Family Economics Review [1993, Volume 6, Number 1]

              1993
Yol6No.1
United States
Department of
Agriculture
Agricultural
Research
Service u
It I I I 1 I •• •• •• •• •• •• •• • ••
IFIAIMI I ILIYI PROPERTY OF THE
LIBRARY
I
Editor
Joan C. Courtless
EdHorlal Assistant
Jane W. Fleming
E c
Family Economics Review is written
and published each quarter by the
Family Economics Research Group,
Agricultural Research Service,
U.S. Department of Agriculture,
Washington, D.C.
The Secretary of Agriculture has
determined that publication of this
periodical is necessary in the transac­tion
of the public business required by
law of the Department.
This publication is not copyrighted.
Contents may be reprinted without
permission, but credit to Family
Economics Review would be
appreciated. Use of commercial or
trade names does not imply approval
or constitute endorsement by USDA.
Family Economics Review is indexed
in the following databases: AGRICOLA.
Ageline, ERIC, Family Resources, and
PAIS.
Family Economics Review is for sale
by the Superintendent of Documents.
Subscription price is $5 per year
($6.25 for foreign addresses). Send
subscription orders and change of
address to Superintendent of
Documents, P.O. Box 371954,
Pittsburgh, PA 15250-7954. (See
subscription form on p. 44.)
Suggestions or comments concerning
this publication should be addressed
to: Joan C. Courtless, Editor, Family
Economics Review, Family Economics
Research Group, USDAIARS, Federal
Building, Room 439A, Hyattsville, MD
20782. Phone (301) 436-8461.
0 N 0 M I C s OCT 21 1993
II II II
1993 Vol. 6 No.1
University of North Carolina
at Greensboro
Feature Articles • 2
9
18
Family Economics Review: 1943-93
Joan C. Courtless
Families With Children: Changes in Economic Status
and Expenditures on Children Over Time
Mark Uno
Changes in the Economic Status of America's Elderly
Population During the Last 50 Years
F. N. Schwenk
Research Summaries
Building • 28
30
32
34
37
Residents of Farms and Rural Areas: 1990
Consumer Spending in the 1980's
Food Spending by Female-Headed Households
Developments in the Pricing of Credit Card Services
Extended Measures of Well-Being
Regular Items • 38 Charts From Federal Data Sources
40 Recent Legislation Affecting Families
41 Data Sources
42 Journal Abstracts and Book Summary
43 Cost of Food at Home
45 Consumer Prices
2
Feature Articles •
Family Economics Review:
1943-93
By Joan C. Courtless
Family Economist
Family Economics Research Group
Family Economics Review originated as a monthly newsletter in 1943.
Called Wartime Family Living, its purpose was to keep USDA's Extension
Service personnel informed about wartime shortages and ·rationing strategies.
When World War II ended, the name changed to Rural Family Living and
the content gradually became more focused on family economics research
results. As the nature of the research changed to accommodate urban families
and the U.S. population became overwhelmingly nonrural, a final name
change occurred in 1957-Family Economics Review came into being.
This paper describes how the publication's content has changed over its
50-year history.
ith this issue, Family
Economics Review (FER)
enters its 51st year of publi­cation.
In the beginning,
FER was a monthly newsletter intended
for distribution to family economics
professionals in the U.S. Department
of Agriculture's (USDA) Cooperative
Extension Service. Its name was
Wartime Family Living and its purpose
was to keep Extension Service personnel
informed about wartime shortages and
rationing strategies. Extension agents
and specialists then incorporated the
information into their programs for rural
families.
The Forties
The Great Depression ended as we
mobilized our economy to win the war.
Later in the decade, inflation was a
major concern.
During World War II, officials in the
Federal Government decided which
commodities were needed by the military
for the war effort. Factories converted
from manufacturing items for civilian
consumption to those that helped win
the war. Shortages were inevitable,
despite efforts by the Federal and State ·
Governments to distribute food, clothing,
fuel, and other necessities as fairly as
possible. Many items were simply not
available "for the duration"-a phrase
oft repeated during the war years.
Many pages of Wartime Family Living
described and explained food distribu­tion
orders, production and manufactur­ing
quotas, and decisions made by the
Office of Price Administration (OPA)
as they changed throughout the war
years (see box, p. 3). The newsletter
· reported decisions affecting rationing
and price controls to prevent inflation
(see box, p. 4) as they occurred. USDA
decided what foods needed to be
rationed and OPA determined how
and when to start. By making such
information widely available through
the Extension network, we were
performing a valuable public service.
Family Economics Review
From 1943 issues of Wartime Family Living.
The kinds of metals and rubber that may be used in making fountain pens,
mechanical pencils, wood-cased pencils, pen nibs, and pen holders have been
limited. Production of these articles has been cut drastically. The use of rubber
cement and adhesives also has been restricted. February.
Glycerine, an important ingredient of explosives, is made from fats-the same
fats that you use in cooking .... Fats that you cannot use for food should be
strained into a clean can and taken to a collection station. The Office of War
Information points out that if every household would tum in half a pound of
waste fat a month, current war needs for glycerine could be supplied. February.
Robes for men and boys have been simplified to conserve materials. Cuffs <l!ld
pockets, with the exception of one pocket, have been discarded for the duration.
Along with this simplification, manufacturers will be limited by standardization
of the length, sweep, and width of hem (1 inch) on the finished garments.
March.
The need for copper in the war effort continues to grow, so the War Production
Board has issued an additional list of articles containing copper in some form
that may not be manufactured for civilian use. It can no longer be used in the
making of electrical wiring devices. Among these are included electric range
and pilot lights, sockets, lamp holders and many types of electric switches. Use
of steel in place of copper in these articles has been approved as safe by the
Underwriters' Laboratories. April.
Good news for coffee drinkers is that 1 pound of coffee for 1 month is the
ration for the current period. Stamp number 24 in War Ration Book One may
be used for a pound of coffee from May 31 through June 30. An improvement
in the green coffee supply made the increased ration available to consumers.
May.
Ready-mixed paints must now be made with ne~ formulas using less linseed
and fish oils. A recent War Production Board order affects flat, gloss, and semi­gloss
paints, interior trim, enamels, varnishes, lacquers, and undercoats. The
changes are expected to save an estimated 40 million pounds of oils. July.
War Food Administration plans for allocation show that civilians will receive
nearly 70 percent of the expected supply of canned vegetables, including soups,
and 53 percent of the canned fruits and juices during the next 12 months. Heavy
home canning production will help supplement these supplies. July.
In order to ensure sufficient supplies of feathers for flying suits and sleeping
bags for the Armed Forces, used and new goose and duck feathers and down
are now reserved solely for military use ... only chicken and turkey feathers may
be used for civilian pillows and upholstery. September.
1993 Vol. 6 No. 1
Early issues of Wartime Family Living
recall many details of those years that
would be difficult to recapture in any
other format. Contents of the newsletters
reflect day-to-day family living and
describe the effect of the war on daily
lives. No subsequent historical event
has created the same intensity of
national purpose-a common goal
shared by all Americans: to win the war.
The tone of Wartime Family Living was
patriotic and upbeat (almost cheerful) to
convey a feeling of "all for one, and one
for all." USDA designed food plans that
achieved good diets while reflecting
expected food supplies. The liberal level
plan was discontinued because it was
not consistent with the war economy:
"Any foods that contribute to the
Nation's total food supply cannot be
wasted." Inflation was a serious threat;
American homemakers took the Home
Front Pledge: "I will pay no more
than top legal prices. I will accept no
rationed goods without giving up ration
stamps." Citizens were urged to help
prevent inflation by buying War Bonds
to draw off surplus purchasing power
and to fund the War effort.
Although most of the information
discussed how to cope during wartime,
other topical issues were:
• Excise taxes and postal rate
increases, as they occurred.
• Effective January 1943, the
Food Distribution Administration
ordered all commercially prepared
white bread to be enriched.
• Income tax withholding began
July 1, 1943.
• New products developed as a
byproduct of the war included
penicillin (not available to civilians
until after the war) and plastic
dishes used aboard U.S. naval
vessels and patrol bombers.
• Farm workers came from the
Bahamas and Mexico.
3
WINTER 1982
4
From the May 10, 1946, issue.
In Aprill943, President Roosevelt's
hold-the-line order went into effect.
How well the order was carried out
is indicated by changes in the
Bureau of Labor Statistics (BLS)
consumer price index.
According to the BLS index, con­sumer
prices in general rose only
3.4 percent in the 3 years following
issuance of the hold-the-line order.
Prices of many individual items in­creased
more than that. The general
level of clothing prices rose 17.2
percent, house furnishings rose 18.6
percent, and there were substantial
increases in many minor items such
as haircuts. These things account for
about one-third of the expenditures
of the average moderate-income
urban family. On the other hand,
food, rent, fuel, ice, electricity, and
certain other items, which make up
the other two-thirds of the average
urban family budget, were held
generally stable. Rents went up only
0.3 percent, and food prices were 2.5
percent lower in 1946 than in 1943.
The actual increase in the cost of
living for large city families was
doubtless somewhat higher than
3.4 percent, since the index does
not measure black-market prices
and hidden price increases resulting
from deterioration in quality that
may necessitate the purchase of
increased quantity.
The official figures may look low
to some people because they do not
measure the increase in spending.
Many families have been buying
more and better food, clothing,
entertainment, and other things.
What looks like higher living costs
actually represents, to some extent,
better living.
Family Economics Review
When World War II ended in August
1945, the publication's name changed
to Rural Family Living. Shortages and
fear of inflation lingered for many
months---even years. Rationing status
of various commodities was announced
as controls were lifted.
There was a housing shortage. Returning
veterans required much more housing
than was available. For 4 years, Americans
had postponed new construction and
made repairs with substitute materials
that were often inferior. President
Truman appointed a housing expeditor.
Congress passed housing bills that
authorized financing and technical
services. USDA was to provide build­ing
plans, specifications, construction
supervision, and inspection for rural
families who desired them. The GI Bill
guaranteed mortgage loans, among
other benefits.
Rural Family Living reported findings
from surveys conducted in the States.
Some surveys addressed civilian
requirements: Which household appli­ances
would you buy if you could
find them? In April 1945, 3.5 million
consumers indicated they would buy a
sewing machine if any were available.
One survey of farm operator families in
1945 reported expenditures for house
furnishings and equipment.
New products were described. National
goals, such as rural electrification, and
new Federal agencies, such as the
National Wage Stabilization Board, that
facilitated the transition into the postwar
era, were announced and the rationale
set forth.
