Abstract
We examined households’ dynamic patterns of net worth accumulation between 1999 and 2009 and asked whether these patterns related to the financial health of young adults growing up in those households. Two patterns of net worth emerged—the first remained high and stable and the second experienced a precipitous decline between 2007 and 2009. Young adults who grew up in households with high and stable net worth also experienced the greatest benefit in financial health. Given wealth losses in the wake of the Great Recession and the ripple effects those losses may have had—and may continue to have—on households and their children, policies that stimulate wealth accumulation may be feasible and timely strategies for improving financial health.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
Some of these studies reference children's savings when in fact adolescence is the stage of development during which savings is measured. Childhood and adolescence are distinct developmental stages with differences in cognitive development, socialization, motivation, and attitudes (Shim et al. 2011). Despite the developmental differences between childhood and adolescence and because the emphasis of our study is not on the stage of development, we use children's savings throughout the paper to refer to both children and adolescents in order to be consistent with the terminology used in policy and previous research.
There are three exceptions. The first two exceptions are studies by Kim et al. (2011) and Friedline et al. (2011) that use the natural log transformation to adjust for skewness in net worth. This transformation sets all negative values to 1 because it is not mathematically possible to take the log of zero or negative numbers. This means, for example, that a household’s debt of $10,000 is changed to $1 to deal with skewness. The third exception is a study by Friedline et al. (2012a), who use a categorical measure of household net worth (zero and negative [≤$0], moderate [$0–$10,000], and high [>$10,000]). These exceptions also examine static measures of net worth.
There was a known problem with the PSID employment data for the years 1999 through 2007. The PSID provided a way to fix the problem but it is beyond the scope of this paper to explain here. Please visit the following website for more information on how we addressed this problem: http://psidonline.isr.umich.edu/Guide/FAQ.aspx?Type=1#285. Accessed 13 July 2012.
All values were inflated to 2009 price levels using the Consumer Price Index.
Keep in mind that based on theory and research, the more direct route for improving children's and young adults' financial health may be through extending savings accounts to them directly without households as intermediaries. Linking households’ savings and children's and young adults' savings may be an alternate route to improving their financial health.
References
Bell, L., Burtless, G., Gornick, J., & Smeeding, T. (2007). Failure to launch: Cross-national trends in the transition to economic independence. In S. Danziger & C. Rouse (Eds.), The price of independence: The economics of early adulthood (pp. 27–55). New York: Russell Sage Foundation.
Birkenmaier, J., Curly, J., & Kelly, P. (2012). Credit building in IDA programs: Early findings of a longitudinal study. Research on social work practice, 22(6), 605–614. doi:10.1177/1049731512453208.
Bricker, J., Kennickell, A., Moore, K., Sabelhaus, J. (2012). Changes in U.S. family finances from 2007 to 2010: Evidence from the Survey of Consumer Finances. Federal Reserve Bulletin, 98(2), 1–80. Retrieved 3 January 2012 from http://www.federalreserve.gov/pubs/bulletin/2012/pdf/scf12.pdf.
Cao, H. (2006). Time and financial transfers within and beyond the family. Journal of Family and Economic Issues, 27(2), 375–400. doi:10.1007/s10834-006-9013-z.
CFED. (2010). Upside down: The $400 billion federal asset-building budget. Washington, DC: CFED. Retrieved 17 April 2011 from CFED website http://cfed.org/assets/pdfs/UpsideDown_final.pdf.
Chakrabarti, R., Lee, D., van der Klaauw, W., Zafar, B. (2011). Household debt and saving during the 2007 recession (Report No. 482). Retrieved 29 April 2013 from Federal Reserve Bank of New York website: http://www.newyorkfed.org/research/staff_reports/sr482.pdf.
De Nardi, M. (2004). Wealth inequality and intergenerational links. Review of Economic Studies, 71(3), 743–768. doi:10.1111/j.1467-937X.2004.00302.x.
Dempster, A. P., Laird, N. M., Rubin, D. B. (1977). Maximum likelihood for incomplete data via the EM algorithm. Journal of the Royal Statistical Society: Series B (Methodological), 39(1), 1–38. http://www.jstor.org/stable/2984875.
Deshpande, R., & Zimmerman, J. (2010). Savings accounts for young people in developing countries: Trends in practice. Enterprise Development and Microfinance, 21(4), 275–292. doi:10.3362/1755-1986.2010.026.
Elliott, W., Constance-Huggins, M., & Song, H. (2013a). Improving college progress among low- to moderate-income (LMI) young adults: The role of assets. Journal of Family and Economic Issues. doi:10.1007/s10834-012-9341-0.
Elliott, W., Destin, M., & Friedline, T. (2011). Taking stock of ten years of research on the relationship between assets and children’s educational outcomes: Implications for theory, policy, and intervention. Children and Youth Services Review, 33(11), 2312–2328. doi:10.1016/j.childyouth.2011.08.001.
