Save & Invest

We compare the saving behavior of two cohorts: the Early Baby Boomers (EBB, age 51-56 in 2004) and the HRS cohort (age 51-56 in 1992). We find that EBB have accumulated more wealth than the previous cohort but they benefited from a large increase in house prices, which lifted the wealth of many home-owners. In fact, there are many families among EBB, particularly those headed by respondents with low education, low income, and minorities, which have less wealth than the previous cohort. Lack of wealth can be traced to lack of retirement planning.

We compare wealth holdings across two cohorts of the Health and Retirement Study: the early Baby Boomers in 2004, and individuals in the same age group in 1992. Levels and patterns of total net worth have changed relatively little over time, though Boomers rely more on housing equity than their predecessors. Most important, planners in both cohorts arrive close to retirement with much higher wealth levels and display higher financial literacy than non-planners.

This presentation reviews the state of federal spending and discusses the role of improved financial literacy as part of a three-pronged strategy (1) Improve Financial Reporting, Public Education, and Performance Metrics (2) Strengthen Budget and Legislative Processes and Controls (3) Fundamental Reexamination & Transformation for the 21stCentury (i.e., entitlement programs, other spending, and tax policy). The slides describe GAO's work on advancing financial literacy, including a review of the Financial Literacy and Education Commission, and participation the Fiscal Wake Up Tour.

The Financial Literacy and Education Improvement Act created, in December 2003, the Financial Literacy and Education Commission. Responding to the act’s mandate that GAO assess the Commission’s effectiveness, this report reviews its progress in (1) developing a national strategy; (2) developing a Web site and hotline; and (3) coordinating federal efforts and promoting partnerships among the federal, state, local, nonprofit, and private sectors.

Abstract: Debit card use at the point of sale has grown dramatically in recent years in the U.S., and now exceeds the number of credit card transactions. However, many questions remain regarding patterns of debit card use, consumer preferences when using debit, and how consumers might respond to explicit pricing of card transactions. Using a new nationally representative consumer survey, this paper describes the current use of debit cards by U.S. consumers, including how demographics affect use.

Studying household investment behavior is essential for understanding the full consequences of old age social security benefits. Using data from six waves of the Health and Retirement Study, we analyze the dynamics of portfolio composition before respondents start claiming social security benefits. We consider ownership as well as amounts held of several types of assets and debts.

Abstract: To assess whether homeowners know their house values and mortgage terms, we compare the distributions of these variables in the household-reported 2001 Survey of Consumer Finances (SCF) to the distributions in lender-reported data. We also examine the share of SCF respondents who report not knowing these variables. We find that most homeowners appear to report their house values and broad mortgage terms reasonably accurately.

We examine the effects of collateralized borrowing in a realistically parameterized life-cycle portfolio choice problem. We provide basic intuition in a two-period model and then solve a multi-period model computationally. Our analysis provides insights into life-cycle portfolio choice relevant for researchers in macroeconomics and finance. In particular, we show that standard models with unlimited borrowing at the riskless rate dramatically overstate the gains to holding equity when compared with collateral-constrained models.