Operational details of the National
School Lunch Program appeared in
1947. USDA would continue to fund
this program to States that provided
matching funds. Pilot programs began
to expand the use of nonfat dry milk
solids in school lunches.
1993 Vol. 6 No. 1
Concern continued over what effect the
removal of price and production controls
would have on prices, quantities, and
quality of consumer goods (see box).
Homemakers could combat high prices
and shortages of good clothing by reusing
materials for other purposes (make­overs).
In 1949, the Consumer Price Index
became a regular feature. Rural Family
Living reported highlights from the 1948
Food Consumption Survey and a research
project on house construction methods
conducted by the Small Homes Coun­cil,
University of Illinois. Consumer stand­ards
established by Federal agencies for
food and textiles and Federal legislation
affecting American families (Housing
Act of 1949 1 and proposed compulsory
medical care insurance) were described.
The Fifties
This was a period of strong economic
growth, relative prosperity, and a
rising level of Living. The use of install­ment
credit increased.
Articles increased in length over the
decade from two to four paragraphs to
three to five pages. Also, the kinds of
information published in Rural Family
Living changed. There was increased
emphasis on home economics research
carried out at USDA, in land-grant
institutions, and in other universities
throughout the country.
The content continued to include all
facets related to "economic facts bearing
on family living." Usually there were
at least one or two articles on food and
nutrition. Other frequent subjects were
the economic and consumer aspects of
clothing and textiles, household opera­tion
and equipment, health, housing,
and family finance. Studies on population,
1The Supplemental Appropriations Act (October
1949) provided funds to USDA to conduct
research and technical studies. Funds assigned to
Agricultural Research Administration were used
to prepare basic plans and specifications for low­cost
farmhouses.
expenditures, consumption, time-use
management, home production of food
and clothing, budgets, and credit were
reported.
Articles on Federal regulations related
to product standards and labeling
appeared quite often. Examples include
consumer food standards, trade practice
rules for automobile installment sales
and financing, fur products labeling,
flammability standards for textiles, and
a standard on body measurements for
sizing of women's patterns and apparel.
USDA had conducted a study that
measured 15,000 women. The National
Bureau of Standards converted the data
into a series of tables suitable for use
by the apparel industry. A 1957 issue
reported these new standards.
Other research analyzed data related to
how long consumers owned appliances.
In 1958, an article reported household
appliance replacement rates.
In 1957, we sought suggestions for a
new name for Rural Family Living to
better express the appropriateness of the
material for urban as well as rural families.
Thus, Family Economics Review (FER)
came into being in June 1957.
From the January 10, 1947, issue.
The American Home Economics
Association recently published a
pamphlet entitled "Family Spending
and Prosperity," which shows how
family spending will affect not only
the welfare of the individual family
but our national economy as well.
Families who rush to buy scarce
goods can bring about a ruinous
inflation, and families who curtail
spending drastically may plunge us
into another depression. Families
who plan spending carefully, how­ever,
can be the pillars that support
a lasting American prosperity.
5
•
6
In 1969, the poverty
line for farm families
rose from 60 percent
to 70 percent of that
for nonfarm families.
The Sixties
The consumer movement grew rapidly
and in 1964, the President appointed a
Special Assistant to the President for
Consumer Affairs. The War on Poverty
along with other programs addressed
the economically disadvantaged.
A series of articles reported findings
from studies that collected information
about the household management prac­tices
of women "who have accepted
work away from home." (During the
fifties, working women were called
"economically active.") The purpose was
to discover what might be the economic
implications of their employment.
Articles concerned with employed
wives included "Estimating net income
of working wives"-work-related
expenses consumed 40 to 50 percent of
wives' earnings; "Paid services used by
employed wives in Georgia and Ohio"­women
most likely to use paid services
and spend the most for these services
were mothers of preschool children; and
"Clothing expenditures of employed
wives"-in groups of families with
husbands at about the same income level,
wives with paying jobs spent about
twice as much as those not employed.
Also, a Cornell University study on
homemakers' time in housework was
partially funded by the Family Economics
Research Group and later reported in
FER.
There was widespread concern about
the possibility of nuclear war and the
possible need for bomb shelters. USDA
and the Office of Civil and Defense
Mobilization prepared a publication list­ing
suggestions for planning a food and
water stockpile, summarized in FER.
Consumer interests were paramount.
Reports on consumer interests in the
White House featured the Consumer
Advisory Council, the Special Assistant
for Consumer Affairs, the President's
Commission on the Status of Women,
and the Committee on Consumer Interests.
FER described the "truth-in-lending"
section of the Consumer Protection Act
and published other articles on credit
and budgeting.
Data from the 1955 Survey of Family
Living Expenditures of Farm-Operator
Families and the 1955 Nationwide
Household Food Consumption Survey
were used to develop a method of
estimating economies of scale. Food
costs per person for each household size
group were calculated with adjustments
made to account for the age/sex com­position
of different household sizes.
Results suggested a 5-percent cost
differential per person for families
from two to six persons.
The "War on Poverty" and the develop­ment
of the poverty guidelines began in
the sixties. In 1969, the poverty line for
farm families rose from 60 percent to
70 percent of that for nonfarm families.
The income for determining the poverty
line for farm families had been set
lower because many farm families had
non money income in the form of food
and housing from their farms in addi­tion
to money income. The 1955 House­hold
Food Consumption Survey showed
·that 40 percent of food consumed by
farm households was home-produced;
the 1960-61 Survey of Consumer
Expenditures showed this proportion
had declined to about 30 percent.
The 1960-61 Survey of Consumer
Expenditures provided data on patterns
of families' incomes and expenditures.
The Bureau of Labor Statistics, U.S.
Department of Labor, collected data
from urban areas, and USDA sampled
about 5,000 rural farm and nonfarm
families. USDA's Agricultural Research
Service (ARS) and Economic Research
Service (ERS) conducted the first
nationwide food consumption survey
of individuals in 1965. We developed
estimates of the cost of raising a child
Family Economics Review
from birth to age 18. Four articles
published in 1966 and 1967 reported
a home freezer management survey of
almost 500 families.
In 1960, we conducted a survey of
FER readers concerning subject-matter
interest. The Outlook for Family Living
and the outlooks for food, housing,
equipment, and clothing2 rated high with
Extension personnel, who accounted for
80 percent of readers. Articles about in­come
and expenditures of families and
individuals; laws related to consumers;
and standards, grades, and labeling
received favorable comments, so these
topics continued throughout the decade.
Extension workers used FER primarily
for their own information and in talks
and lessons; professors also used it for
student reference material. In 1968,
FER commemorated its 25th anniversary
with a new cover design. Contents
included articles comparing families
"then and now" and looking ahead to
a focus on consumer issues.
The Seventies
Social Security payments were linked
to the cost of living, providing elderly
Americans with a better living standard.
In 1973, oil embargoes caused an energy
crisis. Energy prices increased dramati­cally,
and rapid inflation occurred world­wide.
Beginning in 1978, deregulation
affected various industries, including the
airline, banking, and telephone industries.
Americans were showing concern about
the relationship between health and
diet. About 40 percent of the articles
published in FER during the 1970's
were about food and nutrition-food
costs, food preservation, food patterns
of various population groups, nutritive
value of foods, nutrition labeling, food
cost plans, children's diets, or costs
versus convenience comparisons.
2
Selected speeche presented at the Annual
Agricultural Outlook Conference were printed in
Wartime Family Living, Rural Family Living, and
Family Economics Review between 1943 and 1989.
1993 Vol. 6 No. I
Between 1974 and 1979, nine articles
related to energy appeared in FER,
reflecting the 1973 oil embargo that
caused energy prices to escalate dra­matically.
The Consumer Price Index
(CPI) for fuel oil and coal increased by
66 percent between August 1973 and
August 1974; gasoline prices increased
by 40 percent during the year. Energy
conservation and other environmental
issues became very important to most
Americans. The U.S. Department of
Energy was created; the Energy Policy
and Conservation Act of 1975 man­dated
energy-cost labeling of major
consumer appliances.
Although first researched in the mid-
1960' s, the Cost of Raising a Child
evolved into a long-range project. It
became one of the most widely used
products associated with the Family
Economics Research Group. Several
articles appeared in FER during the
1970's on this and related child-care
costs.
One issue of FER was devoted to "The
Economic Role of Women in Family
Life." Among the articles published
were: "Employment and Earnings of
Women," "Time and Its Dollar Value
in Household Work," "Mothers in the
Labor Force,"" Women and Home­ownership,"
and "Women and Credit."
The Supreme Court upheld the right of
mothers with young children to partici­pate
in the labor force. Also, the Federal
Equal Employment Opportunity
Commission issued guidelines for
employees, labor unions, and courts
that stated: to dismiss or to refuse to
hire a woman because of pregnancy
violates Title VII of the amended 1964
Civil Rights Act.
The Consumer Product Safety Act of
1972 empowered the Consumer Product
Safety Commission to develop and
enforce uniform safety standards and to
ban hazardous products. FER published
several articles concerning the flamma­bility
of clothing and house furnishings.
• Americans were
showing concern
about the relationship
between health
and diet. About
40 percent of the
articles published
in FER during the
1970's were about
food and nutrition ...
7
Contents of FER continued to reflect the
variety of research that was supported
or conducted by our research group.
We developed clothing budgets that
incorporated both cost and quantity
from the 1960-61 Survey of Consumer
Expenditures and separate clothing
budgets for farm children and adults,
using data from the 1973 Farm Family
Living Expenditure Survey. Consumer
debt and use of creilit by young husband­wife
farllilies were investigated and
reported. We developed new estimates
of the service life of household appliances
and published them in 1975 and 1978.
When compared with estimates pre­pared
in the 1957-61 period, service­life
remained about the same for most
items acquired new.
The Eighties
Inflation slowed. High interest rates
benefited savers but made buying a
home more difficult. Individual retirement
accounts (IRA's) became available to
all employees in 1982; deductibility
was curtailed in 1986. Homeless families
were a national priority.
Concern regarding high interest rates
and high inflation had carried over from
the late 1970's. FER published several
articles on farllily budgets, trends in
household wealth, income taxes for
two-earner couples, inflation measures,
family financial planning, savings, and
measurements of family income.
The content of FER during the decade
of the 1980's focused less on food and
nutrition, although one in four articles
still concerned this subject. Two USDA
surveys, the 1977-78 Nationwide Food
Consumption Survey and the 1985
Continuing Survey of Food Intakes by
Individuals, provided data for several
articles. Other food-related articles con­cerned
the 1983 Thrifty food plan, food
stamps, national nutrition monitoring,
8
buying at salad bars, food costs for
different household compositions
(elderly members, working women),
diets (American women by income,
school-age children, and teenagers),
and expenditures for food away from
home and for prepared foods.