Elliott, W., Friedline, T., & Nam, I. (2013b). Probability of living through a period of economic instability. Children and Youth Services Review, 35(3), 453–460. doi:10.1016/j.childyouth.2012.12.014.
Farmer, R. E. A. (2012). The stock market crash of 2008 caused the great recession: Theory and evidence. Journal of Economic Dynamics and Control, 36(5), 693–707. doi:10.1016/j.jedc.2012.02.003.
Friedline, T. (2012). Predicting children’s savings: The role of parents’ savings for transferring financial advantage and opportunities for financial inclusion. Children and Youth Services Review, 34(1), 144–154. doi:10.1016/j.childyouth.2011.09.010.
Friedline, T., Despard, M., & Chowa, G. (2013a). Children’s savings as a preventive policy strategy for banking the unbanked? Lawrence: University of Kansas School of Social Welfare.
Friedline, T., & Elliott, W. (2011). Predicting savings for white and black young adults: An early look at racial disparities in savings and the potential role of children’s development accounts (CDAs). Race and Social Problems, 3(2), 99–118. doi:10.1007/s12552-011-9046-2.
Friedline, T., & Elliott, W. (2013). Connections with banking institutions and diverse asset portfolios in young adulthood: Children as potential future investors. Children and Youth Services Review, 35(6), 994–1006. doi:10.1016/j.childyouth.2013.03.008.
Friedline, T., Elliott, W., & Chowa, G. (2013b). Testing an asset-building approach for children: Early access to savings predicts later savings. Economics of Education Review, Special Issue: Assets and Educational Attainment: Theory and Evidence, 33, 31–51. doi:10.1016/j.econedurev.2012.10.004.
Friedline, T., Elliott, W., & Nam, I. (2011). Predicting savings from adolescence to young adulthood: A propensity score approach. Journal for the Society of Social Work and Research, 2(1), 1–21. doi:10.5243/JSSWR.2010.13.
Friedline, T., Elliott, W., & Nam, I. (2012a). Predicting savings and mental accounting among adolescents: The case of college. Children and Youth Services Review, 34, 1884–1895. doi:10.1016/j.childyouth.2012.05.018.
Friedline, T., Masa, R., Chowa, G. (2012b). Transforming wealth: Using the inverse hyperbolic sine (IHS) and splines to predict youth’s math achievement. Retrieved 8 November 2012 from Assets and Education Initiative website https://assetsandedu.drupal.ku.edu/sites/assetsandedu.drupal.ku.edu/files/docs/Transforming%20Wealth%5B2%5D.pdf.
Friedline, T., & Song, H. (2013). Accumulating assets, debts in young adulthood: Children as potential future investors. Children and Youth Services Review, 35(9), 1486–1502. doi:10.1016/j.childyouth.2013.05.013.
Gale, W., & Scholz, J. K. (1994). Intergenerational transfers and the accumulation of wealth. The Journal of Economic Perspectives, 8(4), 145–160. doi:10.1257/jep.8.4.145.
Grinstein-Weiss, M., Sherraden, M., Gale, W., Rohe, W., Schreiner, M., & Key, C. (2013). Long-term impacts of individual development accounts on homeownership among baseline renters: Follow-up evidence from a randomized experiment. American Economic Journal: Economic Policy, 5(1), 122–145. doi:10.1257/pol.5.1.122.
Gudmunson, C., & Danes, S. (2011). Family financial socialization: Theory and critical review. Journal of Family and Economic Issues, 32(4), 644–667. doi:10.1007/s10834-011-9275-y.
Huang, J., Nam, Y., & Wikoff, N. (2012). Household assets and food stamp program participation among eligible low-income households. Journal of Poverty, 16(2), 171–193. doi:10.1080/10875549.2012.667060.
Institute for Social Research. (2009). The Child Development Supplement Transition into Adulthood Study 2009: User guide. Retrieved 8 October 2011 from Panel Study of Income Dynamics, Institute for Social Research website: http://psidonline.isr.umich.edu/CDS/TA09_UserGuide.pdf.
Jones, B., Nagin, D. (2012). A Stata plugin for estimating group-based trajectory models. Retrieved 8 October 2012 from Carnegie Mellon University website http://heinz.cmu.edu/research/458full.pdf.
Jones, B., Nagin, D., & Roeder, K. (2001). A SAS procedure based on mixture models for estimating developmental trajectories. Sociological Methods Research, 29(3), 374–393. doi:10.1177/0049124101029003005.
Kao, Y. E., Hong, G.-S., & Widdows, R. (1997). Bequest expectations: Evidence from the 1989 survey of consumer finances. Journal of Family and Economic Issues, 18(4), 357–377. doi:10.1023/A:1024943421055.
