Finances Top Family Problem

Economic concerns are weighing on the minds of Americans these days. When asked in an open-ended format to name the biggest problem currently facing them and their families, most Americans (62%) cite financial concerns, and the proportion doing so is up significantly from the mid-1990s. In 1994, 56% named financial concerns first when asked about their biggest problem.

Today, fully 26% of Americans cite not having enough money to make ends meet as the biggest problem facing them and their families. Another 10% point to the high cost of living and housing. Escalating gas and fuel prices are also high on the list of public problems, with 9% volunteering this response. This marks the first time energy costs have made the list of problems facing American families.

Overall, Americans give a modest appraisal of their personal financial situations. Fewer than half (44%) say they are currently in excellent or good shape, while a majority (55%) say they are in only fair or poor shape. These ratings have fallen off somewhat since this time last year, when a slim majority (52%) said they were in excellent or good shape. The falloff since then has been sharpest among non-whites, young people, and those with annual incomes below $20,000.

In spite of this recent downward trend, personal financial ratings remain higher than they were in the early 1990s. In January 1992, only 36% of Americans rated their personal financial situation excellent or good, and fully 63% rated it fair or poor. There has been some improvement on this measure among middle-income Americans. But those at the lowest income level remain overwhelmingly dissatisfied with their own financial situation. In 1992, 14% of this group rated their personal financial situation as excellent or good, a figure that has risen slightly to 19% today.

Over that same period, the wealthiest Americans have grown more satisfied with their ability to afford both necessities and luxuries. Still, overall satisfaction with their personal finances has remained about where it was in 1992. Roughly three-quarters give their current financial situation an excellent or good rating.

Varying Degrees of Confidence

This month’s survey shows a modest increase in those who expect their personal financial situation to improve over the next year — up from 57% in January to its current level of 63%. This parallels the recent fluctuation in consumer confidence reflected in other similar measures over the past several months.

More generally, two groups — the young and the rich — tend to be more optimistic than others that their financial situation will improve over the next year. More than eight-in-ten people under age 30 believe their financial situation will improve, compared to only 32% of those age 65 and older, who are more likely to be on a fixed retirement income. A majority of people in all income categories feel optimistic about their future finances, but those with the highest incomes are the most likely to say their finances will improve.

Deprivation Unchanged

Despite rising median incomes and only modest inflation over the past two decades, more than one-in-four Americans say there have been times during the last year when they did not have enough money to pay for health care their family needed, while 21% have not been able to buy needed clothing, and 16% say they have not had enough to buy food. These percentages remain as high as they were during the 1970s and 1980s.

Perhaps more important, this sense of deprivation tends to be concentrated in a relatively small segment of the population. If a person faces economic hardship in one area, he or she is likely to face it in others as well. Not surprisingly, income is the key factor. More than half of those in households earning under $20,000 have faced times when they could not pay for health care, and over a third have struggled to buy food.

In particular, blacks, Hispanics and other minorities are also more likely to struggle with economic issues, even when compared to whites in the same income ranges. While 32% of whites earning less than $30,000 annually have struggled with utility bills, as many as 54% of similarly situated minority households have faced such problems.

Aside from their income, there is one defining characteristic which unifies these financially strapped Americans, and that is their recognition of the precariousness of their position. When asked which label best describes their household, 15% of the public think of themselves as not of the professional, business or working class, but as “struggling families.” Minorities are twice as likely as whites, 27% to 13%, to choose this label. Nearly two-thirds of self-described struggling families report being unable to afford necessary health care or medical costs, and roughly as many have not been able to pay for gasoline, utilities, and clothing. More than half say they have faced times within the last year when they have not been able to pay for food or rent.

Not surprisingly, deprivation of this sort is rare at the other end of the economic spectrum. While 82% of those who think of themselves as struggling have faced two or more of these economic crises, the same proportion of those who think of themselves as members of the professional or business classes have faced none of these difficulties.

Greater Polarization

While middle-class and affluent Americans have become increasingly comfortable over the past decade — with larger percentages satisfied with the quality of life they can afford — poorer Americans remain largely dissatisfied. This increasing polarization affects both the way people live their lives and their perceptions of national economic conditions.