USDA conducted another survey in
1980: the National Farm Women
Survey. Several articles were written
from this data base and published in FER.
As women entered the labor force in
record numbers, FER addressed concerns
related to household production. A 1982
FER featured household production
articles including: "Household and Farm
Task Participation of Women," "Work­load
of Married Women," "Measuring
Household Production for the GNP,"
"Of Time, Dual Careers, and Household
Productivity," and "New Methods for
Studying Household Production."
Housing and high housing costs were a
focus of the eighties. Articles included
housing alternatives for the elderly, the
housing situation of American children,
along with three articles on mortgages
that reflected the high mortgage interest
rates for the period: "Alternative Mortgage
Instruments," "Creative Residential
Finances," and "Adjustable Rate
Mortgages."
Clothing-related research included
home sewing trends, imported versus
U.S.-made apparel, employed women's
use of time in sewing and wardrobe
maintenance, and annual updates on
current trends in clothing and textiles.
The Nineties
Unemployment, failed businesses, and
other indicators of a recession charac­terized
the economy in the early nineties.
The Resolution Trust Corporation was
established to shut down failed savings
and loans institutions, safeguarding
insured deposits. Recycling became a
reality in most American neighborhoods
and communities.
In the nineties, the focus has been on
the economic well-being of demographic
groups that may be economically
vulnerable. The economic status of
single parents and other families with
children, households with an unem­ployed
adult, and the elderly received
particular attention in the research
reported in FER. Trend articles on
major commodities such as housing,
transportation, food, and education
provided information on the economic
environment in which American families
make decisions.
FER has reported updated child cost
estimates annually for the last three
decades. We calculated new estimates,
using current data and new methodology,
which was described in a 1990 FER.
About half of the States use these
estimates in determining foster care
payments, and many States also use
them in determining child support
guidelines.
Some efforts of the research group have
endured over decades. Others have
addressed the current concerns of the
Nation. Our mission has always been
to provide information that would assist
family economics professionals in serving
families. Also important has been the
goal of providing families with informa­tion
that could help them make sound
economic decisions. FER has been
instrumental in delivering these
messages for the past 50 years.
Family Economics Review
1993 Vol. 6 No. 1
•
Families With Children: Changes in
Economic Status and Expenditures
on Children Over Time
By Mark Lino
Economist
Family Economics Research Group
How the income and expenditures of families with children have changed
over time is of considerable interest to policymakers concerned with the
economic well-being of families. This study examines this issue using published
data from the 1960-61 and 1990 Consumer Expenditure Surveys. It found
that the real income (in 1990 dollars) of married couples with children
increased, whereas that of single-parent families declined. Housing also
grew as a share of total expenditures, and families spent more on their children.
The decline in the real income of single-parent families, a growing segment
of all families with children, signifies that such families continue to be one of
the more economically disadvantaged population groups. The higher expendi­tures
on children need to be recognized by States in setting child support
guidelines and foster care payments.
ince the first publication
in 1943 of what became
Family Economics Review
(FER), U.S. families,
including those with children, have
changed considerably. In the 1940's, the
middle-class prototype was a household
where a father went to work everyday
while the mother stayed home and cared
for the children. Now, most families
with children have two working parents
or a single working parent without a
spouse. Compared to the 1940's, housing
today requires a larger part of the house­hold
budget, and food accounts for a
smaller share. And people are spending
more money on their children as new
products are introduced and new
standards set.
To commemorate the 50-year anniversary
of FER, this study examines changes
over the past decades in the economic
status of American families with
children and expenditures on children.
Studies in FER have historically focused
on income and expenditures using data
from the Consumer Expenditure Surveys
(CE) to portray the economic status of
U.S. households. Changes in economic
status reflect sociodemographic shifts,
technological developments, and differ­ing
tastes and preferences. The Family
Economics Research Group also pub­lishes
annual estimates of parental
expenditures on children. How present
expenditures on children compare with
past expenses provides insight on the
comparative well-being of children in
the United States.
9
Economic Status of
Families Over Time
Published data from the 1960-61 and
1990 CE were used to examine the
income and expenditures of families
over time. The CE contains data on
annual household expenditures, income,
and major socioeconomic characteristics.
Between 1900 and 1980, the CE was
conducted about once every decade;
after 1980, the CE was conducted
annually. The 1990 CE was the latest
CE available at the time this report was
written, and the 1960-61 CE was the
earliest with comparable published data
on families with children; published
CE data before 1960-61 did not contain
detailed information on families with
children.
The 1960-61 CE had information from
about 13,700 families1 and was collected
at one point in time. The 1990 CE had
data from a rotating sample where
families provided information on a
3-month recall basis. About 20,000
quarterly interviews were conducted and
annualized. All published data were
weighted to reflect the U.S. noninstitu­tionalized
population for the periods
of interest. For this study, income and
expenditures for I 960-61 were converted
to 1990 dollars using the Consumer
Price Index for all Urban Consumers.
Four groups of families with children
were studied: Married couples with the
oldest child under age 6, married couples
with the oldest child age 6 to 17, married
couples with the oldest child over age
17, and single-parent families with at
least one child under age 18.
'Technically, the CE has data on consumer units
rather than families. A consumer unit consists of
either: (I) all members of a particular household
who are related by blood, marriage, adoption, or
other legal arrangements; (2) two or more people
living together who pool their income to make
joint expenditures; or (3) a person living alone or
sharing a household with others, but who is finan­cially
independent. As this study focuses on two­and
one-parent households with own children
only, (no other people such as grandparents in the
home), a consumer unit is equivalent to a family .
10
Figure 1. Composition of U.S. households, 1960 and 1990
45%
5%
1960 1990
o Married couples with children under age 18
• Married couples without children under age 18
• Other families with children under age 18
• Other families without children under age 18
E1 Individuals living alone .
0 Other households
Source: Saluter, A. F., 1989, Changes in American Family Life, Current Population Reports,
Special Studies, Series P-23, No. 163, U.S. Department of Commerce, Bureau of the Census; and
U.S. Department of Commerce, Bureau of the Census, 1990, Household and Family Characteristics:
March 1990 and 1989, Current Population Reports, Population Characteristics, Series P-20,
No. 447.
These four groups of families were
composed of parents living with own
children only. Families living with other
relatives, such as grandparents, or with
unrelated persons were not included.
Such living arrangements are more
common among single-parent families
as they typically have less financial
ability to live alone. In I 990, an esti­mated
21 percent of single parents
resided in a home belonging to someone
else (12).
It should be noted that although this study
examines the income and expenditures
of families with children from I 960-6 I
to 1990, trends in income and expendi­tures
differed in each decade during this
period. This was especially so for the
1980's. For an examination of income
and expenditures of families with
children during the I 980's, see Lino (5).
Families with children have changed
as a percentage of the total population
from 1960 to 1990. Over time, married
couples with at least one child under
age 18 in the home have accounted for a
declining share of all U.S. households
(figure 1). In 1960, married couples
with children under age 18 made up
45 percent of all households, whereas
in 1990 they accounted for 26 percent.
Other families with children under age
18 in the home, which includes single­parent
families, made up 8 percent of all
households in 1990 compared with
4 percent in 1960. Most single-parent
families in 1990 were headed by females.
A study by the Census Bureau found
that in 1988 nearly 9 in l 0 one-parent
families were headed by a female (7).
Family Economics Review
Table 1. Income and total expenditures of families with children over time (in 1990 dollars) and expenditure
shares
Husband-wife families with oldest child Single-parent families
Under age 6 Between ages 6 and 17 Over age 17
1960-61 1990 1960-61 1990 1960-61 1990 1960-61 1990
Before-tax income $27,000 $40,700 $32,400 $44,600 $42,300 $50,000 $20,300 $17,400
Total expenditures 25,800 35,000 29,900 38,800 36,300 42,800 19,700 19,200
Component (share
--Of total expense)
Housing 30 36 25 31 22 26 28 36
Food 22 14 24 17 22 17 24 19
Transportation 15 18 13 18 15 21 12 14
Clothing 8 5 10 6 11 6 11 8
Health care 6 4 6 4 5 5 5 3
Pensions and 5 11 6 10 6 10 4 6
insurance
Entertainment 4 5 4 6 4 5 3 5
Other 10 7 12 8 15 10 13 9
Family size 3.6 3.4 4.7 4.2 4.3 3.9 3.0 2.9
Average age of head 29 31 40 39 52 52 49 35
Source: Calculated from U.S. Department of Labor, Bureau of Labor Statistics, /991, Consumer expenditures in 1990, News, USDL No. 91-607; and U.S.
Department of Labor, Bureau of Labor Statistics, 1966, Consumer Expenditures and Income: Cross-Classification of Family Characteristics, Supplement 2 to
BLS Report 237-93 (USDA Report CES 30). Dollars for 196~1 inflated using the Consumer Price Index for All Urban Consumers.
Income and Total Expenditures
Average real before-tax income (in 1990
dollars) of each of the three groups of
married couples with children increased
from 1960-61 to 1990 (table 1). The
increase was 51 percent for husband­wife
families with the oldest child
under age 6, 38 percent for families
with the oldest child between ages 6
and 17, and 19 percent for families with
the oldest child over age 17. Per capita
real income increases for each of the
three groups were higher because each
experienced a decline in average family
size. Over the 30-year period, the U_S.
birth rate fell from 23.7 (rate per 1,000
population) in 1960 to 16.7 in 1990
(14).
1993 Vol. 6 No.1
Although some of the increase in real
family income was due to wage and
salary gains, a study of family incomes
from 1970 to 1986 by the Congressional
Budget Office concluded that the rise in
the number of workers per family was
the principal reason for increases in real
income (9). For married-couple families
with children, the additional earners
were wives. In 1960, 19 percent of
married women with at least one child
under age 6 and 39 percent of women
with all children between the ages 6
and 17 were in the labor force. By
1989, these figures were 58 percent and
73 percent (13). Because many women
worked part time, their labor force
participation did not increase family
income by as much as if they had
worked full time.
Unlike married couples, single-parent
families experienced a 14-percent de­cline
in their real income from 1960-61
to 1990. Although their per capita in­come
also dropped, the decline was
moderated somewhat by a slight de­crease
in family size. The decline in real
income coincided with an increase in
the labor force participation of divorced
women with children. In 1970 (figures
were not available for 1960), 63 percent
of divorced and 45 percent of separated
women with children under age 6 were
in the labor force, compared with 71
percent and 57 percent in 1989 (13).