Kaushal, N., & Nepomnyaschy, L. (2009). Wealth, race/ethnicity, and children’s educational outcomes. Children and Youth Services Review, 31(9), 963–971. doi:10.1016/j.childyouth.2009.04.012.
Kennickell, A. (2011). Tossed and turned: Wealth dynamics of U.S. households 2007-2009. Retrieved 8 October 2012 from Federal Reserve Board, Divisions of Research and Statistics website: http://www.federalreserve.gov/pubs/feds/2011/201151/201151pap.pdf.
Kim, J., LaTaillade, J., & Kim, H. (2011). Family processes and adolescents’ financial behaviors. Journal of Family and Economic Issues, 32(4), 668–679. doi:10.1007/s10834-011-9270-3.
Leonard, T., & Di, W. (2013). Is household wealth sustainable? An examination of asset poverty reentry after an exit. Journal of Family and Economic Issues,. doi:10.1007/s10834-013-9357-0.
Lerman, R., Zhang, S. (2012). Coping with the Great Recession: Disparate impacts on economic well-being in poor neighborhoods. Retrieved 8 October 2012 from Urban Institute website: http://www.urban.org/UploadedPDF/412728-Coping-with-the-Great-Recession.pdf.
Little, R. J. A., & Rubin, D. B. (2002). Statistical analysis with missing data (2nd ed.). New York: Wiley.
Loke, V. (2009). Asset trajectories and child outcomes: Implications for asset-based policies (doctoral dissertation). Retrieved from Washington University Open Scholarship.
Loke, V. (2013). Parental asset accumulation trajectories and children’s college outcomes. Economics of Education Review, Special Issue: Assets and Educational Attainment: Theory and Evidence, 33, 124–133. doi:10.1016/j.econedurev.2012.12.002.
Loke, V., & Sacco, P. (2011). Changes in parental assets and children’s educational outcomes. Journal of Social Policy, 40(2), 351–368. doi:10.1017/S0047279410000516.
Loke, V., & Sherraden, M. (2009). Building assets from birth: A global comparison of child development account policies. International Journal of Social Welfare, 18(2), 119–129. doi:10.1111/j.1468-2397.2008.00605.x.
Maddala, G. S. (1983). Limited-dependent and qualitative variables in econometrics. Cambridge, UK: Cambridge University Press.
Mason, L., Nam, Y., Clancy, M., Kim, M., & Loke, V. (2010). Child Development Accounts and saving for children’s future: Do financial incentives matter? Children and Youth Services Review, 32(11), 1570–1576. doi:10.1016/j.childyouth.2010.04.007.
Mishel, L., Bivens, J., Gould, E., & Shierholz, H. (2012). The state of working America (12th ed.). Ithaca, NY: Cornell University Press.
Modigliani, F. (1988). The role of intergenerational transfers and life cycle saving in the accumulation of wealth. The Journal of Economic Perspectives, 2(2), 15–40. doi:10.1257/jep.2.2.15.
Moore, K., Sabelhaus, J., Smith, P. (2013). The current state of U.S. household balance sheets. Paper presented at the Research Symposium—Restoring Household Financial Stability after the Great Recession: Why Household Balance Sheets Matter. St. Louis, MO: Federal Reserve Bank of St. Louis. Retrieved 3 July 2013 from http://www.stlouisfed.org/household-financial-stability/events/20130205/agenda.cfm.
Payne, S., Yorgason, J., & Dew, J. (2013). Spending today or saving for tomorrow: The influence of family financial socialization on financial preparation for retirement. Journal of Family and Economic Issues,. doi:10.1007/s10834-013-9363-2.
Pence, K. (2006). The role of wealth transformations: An application to estimating the effect of tax incentives on saving. Contributions to Economic Analysis and Policy, 5(1), 1–24. doi:10.2202/1538-. 0645.1430.
Peters, C., Sherraden, M. S., Kuchinski, A. (2012). Enduring assets: Findings from a study on the financial lives of young people transitioning from foster care. Retrieved 22 August 2012 from Jim Casey Youth Opportunities Initiative website: http://jimcaseyyouth.org/sites/default/files/documents/Enduring%20Assets_Summary_09_20_12.pdf.
Prawitz, A., Kalkowski, J., & Cohart, J. (2013). Responses to economic pressure by low-income families: Financial distress and hopefulness. Journal of Family and Economic Issues, 34(1), 29–40. doi:10.1007/s10834-012-9288-1.
Richards, K., & Thyer, B. (2011). Does individual development account participation help the poor? A review. Research on Social Work Practice, 21(3), 348–362. doi:10.1177/1049731510395609.
Rose, R. A., & Fraser, M. W. (2008). A simplified framework for using multiple imputation in social work research. Social Work Research, 32(3), 171–178. doi:10.1093/swr/32.3.171.