Since 1992, the proportion of Americans saying it is fairly easy for them to afford the things they want has risen from 39% to 50%. But among those in the lowest income category, that percentage has grown only two points, from 24% in 1992 to 26% today. By contrast, people at the top of the economic ladder are feeling considerably more comfortable with what they can afford. In 1992, roughly 65% of the wealthiest Americans said it was easy for them to afford the things in life that they wanted; 81% say so today.1

This growing disparity between rich and poor is seen even more clearly in the public’s satisfaction with their ability to afford housing, cars, furnishings and other items. In 1992, few Americans at any income level were very satisfied with the housing, cars, furnishings, vacations and entertainment that they could afford. For example, in 1992 just 5% of low income respondents were very satisfied with the car they could afford, compared to 11% of those in the top fifth of incomes.

Today, this disparity is much greater. While the poorest third remains almost as dissatisfied as they were in 1992, the affluent are much happier with their standard of living; fully 31% are very satisfied with the car they can afford. This same pattern holds for virtually all major purchases including housing, major home furnishings, vacations, and even the amount of money families have for entertainment.

Rising Debt

Since 1992, the proportion of annual income owed in consumer debt has risen substantially. Increasingly, Americans are feeling overextended — 28% of Americans say they owe more than they can afford on credit cards and other non-mortgage related debts, up from 21% in 1992.

The impact of this growing debt burden has been greatest on lower income families. In 1992, Americans in the lowest third of the income range were no more likely than middle- and upper-middle income households to feel overextended — just under one-fourth of all of these groups said they owed more than they could afford.

Since then, there has been virtually no change in perceptions of affluent and upper middle-class families in terms of their indebtedness, but the proportion of mid- to low-income households who are overextended has risen dramatically. Fully 31% of middle-income households ($30,000-$50,000) say they owe more than they can afford, and nearly four-in-ten (38%) low-income households (under $30,000) say they are overextended.

That sense is particularly prevalent among women, minorities and younger people with modest incomes. Roughly 40% of women in households earning under $50,000 feel overextended, compared to just 28% of similarly situated men. Minorities in households earning under $30,000 are nearly twice as likely as whites earning the same to say they owe more than they can afford (56% to 30%). And while 49% of Americans under 50 who earn less than $30,000 say they owe more than they can afford, just 24% of those age 50 and older in the same income bracket say the same.

The rising debt in low-to-middle income households is affecting overall economic perceptions. Middle-income households (earning between $30,000 and $50,000 annually) who feel overextended are nearly twice as likely as those who do not to rate their economic situation as fair or poor (79% to 42%), and are much more likely to have cut back on major purchases as a result of the weaker economic climate. But these same people have not lost all hope. Fully three-quarters of the middle-income respondents who feel they owe more than they can afford think their financial situation will improve over the next year.

Economic Conditions In the Eye of the Beholder

Not surprisingly, income is a major factor in how people view the economy. Those at the bottom of the economic ladder see much more inflation, fewer jobs, a weaker business environment, and overall are less satisfied with the state of the nation than their more affluent counterparts. These differences in the perceptions of the rich and poor are greater than in the past.

Overall, 63% of Americans say that prices have been going up a lot over the last five years. Lower-income Americans, particularly those age 50 and older, are by far the most likely to see rising prices. Fully three-quarters of people in households earning less than $30,000 perceive high inflation, compared to less than half of those in households earning $75,000 and over. Within that lowest income category, 84% of those age 50 and older say prices have been rising a lot, compared to 68% of those under age 50.

Women in all income categories are significantly more sensitive to rising prices than are men. Fully 80% of women in households earning under $30,000 think inflation has been severe over the past five years, compared to 68% of similarly situated men. Even at the highest end — households earning $75,000 and over — 58% of women feel that prices have gone up a lot, compared to 39% of men.

Split Over Jobs Picture

Similarly, judgments about jobs are more income-based now than they were a decade ago. Overall, the public recognizes that the jobs picture has brightened considerably since 1992. Fully 42% of Americans now say there are plenty of jobs available in their community, up from just 12% in January 1992. But just 30% of those with annual household incomes under $30,000 say jobs are plentiful, while 57% say jobs are difficult to find in their community. By contrast, more than six-in-ten (61%) of those making more than $75,000 a year say jobs are plentiful in their area.