11
•
12
... single-parent
families experienced
a 14-percent decline
in their real income
from 1960-61 to 1990.
So, what accounts for the decline in the
real income of single-parent families?
The answer most likely is related to
changes in how single-parent families
are created. Single-parenthood is the
result of divorce or separation, widow­hood,
or out-of-wedlock birth. Although
the majority of single-parent situations
still result from divorce or separation,
the second most frequent reason for
single-parenthood has shifted from
widowhood to out-of-wedlock births .
In 1960, 27 percent of children in one­parent
families were with a widowed
parent and 4 percent were with a never­married
parent. By 1988, 6 percent of
children in one-parent situations were
with a widowed parent and 31 percent
were with a never-married parent (7)_2
This is reflected in the average age of
single parents in 1960-61 compared to
1990, 49 versus 35. Never-married
single parents have a much lower
income than other single parents because
they are younger, have a lower level
of education and job experience, and
receive less child support (6), lowering
the real income of single parents, as a
group, over the years.
Real total expenditures (in 1990 dollars)
of the three groups of married-couple
families also increased from 1960-61
to 1990: 36 percent for husband-wife
families with the oldest child under age
6, 30 percent for husband-wife families
with the oldest child between ages 6
and 17, and 18 percent for husband­wife
families with the oldest child over
age 17. The percentage increase in real
total expenditures for married-couple
families was less than the percentage
rise in their real before-tax income.
2Some of this reported increase in out-of-wedlock
births may have resulted from improved measure­ment
and data collection. For a more detailed
discussion, see Saluter, A.F., 1989, Singleness in
America, Current Population Reports, Special
Studies, Series P-23, No. 162, U.S. Department
of Commerce, Bureau of the Census.
Real total expenditures of single-parent
families fell 3 percent from 1960-61 to
1990. So single-parent families' total
expenditures exceeded their income in
1990 ($19,200 versus $17,400). Others,
such as extended family or friends, may
cover some expenses of single-parent
families. Some single parents, however,
go into debt to meet their expenses. A
Federal Reserve study found 27 percent
of indebted households headed by a di­vorced
or separated person experienced
payment difficulties in 1989-90 -(pay­ment
difficulties were defined as having
missed or been late in debt payments in
the preceding year) (2). This was one of
the highest payment difficulty rates
among various family types.
Expenditure Shares
Housing generally accounted for the
largest budgetary component for the
four family groups in both 1960-61
and 1990. The only exception was for
married couples with the oldest child
over age 17 in 1960-61; in this case,
food accounted for the same proportion
of total expenses as housing. Housing
also increased as a share of total ex­penses
from 1960-61 to 1990 for the
four family groups. This increase can
be traced to the rise in home ownership
among families with children (housing
costs are typically greater for homeowners
with a mortgage than for renters), and
related to this, an upgrade in the stock
of housing being built.
Home ownership grew for all three
groups of married couples with children.
This increase was greatest for husband­wife
families with the oldest child
under age 6 where home ownership
went from 32 percent in 1960-61 to 60
percent in 1990 (figure 2). Home owner­ship
rose from 66 percent to 78 percent
for husband-wife families with the oldest
child age 6 to 17 and from 75 percent
to 85 percent for husband-wife families
with the oldest child over age 17 during
the period.
Family Economics Review
Figure 2. Home ownership of families with children, by family type, 196()-61 and 1990
60%
32%
196G-61 1990
Husband-wife
oldest child
under age 6
196G-61 1990
Husband-wife
oldest child
age 6-17
85%
196G-61 1990
Husband-wife
oldest child
over age 17
40%
196G-61 1990
Single-parent
families
Source: Calculated from U.S. Department of Labor, Bureau of Labor Statistics, 1991, Consumer expenditures in 1990, News, USDL No. 91-607;
and U.S. Department of Labor, Bureau of Labor Statistics, 1966, Consumer Expenditures and Income: Cross-Classification of Family
Characteristics, Supplement 2 to BLS Report 237-93 (USDA Report CES 30).
In addition, an upgrade in housing stock
caused home prices to rise. The median
size of a house built in 1970 was 1,385
square feet compared with 1,905 in 1990.
Forty-eight percent of new homes built
in 1970 had two or more bathrooms,
compared to 87 percent in 1990 (13).
Although the share of total expenses
allocated by single-parent families to
housing increased from 28 percent in
1960-61 to 36 percent in 1990, home
ownership among these families
declined over this period. In 1960-61,
40 percent of single-parent families
owned their own home compared with
35 percent in 1990. The rise in prices
of new homes and the decline in real
income of single-parent families meant
fewer could afford to buy a home. A
Census study found that in 1988, 97
percent of female householders with
children under age 18 who were renters
could not afford to purchase a median­priced
home in the region where they
lived (3).
1993 Vol. 6 No.1
In 1960-61, food (including food at home,
food away from home, and alcohol
expenses) accounted for the second
largest share of total expenses for all
four family groups, consuming 22 to 24
percent of expenditures. By 1990, food
had declined to third place among total
expenses for married couples with
children, accounting for 14 to 17 percent
of their budget. Food also declined as a
budgetary share for single-parent families
(from 24 percent to 19 percent); however,
it remained their second largest budget­ary
component in 1990. Although food
declined as a share of the budget for
the four family groups, per capita food
expenses in real terms were nearly
constant or had decreased slightly for
married-couple family groups over the
period. For single-parent families, real
per capita food expenses declined from
about $1,576 in 1960-61 to $1,258 in
1990.
The composition of food expenditures
also changed from 1960-61 to 1990 for
the four family groups (figure 3, p. 14).
As more family members worked and
time became more scarce, there was a
shift from food at home to food away
from home. The shift was greatest
among husband-wife families with the
oldest child between ages 6 and 17, for
whom food away from home increased
from 16 percent to 39 percent of total
food expenditures. The change was
smallest for single-parent families, from
19 percent to 31 percent of total food
expenditures. The increase in food
away from home as a proportion of the
food budget does not fully indicate the
rise in the number of meals eaten out­side
the home because of the spread of
fast food establishments, with relatively
low-cost meals, during the past decades
(4).
13
Figure 3. Shares of food expenditures allocated for food at home, food away from home,
and alcohol, by family type, 196Q-61 and 1990
Percent
100
80
60
40
20
0
1960-61 1990
Husband-wife
oldest child
under age 6
1960-61 1990 1 1990
Husband-wife Husband-wife
oldest child oldest child
age 6-17 over age 17
1 960-61 1 990
Single-parent
families
100
80
60
40
20
0
• Food at home • Food away from home 0 Alcohol
Source: Calculated from U.S. Department of Labor, Bureau of Labor Statistics, 1991, Consumer expenditures in 1989, News, USDL No. 91-607;
and U.S. Department of Labor, Bureau of Labor Statistics, 1966, Consumer Expenditures and Income: Cross-Classification of Family
Characteristics, Supplement 2 to BLS Report 237-93 (USDA Report CES 30).
Transportation moved from being the
third largest expenditure in 1960-61 for
married-couple families, accounting for
13 to 15 percent of total expenses, to the
second largest in 1990, consuming 18 to
21 percent. For single-parent families,
transportation increased from 12 percent
to 14 percent of their budget over this
time and was the third largest expenditure
in each period.
The growth in transportation expenses
for married-couple families reflects a
trend toward multi-vehicle ownership.
The average number of vehicles (which
includes vans, boats, and motorcycles)
owned by married couples with the
oldest child over age 17 was 3.5 in 1990
(1 5), or almost one vehicle per family
member. The average number of vehicles
owned by single-parent families in 1990
was 1.0. The increase in transportation
expenses among single-parent families
over the period reflects higher vehicle
ownership in 1990--50 percent did not
own a car in 1960-61 (16). The 1960-61
14
CE only reported the percentage owning
vehicles; the 1990 CE only reported the
average number of vehicles owned.
Clothing declined as a proportion of
total expenditures for the four groups
of families from 1960-61 to 1990. This
is also true for households overall (4).
Clothing expenditures also declined in
real per capita dollars over this time.
Although the price of clothing has risen
over the years, families with children
are spending less. Such families have to
meet other expenses, which are deemed
more essential, such as housing. Also,
they likely purchase more clothing on
sale and styles of clothing that are less
expensive.
Health care expenditures, which include
only out-of-pocket costs, also fell as a
share of total expenses for the four family
groups from 1960-61 to 1990. In real
per capita dollars, health care expenses
remained nearly constant for both
married couples with the oldest child
under age 6 and between age 6 and 17,
increased for couples with the oldest
child over age 17, and declined for
single-parent families. This may seem
contrary to commonly held perceptions
about escalating medical care costs in
past years. Much of this cost, however,
has been absorbed by employer­provided
health insurance. Worker
benefits have been a growing part of
total employee compensation, account­ing
for 17 percent of compensation
costs in 1966 and 27 percent in 1989
(17). However, an estimated 37 million
people in 1990 did not have health
insurance coverage (4). Many of these
people likely forgo health care because
of the cost.
Pension and insurance expenditures,
which include Social Security taxes
(such taxes are considered an expense
in the CE), retirement and pension
contributions, and life and personal
insurance expenses, rose as a proportion
of total expenses for each of the four
Family Economics Review
family groups from 1960-61 to 1990.
Increases in Social Security taxes over
the period contributed to much of the
rise. From 1970 to 1986, Social Security
tax rates increased by nearly 50 percent,
and the maximum amount of earnings
subject to the tax roughly doubled in
real terms (9).
Entertainment expenditures also in­creased
as a percentage of total expenses
for the four family groups over the
period. The wider availability of goods
and services and the introduction of
new products in this category, such as
color televisions and videocassette
recorders, likely account for some of
the increase. Other expenses (personal
care, cash contributions, and education)
fell as a proportion of total expenses
and in real terms for all four family
groups over the decades.
Expenditures on Children
In addition to examining the economic
status of households, since 1961 , the
Family Economics Research Group has
produced annual estimates of parental
expenses on children ages 0 to 17 since
1961. When first distributed, these
estimates were intended primarily for
educational programs to inform prospec­tive
parents on the expenses involved
in rearing children. Over the years, the
estimates have gained wider use. As the
number of divorced families increased,
the child-rearing expense estimates
have been used to determine child
support awards. The estimates have also
been used to set foster care payments
for the growing number of children
residing in foster care homes. A study
by the American Public Welfare Asso­ciation
found that in 1989, 24 States
reported using the Family Economics
Research Group's estimates of the cost
of rearing a child in calculating foster
care reimbursement rates (1).