Rosenbaum, P. R., & Rubin, D. B. (1983a). Assessing sensitivity to an unobserved binary covariate in an observational study with binary outcome. Journal of the Royal Statistical Society: Series B (Methodological), 45(2), 212–218. doi:10.1017/CBO9780511810725.017.
Rosenbaum, P. R., & Rubin, D. B. (1983b). The central role of the propensity score in observational studies for causal effects. Biometrika, 70(1), 41–55. doi:10.2307/2335942.
Rubin, D. B. (1976). Inference and missing data. Biometrika, 63(3), 581–592. doi:10.2307/2335739.
Rubin, D. B. (1987). Multiple imputation for nonresponse in surveys. New York: Wiley.
Saunders, J., Marrow-Howell, N., Spitznagel, E., Dore, P., Proctor, E. K., & Pescario, R. (2006). Imputing missing data: A comparison of methods for social work researchers. Social Work Research, 30(1), 19–31. doi:10.1093/swr/30.1.19.
Schreiner, M., & Sherraden, M. (2007). Can the poor save? Saving and asset building in individual development accounts. New Brunswick, NJ: Transaction Publishers.
Shapiro, T., Meschede, T., Osoro, S. (2013). The roots of the widening racial wealth gap: Explaining the black-white economic divide. Retrieved 27 February 2013 from Institute on Assets and Social Policy, Brandeis University website: http://iasp.brandeis.edu/pdfs/Author/shapiro-thomas-m/racialwealthgapbrief.pdf.
Sherraden, M. (1991). Assets and the poor. Armonk, NY: M.E. Sharpe Inc.
Sherraden, M., Stevens, S. (2010). Lessons from SEED: A national demonstration of Child Development Accounts. Retrieved 13 July 2011 from Washington University, Center for Social Development website: http://csd.wustl.edu/Publications/Documents/SEEDSynthesis_Final.pdf.
Shim, S., Serido, J., & Barber, B. (2011). A consumer way of thinking: Linking consumer socialization and consumption motivation perspectives to adolescent development. Journal of Research on Adolescence, 21(1), 290–299. doi:10.1111/j.1532-7795.2010.00730.x.
Smeeding, T. (2012). Income, wealth, and debt and the Great Recession. Retrieved 1 March 2013 from Stanford Center on Poverty and Inequality website: https://www.stanford.edu/group/recessiontrends/cgi-bin/web/sites/all/themes/barron/pdf/IncomeWealthDebt_fact_sheet.pdf.
Stein, C., Hoffmann, E., Bonar, E., Leith, J., Abraham, K., Hamill, A., et al. (2013). The United States economic crisis: Young adults’ reports of economic pressures, financial and religious coping and psychological well-being. Journal of Family and Economic Issues, 34(2), 200–210. doi:10.1007/s10834-012-9328-x.
Taylor, P., Kochhar, R., Fry, R., Velasco, G., Motel, S. (2011). Wealth gaps rise to record highs between whites, blacks, and hispanics. Retrieved 10 January 2012 from Pew Research Center, Social & Demographic Trends website: http://www.pewsocialtrends.org/files/2011/07/SDT-Wealth-Report_7-26-11_FINAL.pdf.
U.S. Department of Health and Human Services, Administration for Children and Families. (2012). AFI project locator. Retrieved 17 November 2012 from http://www.acf.hhs.gov/programs/ocs/resource/afi-project-locator.
Webley, P., & Nyhus, E. (2006). Parents’ influence on children’s future orientation and saving. Journal of Economic Psychology, 27, 140–164. doi:10.1016/j.joep.2005.06.016.
Wightman, P., Schoeni, R., Robinson, K. (2012). Familial financial assistance to young adults (NPC Working Paper #12-10). Retrieved 9 December 2012 from University of Michigan, National Poverty Center website: http://npc.umich.edu/publications/u/2012-10%20NPC%20Working%20Paper.pdf.
Williams Shanks, T., Kim, Y., Loke, V., & Destin, M. (2010). Assets and child well-being in developed countries. Children and Youth Services Review, 32(11), 1488–1496. doi:10.1016/j.childyouth.2010.03.011.
Acknowledgments
The Panel Study of Income Dynamics is a public use dataset produced and distributed by the Survey Research Center, Institute for Social Research, University of Michigan, Ann Arbor, MI. The collection of data used in this study was partly supported by the National Institutes of Health under grant number R01 HD069609 and the National Science Foundation under award number 1157698.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Friedline, T., Nam, I. & Loke, V. Households’ Net Worth Accumulation Patterns and Young Adults’ Financial Health: Ripple Effects of the Great Recession?. J Fam Econ Iss 35, 390–410 (2014). https://doi.org/10.1007/s10834-013-9379-7
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10834-013-9379-7