This income gap did not exist in 1992. Those in the lowest income group and those in the highest income group had virtually identical perceptions of the job situation in their communities. Roughly eight-in-ten of those with annual incomes under $20,000 said jobs were hard to find. A similar proportion of those making $50,000 or more a year agreed.

Currently, those living in the suburbs are among the most likely to say jobs are easy to come by, while those living in small towns and rural areas are less upbeat. Better than half of suburban residents (56%) say jobs are widely available, compared to 36% and 33%, respectively, of those in small towns in rural areas.

Business Climate Only Fair

Americans give a lukewarm assessment of the nation’s current business climate. Less than half (46%) rate business conditions in their community as excellent or good. Slightly more (51%) say their local businesses are in only fair shape or poor shape. This does represent an improvement from 1992, when roughly three-in-ten said businesses in their community were in excellent or good shape, and fully two-thirds said they were in only fair or poor shape.

Again, these perceptions are very much shaped by income level. Nearly two-thirds of those with annual incomes of $75,000 and over say business conditions in their community are excellent or good. This compares with only about a third of those making under $30,000. In 1992, most Americans shared a gloomy assessment of business conditions, regardless of income level.

For the most part, Americans are finding real estate to be relatively affordable these days, and this is one area in which the rich and the poor agree. A majority of all Americans (57%) say housing is very or fairly affordable in their community. Fewer than four-in-ten (37%) say housing is not too affordable or not at all affordable. Those with household incomes under $30,000 a year are just as likely as those making $75,000 and over a year to consider their local housing market affordable (53% in each group). Middle-income Americans are slightly more likely than either group to find the housing in their community to be affordable (63%).

There are significant regional differences on this question, partly reflecting the expensive real estate market in California. Those living in the West are much more likely than those living in the South or the Midwest to say housing is hard to afford in their area. More than half (54%) of Westerners say real estate in their area is not affordable, with a quarter (24%) stating it is not at all affordable.

Nearly Half Own Stock

Not surprisingly, given the market downturn, there has not been an influx of new investors into stocks and mutual funds over the past year. If anything, the proportion who say they own stock or shares in mutual funds is down slightly since April 2000, from 49% to 45%. The number of active traders — those who buy stock through a broker or online account — is largely unchanged.

Clearly, it has been a bad time for investors, with 59% reporting that the value of their portfolio has declined over the past year, and nearly a third (32%) saying their investments have lost a lot of value. Just 23% say their portfolios have gained ground, with a fortunate 3% reaping sizable profits.

Impact of the Downturn

The market’s decline has had the greatest impact on investors’ vacation travel and retirement plans. Three-in-ten say they have cut back on vacations because of the stock market fluctuations and a quarter say they have adjusted retirement plans.

For all of the media attention on struggling investors, however, the overall economic slump has affected non-stock owners more seriously than the market decline has affected investors. While 30% of investors changed vacation plans because of the market’s decline, nearly half (48%) of those who don’t own stock say they have cut back on their vacation plans because of the slowing economy.

The only area in which stock owners have felt a greater impact from the market downturn is in their retirement plans, and there only slightly. A quarter of investors have adjusted their retirement plans in the wake of the market decline, compared to 21% of non-investors who changed their retirement plans because of the economy.

Surprisingly, non-stock owners are feeling the impact of the slowing economy even more than those investors who have lost money in the market. Again, the only exception is retirement plans, which shows the extent to which investors, using 401(k)s and other accounts, have put their retirement funds into the market.

Economic Knowledge Varies

The public has a fairly good sense of the economic information that hits close to home, but is generally uninformed when it comes to more esoteric economic concepts. The vast majority of Americans have a clear understanding of the impact of changes in interest rates on the economy — 85% are aware that the government cuts interest rates, at least in part, to encourage consumers to spend more.