1993 Vol. 6 No.1
The 1961 estimates of child-rearing costs
produced by the Family Economics
Research Group were based on the 1961
portion of the 1960-61 CE (11). Only
husband-wife families were included in
the analysis. Estimates were provided
for urban and rural areas of the United
States by age category of children ages
0 to 17. For each area, estimates were
calculated for families whose food
expenses corresponded to the economy-,
low-, moderate-, and liberal-price-level
food plans issued by the U.S. Department
of Agriculture; these food plans acted as
proxies for household income level.
The 1991 estimates of parental expendi­tures
on children, the most recent esti­mates
available, are based on the 1987
CE, updated to the latest year using
the Consumer Price Index for all Urban
Consumers (10). These most recent
expenditure estimates are provided for
two- and one-parent families by age
category of children ages 0 to L 7. The
estimates are calculated by family income
Level for the overall United States, urban
areas by region, and overall rural areas.
Changes in Overall and
Specific Expenditures on
Children
Because the 1961 estimates of the cost
of raising a child were based on the
U.S. Department of Agriculture's food
plans and not income levels directly,
only a general comparison between
these estimates and the 1991 estimates
is possible (table 2). The lower-third
income group (before-tax income under
$31 ,200) of the 1991 estimates roughly
corresponds to some point between the
economy- and low-price food plans of
the 1961 estimates. The middle-third
income group (income between $31,200
and $50,400) in the 1991 estimates falls
between the low- and moderate-price
food plans, and the 1991 higher-third
income group (income over $50,400)
is between the moderate- and liberal­price
food plans. Although the original
estimates did not contain figures for
the overall United States, child-rearing
expense estimates for the urban Midwest
approximated an average of all regions
so may be used as a proxy for overall
U.S. figures.
Table 2. Expenditures on a child by husband-wife families (in 1991
dollars)
196 L Estimates
Economy Price Level
$2,910- $4,080
Low Price Level
$4,040 - $5,760
Moderate Price Level
$5,420 - $8,040
Liberal Price Level
$7,040-$10,460
1991 Estimates
Before-tax income below $31,200
$4,520- $5,700
Before-tax income $31,200 - $50,400
$6,400-$7,780
Before-tax income about $50,400
$9,160- $10,690
Note: Estimates represent expenses on a single child age 0 to 17 in a two-child family. Dollars for
1961 inflated using the Consumer Price Index for All Urban Consumers.
Source: Estimates were calculated from U.S. Department of Agriculture, Agricultural Research Service,
Family Economics Research Group, 1992, Expenditures on a Child by Families: 1991; U.S. Department
of Agriculture, Agricultural Research Service, Family Economics Research Group, 1961, Annual Cost of
Raising a Child.
15
Figure 4. Expenditure shares on a child by husband-wife families, Discussion
1961 and 1991 estimates by Family Economics Research Group
13%
18%
11%
Low to Moderate Price Level Middle Third
D Housing
• Food
• Transportation • Health care
• Clothing D Other
Note: Estimates represent expenses on a single child age 0 to 17 in a two-child family.
Source: Calculated from U.S. Department of Agriculture, Agricultural Research Service, Family
Economics Research Group, 1992, Expenditures on a Child by Families: 1992; U.S. Department of
Agriculture, Agricultural Research Service, Family Economics Research Group, 1961, Annual
Cost of Raising a Child.
In constant 1991 dollars, the range of
expenditures spent on children by
married couples at all income levels was
narrower and higher at the bottom range
in 1991 than 1960-61 (table 2). The
figures represent annual expenses on a
single child age 0 to 17 in a two-child
family. Based on the 1961 estimates,
families at the economy- and low-price
levels spent between $2,910 and $5,760
(in 1991 dollars) on a child yearly,
depending on the age of the child. Based
on the 1991 estimates, families in the
bottom third income group spent be­tween
$4,520 and $5,700 annually on
a child.
The generally higher real expenditures
on a child in 1991 likely represent pur­chases
of different goods and services.
For families in the middle group, a
higher proportion of total expenditures
16
on a child went to housing in I 991 than
in 1961 (33 percent compared with 29
percent) and other expenses (I 8 percent
in 1991 compared with 13 percent in
1961) (figure 4). Homes are larger and
children may not share rooms with their
siblings as much as they used to. In
addition, items that did not exist in
1961, such as video games and home
computers, are now common among
children. In 1991, a lower proportion
of total expenses on a child went to food
( 18 percent compared with 26 percent in
196 I) and clothing (8 percent compared
with 1 I percent in 1961 ). There was
little difference in the shares allocated
to transportation and health care for a
child in the two periods. The trends in
child-rearing expenditure shares in the
middle-income group held for the other
two income groups.
In studying the changes in economic
status of families with children from
1960-61 to 1990, can we conclude that
these families were better-off in 1990
than in 1960-61? The answer to this
question depends on how "better-off' is
defined. Typically, it has been defined
as an increase in real income. Using this
measure, it can be said that married­couple
families with children were
better-off in 1990 than in 1960-61. But
because this higher real income was
achieved mainly through greater partici­pation
in the labor force by wives, with
both direct and indirect costs, the answer
is not clear-cut.
Another interesting question is whether
the growth in real income contributed to
or resulted from the rise in real expendi­tures.
Did families work more and then
decide to spend more or did the cost of
living force them to work more to meet
expenses? The answer probably lies
somewhere in between. Home owner­ship
has been a goal for most families.
Many families may have increased their
work effort so they would be able to
afford a home. Others have had to work
more to keep up with their housing
expenses.
Although married couples with children
achieved some increase in their economic
status, as measured by a growth in real
income and rise in home ownership, the
same cannot be said of single-parent
families. Such families experienced a
decline in real income and home owner­ship
from 1960-61 to 1990. During this
time, single-parent families accounted
for an increasing proportion of all families
with children. The economic status of
more and more families with children,
therefore, appears to be worsening.
Family Economics Review
Children are also costing more to rear.
Parents generally spent more real dollars
on their children in 1991 than in 1960-
61. These higher expenses need to be
recognized by States in setting child
support guidelines and foster care pay­ments.
Child support awards that reflect
the cost of rearing a child would inhibit
the trend of many female-headed house­holds
with children falling into poverty
after marital dissolution. It would also
reduce the burden on the U.S. public
welfare system, which has typically
substituted welfare payments for child
support awards that are either too small
or nonexistent.
1993 Vol. 6 No. 1
References
1. American Public Welfare Association. 1990. Foster care rates. W-Memo 2(4): 6-8.
2. Canner, G.B. and Luckett, C.A. 1991. Payment of household debts. Federal Reserve
Bulletin 77(4):218-229.
3. Fronczek, P.J and Savage, H.A. 1991. Who Can Afford to Buy a House? Current
Housing Reports, H 121191-1. U.S. Department of Commerce, Bureau of the Census.
4. Jacobs, E. and Shipp, S. 1990. How family spending has changed in the U.S. Monthly
Labor Review 113(3):20-27.
5. Lino, M. 1991. Changes in income and expenditures for families with children in the
1980s. In: J.W. Bauer, editor. Family Economic Well-Being in the Next Century:
Challenges, Changes, Continuity, pp. 159-166. Proceedings of the Family Economics­Home
Management Section of the American Home Economics Association Conference.
[Minneapolis, MN, June 1991].
6. Lino, M. 1989. Financial status of single-parent households headed by a never­married,
divorced/separated or widowed parent. In: R. Walker, editor. Families in
Transition: Structural Changes and Effects on Family Life, pp. 151-160. Proceedings
of the 1989 Pre-Conference Workshop, Family Economics-Home Management Section,
American Home Economics Association. [June 1989, Cincinnati, OH].
7. Saluter, A.F. 1989. Changes in American Family Life. Current Population Reports,
Special Studies. Series P-23, No. 163. U.S. Department of Commerce, Bureau of the Census.
8. Saluter, A.F. 1989. Singleness in America. Current Population Reports, Special Studies.
Series P-23, No. 162. U.S. Department of Commerce, Bureau of the Census.
9. U.S. Congress, Congressional Budget Office. 1988. Trends in Family Income: I970-1986.
10. U.S. Department of Agriculture, Agricultural Research Service, Family Economics
Research Group. 1992. Expenditures on a Child by Families: 1991.
11. U.S. Department of Agriculture, Agricultural Research Service, Family Economics
Research Group. 1961. Annual Cost of Raising a Child.
12. U.S. Department of Commerce, Bureau of the Census. 1992. Household and Family
Characteristics: March 1990 and 1989. Current Population Reports, Population Charac­teristics.
Series P-20, No. 447.
13. U.S. Department of Commerce, Bureau of the Census. 1991. Statistical Abstract of
the United States: 1991. [lllth ed.]
14. U.S. Department of Health and Human Services, National Center for Health Statistics.
1991. Annual summary of births, marriages, divorces, and deaths: United States, 1990.
Monthly Vital Statistics Report 39(13).
15. U.S. Department of Labor, Bureau of Labor Statistics. 1991. Consumer Expenditures
in 1990. News. USDL No. 91-607.
16. U.S. Department of Labor, Bureau of Labor Statistics. 1966. Consumer Expenditures
and Income: Cross-Classification of Family Characteristics. Supplement 2 to BLS
Report 237-93 (USDA Report CES 30).
17. Wiatrowski, W.J. 1991. Family-related benefits in the workplace. Monthly Labor
Review 113(3):28-33.
17
•
Tracing the economic status of
the elderly over the last 50 years
provides evidence of phenomenal
change. Family Economics Review
reported many of these changes
including this statement from the
September 1959 issue: "Older
citizens today are probably living
better than those of 10 years ago,
if the increased number receiving
regular incomes and the higher
level of their incomes are
indications. Much of the added
income is from social insurance
and related Government programs,
including Old Age, Survivors, and
Disability Insurance (OASDI);
railroad retirement; Government
employees' retirement; and veterans'
compensation and pensions. Two
out of 3 persons 65 years of age
and over received some income
from these sources in June 1958.
Ten years earlier only 1 out of
every 5 persons received these
benefits."
18
Changes in the Economic Status
of America's Elderly Population
During the Last 50 Years
By F.N. Schwenk
Research Leader
Family Economics Research Group
The economic well-being of elderly people has long been a concern of our
Nation. This paper reviews the changes in economic status of elders over
the past 50 years. There have been increases in both income and wealth
and a decline in poverty rates, partly as a result of public policy and
programs, including Social Security and Medicare. Demographic changes,
technology, economic conditions, and consumer preferences have also
affected expenditure patterns of elders. Data on allocation of expenditures
from consumer expenditure surveys dating back to 1950 are presented.
