequality and the question is whether or not that is interpreted by the millennials essentially—perhaps beyond that, the populations following the GI generation and the baby boomers—as the disintegration in faith in the American dream and whether or not those more recent populations will ever be able to participate in capital accumulation and prosperity in the same way that their parents and grandparents were able to.

Steve Fazzari: Well that's a big question. So I have to begin with Barry Cinnamon [phonetic 00:06:21] who's here, done some work on rising economic inequality and its impact on the macro economy. In the context of this issue, I think to some extent, I could just without talking about our work just say we argue that there is a link and that is, in particular, the slow recovery is related to the rising economic inequality and its effect on consumer spending, in a sense, coming home to roost. It was postponed by the rising debt of the previous 20 years before the great recession. But in the context of this panel, I think the question is, to the extent to which that is concentrated among relatively younger people. So maybe Bill you might want to comment on that.

William Emmons: I think our take on that would be that what was unusual was the role of home ownership. So housing, to the extent that housing may have crowded out some other types of investments. And, you know, young people don't have a lot of assets of any kind and, you know, somebody who was talking about, I guess Steve about the leverage, you can't use leverage as much to buy a stock portfolio as you can housing. So that's, you know, maybe one reason, but if what has occurred now is that housing will no longer crowd out other assets in young families' balance sheets, that could be a positive.

Jason Purnell: Yes, Neil?

Neil Howe: Hi, I just had a couple of quick comments. Bill, I love the generational comparisons. I think those are super. My co-worker actually did interviews with CEOs and law firm partners and founders who were, you know, born in the late 30s and 1940s and not a single one of them had a dime in student debt that they ever had to pay off. And it's amazing that whole generation got through all of those educational credentials without one penny in debt. It's interesting. That was a completely different political economy faced by younger generations. The ability that you had to pay an enormous amount to get that credential to get on the declining end of a Ponzi scheme in those law firms that no longer paid off. So, yeah, they got the worst of it on both ends that way. I just have one particular question. When you look at risk, my only suggestion would be to look—because I know that you're looking at risk by age, you're pooling huge amounts of data over lots of years. So, you know, I think you already know what my question is. That is to say, look at risk by age in different years and see how much it's changed. We have had these huge generational shifts in risk taking. I mean, for instance, even some of the examples you've showed, auto accidents, there's been a huge change in the differential of people in their 50s and 20s over the last 20 years. Twenty-year-olds now are much safe relative to 50-year-olds. That's one of the reasons why they're not buying autos today. You know, independence and risk no longer attract them. Believe me, Detroit knows this. The differential in motorcycle deaths. Thirty-five, 40 years ago, 25-year-olds were much more likely to die than 55-year-olds. Today, 55-year-olds are five times more likely to die. They're out there riding those Harleys. Believe me, I mean in other words things do change and risk does change in very interesting ways, and you can see this in a lot of other risk indicators. I think, obviously, there's generational learning going on with the millennials and that really gets to Lisa's point in her paper where you really see that these millennials—I was absolutely intrigued to see that they were actually seeing this reversal. Fewer late payments, fewer high-payment-to-income ratios, a complete reversal of something that we had already taken for granted for decades, and you suddenly see the reversal. Sometimes those indicators are a bell weather of generational shifts in age-related risk taking tendencies. So, anyway.

Steve Fazzari: The comments were actually not directed to me, but obviously that's not stopping me. So, but in particular terms of this generational shift, I think before we jump to that conclusion, we need to do this by home ownership. Which is, if you think about the young people versus the very young—the millennials versus the Generation X—if the real issue in this particular period, which is really about 2007 to 2010, is a financial stress that's hitting people who have homes and the older people, at least the young middle-aged, have more home ownership, then that could what's going on there. So the real interesting question, and we just know the answer but maybe we will very soon if they can fire up their data, which is if you took the millennial generation and divided them between homeowner and non-homeowner, what would happen?

Lisa Dettling: So I will say you do see things on things like credit cards where—I mean they might be correlated but it's still there, so.

Joanne Tsu: And also I do want to put the caveat on our credit market experiences graphs that our graphs are looking at all of the young adults, not conditional on holding debt. So if there's something going on on the supply side, that's not going to be controlled for in those graphs. That said, the Card Act of 2009 that really restricted credit particularly for young adults didn't get implemented until after the field period of our 2010 data.

William Emmons: That's a great point, Joanne. And also that the legal landscape has changed dramatically for mortgage borrowing too. You know, those so-called exotic mortgages aren't available today, so young people—which would be hard to tease out the risk, the demand and the supply for risk-taking. Even if there were somebody who wanted to take the same kind of risk as their counterparts 10 years ago, they can't do it.

Neil Howe: I guess one way of summing it up is that a policy of increasing regulatory restrictions on younger people is sort of closing the door of the barn after every horse has left. You know, you have a new generation in there, the housing prices aren't going in the same—I mean everything has shifted so it really might be pointless at this point.

Jason Purnell: Other questions? In the back, yeah.

James McGowan [phonetic 00:13:09]: James McGowan, BI HUD [phonetic 00:13:11]. We're talking a lot about home ownership and student loans. I just wonder, based on our generations, if you guys are looking at creation of businesses and entrepreneurship?

Joanne Tsu: We have not looked at entrepreneurship specifically for young adults. I believe the rate is fairly low, but that is something that we have some information on on the SCF as long as that young adult is a household head. So we could potentially look at that.

Jason Purnell: Other questions? Okay, another.

Neil Howe: I could just add that one point about entrepreneurship and young adults. I mean, if you look just Schedule C businesses, I mean, individual contractors, it was large with Generation X. It's going up even larger among millennials. Although in every survey that we have done you see a huge difference in the purpose of entrepreneuring [sic] with millennials. Entrepreneuring [sic] with millennials is a way to get a permanent job. They do because they don't have one. And, in other words, you contract with an employer as a way to get in and get employed, which is very different from the sort of Generation X ideal of starting a business and creating a life that way. So you really see a lifestyle shift among millennials. It's a different way to get in the front door. They do want to get through the front door.

Jason Purnell: Any final questions or comments from the panel? If not, it's time for a break. I believe there's coffee outside and we'll reconvene in about thirty minutes. Thank you very much.