About half (51%) know that the minimum wage is about $5 an hour; the current national minimum wage is $5.15 an hour. Another 28% believe the minimum wage is about $6. Although that response overstates the level of the minimum wage, it shows that nearly eight-in-ten (79%) are reasonably well informed on this point.

Beyond that, however, the public’s understanding of economics is murkier. About four-in-ten (39%) know that when unemployment falls wages tend to go up. A smaller percentage (23%) are aware that the typical family income is about $40,000 a year, but as with the minimum wage, this somewhat understates the number who have broad familiarity with this fact. Another 38% say that the typical family income is about $30,000 annually, while 13% believe it is about $50,000.

Fiscal policy is the public’s weakest area, as few are aware of the relative tax burden of American citizens and whether the government is running a surplus or deficit. Just 22% know that Americans pay less in taxes than citizens of Western Europe; nearly twice as many (42%) believe, incorrectly, that people in this country have a greater tax burden.

Even fewer (19%) know that the government is taking in more in revenues than it is spending. Indeed, many more people (46%) still believe that the government is spending more than it is taking in. Despite the budget surplus, the proportion answering this question incorrectly has risen since February 2000 when 34% wrongly believed that the government was running a deficit.

Education, Income Matters

Well-educated, high-income Americans tend to be most knowledgeable about economic matters. For example, a plurality of college graduates (43%) is aware that Western Europeans pay more in taxes than Americans, while 36% say Americans pay more. That is the only educational category in which a plurality answered this question correctly.

About one-third (32%) of those with annual family incomes of at least $75,000 correctly answered the budget surplus question, as did 29% of college graduates. Still, pluralities in both groups (42% of those with family incomes of at least $75,000, 37% of college graduates) think that the government is spending more than it is taking in. Among those with less education and lower incomes, this belief is more prevalent; a near majority (49%) of those with less than a college degree say the government is still running a deficit, compared to 15% who are aware of the surplus.

But this pattern does not hold for the minimum wage. Nearly six-in-ten (59%) of those with family incomes of less than $20,000 know the level of the minimum wage, compared to 42% of those with family incomes of at least $75,000.

Political Knowledge

A majority of Americans (56%) are aware that, with the defection of Sen. James Jeffords from the Republican Party in May, Democrats now control the Senate. Just 12% still think that the GOP controls the Senate. Not surprisingly, those who followed the Jeffords story very closely were best informed about which party controls the Senate, with nine-in-ten (91%) answering this question correctly.

But the unexpected shift in Senate control appears to have confused many people about which party has a majority in the House. People are almost evenly divided on this question, with 35% unable to come up with an answer, 34% saying the Democrats are in charge, and just 31% correctly identifying the Republicans. In the past, the public has had a better grasp of which party controls the House. In August 1999, more than half (55%) of Americans correctly identified the Republicans as the majority party.

Gas Prices Top News Story Again

For the second consecutive month, gas prices were the most closely followed news story, with 56% of the public following the story very closely. Interest was highest in rural areas (61%) and in the Midwest (62%). In May, 61% followed this story very closely.

The execution of Timothy McVeigh was followed very closely by 31% of the public, which is about the same proportion that paid very close attention to the delay in McVeigh’s execution last month. About a quarter of Americans (24%) followed reports on the U.S. economy very closely. This percentage is down from the 34% who tracked this story very closely in May.

About one-in-five Americans (21%) paid very close attention to Jeffords’ decision to leave the Republican Party. Liberal Democrats were more likely than conservative Republicans to follow this story (37%-24%). Less than one-in-five (17%) paid very close attention to stories about President Bush’s daughter using a fake ID to buy alcohol.

Only 10% of Americans said they paid very close attention to George W. Bush’s trip to Europe, with another 25% following this story fairly closely. Interest in Bush’s trip was less than for those of his predecessors — about four-in-ten paid at least fairly close attention to former President Clinton’s visits to China and Africa (42%
and 43%, respectively).

Bush’s father attracted considerable public interest for his trips to Colombia and Malta. More than six-in-ten (62%) paid at least some attention to former President Bush’s 1990 visit to Colombia for a drug summit, and 55% closely followed Bush’s summit on Malta in 1989 with Mikhail Gorbachev.