Elders have allocated a decreasing share of their expenditures to food and
apparel over the past five decades. Shares for housing, transportation, and
health expenditures have increased. Review of the changes in economic
status of the elderly over the past 50 years helps policymakers and educators
in assessing the current status and setting a course for the future.
[]
n the last 50 years, America
has experienced a large
increase in the number of
persons 65 years or older.
Fifty years ago, there were 9 million
elders who accounted for 7 percent of
all Americans. Today, there are 32
million people 65 years or older, and
they constitute 13 percent of the total
population (1 ,6,23).
As Soldo and Agree report, "there is no
historical precedent for the aging of our
population. We are in the midst of a
new social phenomenom ... we cannot
foresee all the repercussions, implica­tions,
or social changes stemming from
the presence of so many older persons."
(18). By examining the development of
this phenomenon over recent decades,
we may better understand our current
and future situations.
The economic status of elders is par­tially
the result of the environment in
which their decisions were made. Fifty
years ago, today's elders were as young
as age 15. Our Nation was in the midst
of World War II. Many of the young
men were away at war; many of the
women were in the labor force to keep
the factories running and the country's
economy producing. Those events, and
the ones that followed as the war ended
and men returned to work or to attend
college, influenced the economic status
of today' s elders. Many of them remem­ber
vividly the Great Depression of the
1930's and still retain financial beliefs
and practices developed in those years.
But, it is necessary to go much farther
back in history to identify the events
that shaped the lives of people who
were elderly 50 years ago. Those who
were age 65 years or older in 1943 had
been born by 1878. They grew up in
an agrarian economic environment that,
during their lifetimes, became increas­ingly
urbanized and industrialized.
Family Economics Review
Thus, the levels of living achieved by
the elderly 50 years ago or the elderly
of today are the product of many factors,
some generational in nature and some
individual and personal, reflecting choices
about education, savings, health practices,
and many other matters. Among the
shared factors oftoday's elders were
changes in life expectancy, living
arrangements, and income. All of these
affected their expenditures and level of
living.
Demographic Factors
Life Expectancy Increased
Life expectancy has greatly increased
since the tum of the century. Increased
longevity during the first half of the
century was primarily achieved through
the control of infectious diseases, which
particularly affected children. During
the last 50 years, gains in longevity
have been made among the middle-age
and elderly populations (1).
Table 1 shows the changes in life expec­tancies
over the years and the differences
between men and women. In 1900, the
life expectancy at birth was 47 years;
today, it is 75 years. Life expectancy
for a 65-year-old person in 1900 was
12 additional years; today, it is 17 years.
The life expectancies of 65-year-old
men and women were similar in 1900,
but today, women this age live almost
4 years longer than men. As a result,
the ratio of male to female elders has
declined sharply in the last 50 years as
shown in figure 1, p. 20.
Proportion of Populations Who
Are Elderly Increased
Because people are living longer, the
proportion of the total population that is
65 years or older has increased from 6.8
percent in 1940 to 12.6 percent in 1990
(figure 2, p. 20). The group of people
85 years or older has increased most
rapidly. There are now over 3 million in
this group, 9 times as many as in 1940
(1).
1993 Vol. 6 No. 1
Table 1. Life expectancy at birth and age 65
All races
Year Both sexes Men Women
At birth
19001
•
2
1940
19502
19602
1970
1980
1990
At age 65
1900-19021
•
2
1940
19502
19602
1970
1980
1990
I
47.3
62.9
68.2
69.7
70.9
73.7
75.4
11.9
12.8
13.9
14.3
15.2
16.4
17.3
2
Ten States and the District of Columbia.
Includes deaths of nonresidents of the United States.
46.3 48.3
60.8 65.2
65.6 71.1
66.6 73.1
67.1 74.8
70.0 77.4
72.0 78.8
11 .5 12.2
12.1 13.6
12.8 15.0
12.8 15.8
13.1 17.0
14.1 18.3
15.3 19.0
Sources: U.S. Department of Health and Human Services, (29. 30); Grove. R.D. and Hetzel, A.M.,
/968. Vital Statistics Rates in the United States. 1940-/960, U. S. Department of Health, Education, and
Welfare (5); U.S.Department of Commerce, Bureau of the Census (24).
More Elders Live Alone
Since 1965, the earliest year reported,
the percentages of men and women
living alone have both increased
(figure 3, p. 21). The percentages living
with others (relative or nonrelative, but
not spouse) have decreased. This may
reflect the increased economic inde­pendence
of elders. They can afford to
live alone so do not live with their
children. Because women outlive men,
most older men (74 percent) live with
spouses, whereas only 40 percent of
older women live with husbands. Forty­two
percent of women live alone, com­pared
with 16 percent of men (16,22).
Economic Status
Poverty Has Decreased
Because people are living longer,
resources must stretch over longer
periods. Thus, poverty rates might be
expected to be higher than formerly.
Yet, poverty has decreased among older
Americans. Using the poverty measure
developed in the 1960's, the poverty
rate for people 65 years or older dropped
from 29 percent in 1966 to 15 percent
in 197 4 and 12 percent in 1991 (figure
4, p. 21). This improvement in the eco­nomic
status of older people during the
1960's and 1970's may be attributed to
increased employer-sponsored pension
benefits and Social Security benefits.
19
Figure 1. Ratio of males to females, 65 years or older, 194Q-89
96
90
83
72
68 69
1940 1950 1960 1970 1980 1989
Source: U.S. Department of Commerce, Bureau of the Census, 1991, Statistical Abstract of the
United States, 1991, [111th ed.] (22).
Figure 2. Percentage of population 65 years or older, 194Q-90
14
12
10
8
6
4
2
0
1940 1950 1960 1970 1980 1990
• 65-74 Ill 75-84 0 85+
Source: U.S. Department of Commerce, Bureau of the Census, 1991, Statistical Abstract of the
United States, 1991, [111th ed.] (22).
20
For example, cost-of-living increases
from 1968 to 1971 raised Social Security
benefits by 43 percent (1).
Median Income Increased
Median income (in 1990 dollars) of
elderly families in 1945 was $10,565;
in 1990, it was $25,049.1 Between 1965
and 1990, median income increased by
74 percent, compared with a 20-percent
increase in median income of none1derly
families over the same period (figure 5,
p. 22) (1,25-28). While the income of
nonelderly families leveled off, the
income of elders continued to increase
because Social Security benefits were
indexed to the Consumer Price Index
beginning in 1972 (37).
Median income of the elderly, relative
to the none1derly, is shown in figure 6,
p. 22. In 1950, the median income of
elderly family units was 54 percent
that of nonelderly families. This ratio
dropped to 46 percent in 1970 and then
increased to 67 percent in 1990. The
increase in income relative to the
income of the nonelderly is attributable
to increased Social Security benefits (17).
Sources of income have shifted over
the years. Earnings accounted for 29
percent of the income of the elderly in
1967. By 1986, that had dropped to 17
percent, reflecting earlier retirement.
Income from financial assets increased
from 15 percent to 26 percent during
that same period. Social Security rose
from 34 percent to 38 percent, and
pensions were stable at about 16 percent
during this time (8).
1Household income was considerably less than
family income because households include one­person
units.
Family Economics Review
Other Aspects of Improvement
in Economic Status
The above discussion on income refers
to a simple measure-before-tax income,
adjusted by the Consumer Price Index.
Patterns of after-tax income over the
years could be different since tax rates
changed from time to time.
Also, the adequacy of income is related
to family size, and the family size of
elderly households decreased over time.
When income was acjjusted for house­hold
size (income per person), the
increase in income of elders was even
greater. From 1967 to 1984, average
real family income of the elderly grew
by 42 percent. When adjusted for family
size, the growth was 55 percent (8).
Nonmoney income sources, especially
housing programs and Medicare, have
increased the economic well-being of
elders during the last few decades. One
estimate suggests that the effect of ad­justments
for in-kind transfers, implicit
income from housing, and lower tax
rates increased the income of elderly
by about 12 percent (8).
Also, assets are important indications
of economic status. In 1950, 59 percent
of older people reported owning their
own home. In 1990, 76 percent were
homeowners (31,36). Farm and business
property and financial assets (stocks,
bonds, savings accounts, etc.) have
contributed to wealth in differing pro­portions.
The value of elders' holdings
of private pensions has increased as
more elders are covered by pension
plans. There has also been a steady
increase in public funds, primarily
Social Security and Medicare that may
be considered assets for the elderly.
Trends in wealth over time are difficult
to determine because researchers have
used different definitions of assets and
different sample designs and questions.
Levy and Michel report on three studies
1993 Vol. 6 No.1
Figure 3. Living arrangements of persons 65 years or older,
by sex: 1965-90
1965
70.6 With spouse present 35.8 ~
Living alone
13.6 30.0 ~ Female
Other
15.8 34.2 --
1990
With spouse present 74.3
39.7 ~
Living alone 15.7 42.0 ~
Other
10.0
18.3 ~
Sources: Saluter, A. F., 1991, Marital Status and Living Arrangements: March 1990, Current
Population Reports, Population Characteristics, Series P-20, No. 450, U.S. Department of
Commerce, Bureau of the Census (16); and U.S. Department of Commerce, Bureau of the Census,
1991, Statistical Abstract of the United States, 1991, [111th ed.] (22).
Figure 4. Poverty rates of elderly and nonelderly adults, 1966-91
% below poverty level
35
30
25
20
15
10
5
0 ~~~~~----------~~------~~------~~------~ 1966 71 76 81 86 91
Source: U.S. Department of Commerce, Bureau of the Census, 1992, Poverty in the United
States: 1991, Current Population Reports, Consumer Income, Series P-60, No. 181 (21).
21
Figure 5. Median income of elderly and nonelderly families in
1990 dollars, 1945-90
$thousand
40 Head 25-64 years
30
20
10
0 1~9~45=--=5o~~5~5~~670--~6~5~~7~0---7~5~~a~o---=s5=-~9=o
Sources: Aging America: Trends and Projections, 1991 Edition, Prepared by the U.S. Senate
Special Committee on Aging, the American Association of Retired Persons, the Federal Council
on Aging, and the U.S. Administration on Aging (1); and U.S. Department of Commerce,
Bureau of the Census (24-28).
Figure 6. Median income of elderly families as a percentage of
median income of nonelderly families, 1950-90
67
54 55
49
46
1950 1960 1970 1980 1990
Sources: Aging America: Trends and Projections, 1991 Edition, Prepared by the U.S. Senate
Special Committee on Aging, the American Association of Retired Persons, the Federal Council
on Aging, and the U.S. Administration on Aging (1 ); and U.S. Department of Commerce,
Bureau of the Census (25,27).
22
that used, in general, the same compo­nents
of gross wealth and debt (includ­ing
home equity and other financial
holdings and obligations, but excluding
Social Security and defined-benefit
pension wealth) (13). The earliest of the
three studies was by Katona (JJ) who
reported a change in net wealth of
families headed by a person 65 years
or older of 1-percent decrease for the
period 1953-62. Greenwood and Wolff
( 4) reported a 24-percent increase for
1962-73, and a 1-percent decrease for
1973-83. Weicher and Wachter (39)
calculated a 35-percent increase for
1977-83.2 Lewin and Sullivan observe
that the largest increases in older
Americans' wealth came from their
financial assets, but home equity
remains the principal form of wealth
for the majority (14).
Expenditures
Expenditure Surveys
Income and assets are useful measures
of economic well-being, but final
consumption is usually of more interest
(17). Consumption patterns have
changed over the years. Expenditure
surveys conducted by the Bureau of
Labor Statistics that date back to the
late 19th century (1 0) (and include
surveys in 1901, 1917-19, 1935-36,
1950, 1960-61, 1972-73, and continu­ously
since 1980) demonstrate these
changes (9,12,31-36).
The 1935-36 Consumer Purchases Study
was not a national survey. It was based
on "families in small cities, villages,
and on farms in the Middle Atlantic
and North Central regions of the United
States." It excluded "foreign-born,
Negroes, families on relief, and those
with broken marital ties" (3). The 1950
survey (36) was the first national survey,
but it was limited to urban families.
2-rhese findings suggest that the period 1977-83
differed from that of 1973-77 or that comparisons
of net wealth over time are difficult.
Family Economics Review
Table 2. Budget shares for urban consumer units age 65 or older, 1950-90
Expenditure
Mean total expenditures (current$)
Mean total expenditures (1990 $)
Food
Housing
Shelter
Utilities
Furnishings, operations
Transportation
Apparel
Health care
Entertainment and reading
Miscellaneous 1
1950
$ 2,690
14,649
30
12
6
10
10
8
6
4
14
1960
$ 3,653
16,130
23
15
6
9
10
7
9
3
18
1972-73
$ 5,671
17,197
~
21
17
8
5
14
6
8
3
18
1980-81
$10,754
16,221
21
16
10
6
16
4
10
4
13
1990
$17,341
17,341
19
19
10
5
16
4
12
5
10
1Miscellaneous includes alcohol, personal insurance, gifts, contributions.
The 1960-61 and 1972-73 (33) surveys
included rural households. Published
tables of the 1980-81 survey did not
include the rural sample (32). Thus, to
provide consistent comparisons across
surveys, this report includes only urban
families and begins with the 1950
survey.3
Table 2 shows average expenditures for
urban consumer units4 with a head 65
years or older for five surveys during
the last five decades. Total expenditures
are shown in current dollars and in 1990
dollars as adjusted using the Consumer
30ver the years, there were changes in the age
categories used for elders. Some surveys reported
expenditures for consumer units headed by a
person 65 years or older; others reported sepa­rately
for ages 65-74 and 75 or more years. To
provide consistency, the mean expenditures of
the two age categories (65-74; 75+ years) were
weighted by population proportion, and the mean
expenditures for units with heads 65 years or older
:;vere calculated.
A consumer unit consists of either: (I) all members
of a particular household who are related by blood,
marriage, adoption, or other legal arrangements;
(2) two or more people living together who pool
their income to make joint expenditures; or (3) a
person living alone or sharing a household with
others, but who is financially independent.
1993 Vol. 6 No.1
Price Index. The budget shares for
categories5 were calculated using
current dollars.
Expenditure Trends
In 1990 dollars, mean total expenditures
by urban elders increased from $14,649
in 1950 to $17,341 in 1990. The per
capita increase was greater because the
average family size in 1950 was two
persons; in 1990, it was 1.7 persons
(31,36).
Budget shares changed considerably
from 1950 to 1990 (figure 7, p. 24).
The percentage of expenditures allocated
to food dropped sharply in the 1950's,
from 30 percent in 1950 to 23 percent
in 1960. Food share declined further
5Expenditure categories were defined differently
from survey to survey before 1980. So that
expenditures could be compared over the years,
categories have been adjusted, whenever possible,
to match 1980 data. For instance, the 1950 and
1960-61 surveys-unlike later surveys-reported
gifts and personal insurance separately from total
expenditures. Table 2 shows total expenditures
for 1950 and 1960-61 that have gifts and personal
insurance added in. Data for 1972-73 have been
taken from published tables prepared by BLS
using 1980 definitions (32).
to 19 percent in 1990. Apparel also
declined. In 1950, clothing accounted
for 8 percent of expenses, compared
with 4 percent in 1990.
Increasing shares of the budget have
been allocated to housing, transporta­tion,
and health expenditures. Housing
expenditures consist of shelter, utilities,
and other costs such as home furnishings
and operations. Shelter (interest on
mortgage, rent, property tax, and insur­ance)
increased from 12 percent to 19
percent; utilities grew from 6 percent
to l 0 percent. Transportation expenses
were 10 percent of the budget in 1950;
by 1990, they had increased to 16 per­cent.
The portion spent on health care
doubled from 6 percent to 12 percent
during the same period.
With the exception of health expenditures,
these trends are similar to those of the
nonelderly population during these
years. (See Jacobs and Shipp (9,10,20)
for expenditure patterns of the U.S.
population.)
23
Figure 7. Budget shares for urban consumer units age 65 or older, 195G-90
1950
28%
8%
0 Food
• Housing
• Transportation
1972-73
• Apparel
Health care
D Miscellaneous
1990
Sources: U.S. Department of Labor, Bureau of Labor Statistics (31,32,36).
The share spent for food steadily
declined for elderly and nonelderly
Americans reflecting lower food costs,
higher incomes, and smaller households.
Other data support this finding and also
show that Americans spend a smaller
share on food than other nations (19).
The percentage of expenditures allo­cated
by all Americans for shelter and
utilities in 1990 was nearly double that
in 1950 (10). Shelter and utility costs
increased because home ownership
increased, the size of homes increased,
and new features such as air condition­ing
that were not as available in 1950
have become commonplace in 1990.
Elder's housing share increased consid­erably
but not quite as much. Perhaps
the budget share of elders has been
moderated by housing programs for the
elderly. Since 1959 (see box), Section
202 of the Housing Act has provided
24
rental housing units for 6 of every 1 ,000
elderly persons. (For descriptions of
housing programs and energy assistance
programs for the elderly, see Senate
Hearings (37).)
Transportation costs increased for eld­ers
partly because the average number
of owned vehicles increased. In 1960,
less than half of urban elders owned an
automobile. In 1990, 77 percent had at
least one vehicle; 35 percent had two or
more (31 ,34).
Health care expenditures, as a percentage
of the elderly's total expenditures,
doubled despite Medicare and Medicaid
programs begun in 1965. (For descrip­tion
of health care programs for the
elderly, see Senate report (37).) Not only
has the cost of health care increased, the
quality of health care reflects techno­logical
advances. Also, people are living
longer so may require more health care.
Thus, there have been major shifts in
the way elders allocate their dollars.
Housing makes up 34 percent of total
expenditures now, compared to 28
percent in 1950, making it the largest
expense. Currently, housing is followed
by food, transportation, and health care.
In 1950, food represented the largest
share and clothing was a greater share
than health care. Factors contributing to
these variations were demographic
changes such as declining family size,
technological advancements in such
areas as food production and distribution
and medical care, public policies and
programs such as Medicare, economic
conditions such as the housing market,
and consumer preferences of elders
such as vehicle ownership.
Family Economics Review
Major Historical Developments of Aging Policy
1935 Social Security Act
1950 Amendments to assist States with health care costs
1959 Section 202 Direct Loan Program of the Housing Act
1960 Extension of Social Security benefits
Advisory Commissions on Aging
1961 Senate Special Committee on Aging
First White House Conference on Aging
1965 Medicare and Medicaid
Older Americans Act
Establishment of Administration on Aging
1971 Second White House Conference on Aging
1972, 1977 Social Security Amendments
1974 Supplemental Security Income
Title :XX
House Select Committee on Aging
Change in mandatory retirement age
Establishment of the National Institute on Aging
1980 Federal measures to control health care expenditures
1981
1986
1987
1989-90
Third White House Conference on Aging
Elimination of mandatory retirement
Nursing Home Reform Act
Medicare Catastrophic Health Care Legislation passed, then repealed
Source: Hooyman, N.R. and Kiyak, H.A. 1991. Social Gerontology: A Multidisciplinary Perspective
(2nd ed.). Allyn and Bacon, Boston (7).
Summary
Over the past 50 years, major changes
in life expectancy, age and gender
composition of the elderly population,
living arrangements, proportion living
in poverty, home and vehicle ownership,
and expenditure patterns have affected
the economic well-being of elders. The
expansion and indexing of Social Security,
and the introduction of Medicare and
Medicaid, as well as other policies (see
box) and programs (38), have substan­tially
increased the economic security
of elders.
1993 Vol. 6 No.1
•
Although elders as a group have made
gains in economic status, there are indi­vidual
elders who are not economically
secure. Crystal and Shea (2) state that
their analysis "indicates that resources
among the elderly are distributed even
more unequally than among the rest of
the population." Moon states that "As
a society, we have made great strides in
improving the economic status of many
of our older citizens ... but progress does
not come evenly. Aging differently
affects the economic status of older
Americans." Unmarried women,
minorities, and the oldest-old are
identified as most vulnerable (15).
Thus, looking back 50 years provides a
panorama of many change in the eco­nomic
status of elders, most of which
were positive. Looking ahead 50 years
presents the challenge of addressing the
economic needs of older adults who do
not share in the economic security
experienced by most elders. AI o in
the future are challenges associated
with the major increases in the elderly
population as the baby boomer become
elders. In 2040, the projected number of
people in the United States 65 or older
is 68 million, 23 percent of the popula­tion
(1). Their economic status will be
determined by a wide range of factors,
including the economic decisions they
are making during these earlier years,
as well as environmental, economic,
political, social, and technological
events ahead.
25
26
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Money Income in the United States: 1945. Current Population Reports, Consumer
Income. Series P-60, No. 2.
29. U.S. Department of Health and Human Services. 1991. 1990 Data: National Center
for Health Statistics, Health, United States, 1991.
30. U.S. Department of Health and Human Services. 1989. 1900 to 1980 Data: National
Center for Health Statistics, Health, United States, 1988. DHHS No. (PHS)89-1232.
31. U.S. Department of Labor, Bureau of Labor Statistics. Consumer Expenditure
Surveys: 1990 Interview Survey Public Use Tapes and Documentation.
32. U.S. Department of Labor, Bureau of Labor Stati tics. 1985. Consumer Expenditure
Survey: Interview Survey, 1980-81. Bulletin 2225.
33. U.S. Department of Labor, Bureau of Labor Statistics. 1978. Consumer Expenditure
Survey: Integrated Diary and Interview Survey Data, 1972-73. Bulletin 1992.
34. U.S. Department of Labor, Bureau of Labor Statistics. 1964. Survey of Consumer
Expenditures: 1960-61. BLS Report No. 237-38.
35. U.S. Depa1tment of Labor, Bureau of Labor Statistics. 1959. How American Buying
Habits Change.
36. U.S. Department of Labor, Bureau of Labor Statistics. 1957. Study of Consumer
Expenditures, income and Savings. Statistical Tables, Urban U.S. - 1950. Volume
XVIII. University of Pennsylvania.
37. U.S. Senate, 102d Cong., 2d sess., Special Committee on Aging. 1992. Developments in
Aging: 1991. Vol. 1, Report 102-261.
38. U.S. Senate, I 02d Cong., 2d sess., Special Committee on Aging. 1992. Developments in
Aging: 1991. Vol. 2, Appendixes. Report 102-261.
39. Weicher, J.C. and Wachter, S.B. 1986. The distribution of wealth among families:
Increasing inequality? Paper presented at the American Enterprise Institute Seminar on
the Family and American Welfare Policy, Washington, D.C., November 10.
1993 Vol. 6 No. 1 27
28
Research Summaries •
Residents of
Farms and Rural
Areas: 1990
Data from the 1990 Current Population
Survey (CPS) were used to present a
statistical portrait of U.S. farm resident
and rural area populations. Included are
the size, historical change, geographic
setting, and economic and social charac­teristics
of individuals and households
living on farms and in rural areas.
The farm-resident population consists of
people who reside on farms; 1 residents
of rural areas include those who live
outside urban settlements, including
wilderness areas, sparsely settled areas,
farmland, and small places with fewer
than 2,500 residents.
The nonfarm-resident population includes
(I) people living in rural areas but not
on a farm (rural nonfarm population)
and (2) people living in urban areas
(urban population).
Population Size
The 4.6 million people residing on farms
in 1990 accounted for almost 2 percent
of the Nation's total population. During
the 1980's, the farm-resident population
declined by 24 percent--comparable to
the 25-percent decline during the 1970's.
In 1990, almost 67 million people lived
in rural areas, 27 percent of the U.S.
population. Farm residents accounted
for about 7 percent of the Nation's rural
area residents (see table).
In contrast to the decline in the farm­resident
population during the decade,
the overall number of people residing
1 A farm is a place that sold agricultural
products valued at $1,000 or more during the
year preceding the survey. Farms in this study
are restricted to those located in rural areas.
in rural areas increased by 13 percent
since 1980, while the urban population
rose by 7 percent. This increase reflects,
in part, the suburban expansion of urban
settlement into territory that was rural
in 1980. Nevertheless, farm residents
continue to live outside metropolitan
settlements. In 1990, a total of 74 per­cent
of the country's farm residents and
54 percent of all rural residents lived in
nonmetropolitan areas.
Region
The farm-resident population was more
concentrated in the Midwest than was
the general population in 1990. One­half
of U.S. farm residents (2.3 million)
lived in the Midwest but made up
only 4 percent of that region's total
population. Almost 30 percent of farm
residents lived in the South (1.4 million).
Only 40 years ago, the proportions of
the Nation's farm residents living in the
South and the Midwest were inter­changed.
At that time, the South was
home to 52 percent of all farm residents
and the Midwest was home to 32 per­cent.
This reversal can be attributed to
the exceptionally large decline in the
number of southern farm residents.
Labor Force Participation
Farm residents were somewhat more
likely to be in the labor force than their
nonfarm counterparts. They were also
less likely to be unemployed than people
who lived elsewhere because the CPS
defines farm employment as either
working on own farm or on a farm
operated by a family member, including
working without pay if for 15 hours or
more.
The number of people employed in
farming reached a peak of 11.5 million
in 1910. This number has now declined
to an estimated 3.3 million or 3 percent
of the Nation's workers. Contrary to the
generally held image that associates
farm work directly with farm residence,
Family Economics Review
Total, farm resident, and rural area populations, 1 1986-90
Farm resident Rural area
Year Total Total Percent Total Percent
1990 246,081 4,591 1.9 66,964 27.2
1989 243,518 4,801 2.0 66,211 27.2
1988 240,887 4,951 2.1 64,798 26.9
1987 238,540 4,986 2.1 63,889 26.8
1986 236,333 5,226 2.2 63,133 26.7
1Numbers in thousands.
Source: DahrMnn, D.C. and Dacquel, L.T., 1992, Residents of Farms and Rural Areas: /990, Current Population Reports, Population Characteristics, Series
P-20, No. 457, U.S. Department of Agriculture, Economic Research Service, and U.S. Department of Commerce, Bureau of the Census.
only 34 percent of all people who
engaged in farming as an occupation
lived on farms in 1990. Not only do
most people with farm occupations not
live on farms, but most employed farm
residents (55 percent) work primarily
in nonfarm occupations.
Most people working in farm-related
occupations work in agricultural indus­tries,
which include both farming and
a variety of farm-related activities.2
Nationally, 3 percent of the population
were employed solely or principally in
agricultural industries in 1990.
Farm-resident workers were more likely
to be self-employed than workers living
elsewhere. Among employed farm
residents in 1990, a total of 38 percent
were self-employed, 4 percent were -
unpaid family workers, and 58 percent
were wage and salary workers.
2
People are considered to be engaged in
agricultural industries if they are farm operators,
managers, or laborers, employed in nonagricul­tural
occupations like truck driver and mechanic
when such work is actually located ori a farm,
or engaged in activities that are not strictly farm
operations-such as tree service, kennels, green­houses,
and veterinary and breeding services­but
are classified as agricultural industries.
1993 Vol. 6 No.1
Income
The median income of farm-resident
households ($28,824) did not differ sig­nificantly
from that of nonfarm-resident
households ($28,908) in 1989. This
median income represents a significant
gain for farm-resident households rela­tive
to nonfarm households since 1987.
Poverty rates in 1989 for farm ( 11
percent) and nonfarm (13 percent) resi­dents
were not significantly different.
Similarly, farm-residentfamilies were
in poverty no more often than their
nonfa:-m counterparts.
Demographic Characteristics
Farm residents tend to be older than
other Americans, and male farm residents
outnumber females. In 1990, the farm­resident
population was overwhelmingly
white (98 percent, compared with 84
percent of nonfarm residents).
The 1.6 million households that lived
on farms in March 1990 accounted for
almost 2 percent of the Nation's house­holds.
As recently as 1940, at least 20
percent of all households resided on farms.
Farm-resident families represented
more than 2 percent of all American
families. The proportion of husband-wife
families was far larger among farm
families (92 percent) than among non­farm
families (79 percent). The average
size of farm and nonfarm families in
1990 was similar (3.09 vs. 3.17 persons
per family), although historically,
families residing on farms have been
larger. About 60 percent of farm families
had no own children under 18 years old
living at home, compared with 51 per­cent
of nonfarm families.
People 15 years old and over who
reside on farms were much more likely
to be married, with their spouse present
in the same household (70 percent),
than those not living on farms (55 per­cent).
As a result, farm residents were
less likely to be never married, married
but without their spouse being present,
widowed, or divorced. The fertility of
women of child-bearing age ( 15-44
years old) was higher among those
residing on farms than among those
not living on farms, especially among
35- to 44-year-old women-2,478
children born per 1,000 fann women
versus 1,964 children per I ,000 non­farm
women.
Source: Dahmann, D.C. and Dacquel, L.T.,
1992, Residents of Farms and Rural Areas: 1990,
Current Population Reports, Population Charac­teristics,
Series P-20, No. 457, U.S. Department of
Agriculture, Economic Research Service and U.S.
Department of Commerce, Bureau of the Census.
29
•
Consumer
Spending in
the 1980's
The 1980's have been described as a
decade of "economic confidence and
robust consumer spending." Spending
during the period was clearly affected
by women's increased labor force
participation and baby boomers'
entrance into their peak earning years.
Timesaving and entertainment-related
goods and services became extremely
popular. This article examines the
spending pattern of U.S. consumers
on selected durables and services from
1980 through 1990. Data are from the
Interview component of the Consumer
Expenditure Survey, an ongoing survey
conducted for the Bureau of Labor
Statistics by the Bureau of the Census.
In terms of expenditures, the product
life cycle for durable goods follows
a pattern that depends on price and
demand. Average expenditures are low
and prices are high when a product is
first introduced. As the price of the
product declines, purchases increase
for a time and finally peak. Thereafter,
a period of level demand reflects re­placement
purchases and those made
by newly formed households. Data
indicate that electronic goods such as
sound components and component
systems, videocassette recorders (VCR's)
and video disc players, and microwave
ovens followed the expected pattern for
expenditures and percent of households
reporting a purchase (see table).
The average annual expenditure for
sound components and component
systems and the percentage of house­holds
reporting the purchase of such
systems peaked in 1985. The compact
disc player was first introduced in 1983.
Demand expanded considerably in
1985, as the price declined.
30
The introduction of the videocassette
recorder allowed television viewers the
convenience of taping programs for
later viewing. The annual expenditure
for VCR's and video disc players
peaked in 1985. The percentage of
households reporting purchases of these
items increased through 1987. In turn,
a new market for the sale and rental of
tapes and discs developed, particularly
among husband-wife families with
children.
The introduction of video games and
VCR's boosted sales of television sets
in the eighties. New features, such as
the wireless remote control and new
screen sizes and shapes, also helped
increase sales of TV sets. Although
prices of televisions, as measured by
the Consumer Price Index, declined
29 percent from 1980 to 1990, the
average expenditure on televisions
rose 23 percent.
In 1983, the average annual expenditure
for telephones and accessories, excluding
telephone services, increased because
of the deregulation of the telephone
industry in late 1982. Average annual
expenditures for telephone-answering
devices, and the percentage of households
purchasing them, have also been
increasing since 1982. New features
and use of telephone lines by home
computer modems are other reasons for
the rise in demand for telephones in the
late 1980's.
When personal computers were first
introduced to U.S. consumers in 1975,
they were bought by households mostly
for their game-playing and graphics
capabilities. Since 1986, expenditures
have increased steadily because manu­facturers
have focused on the more
mature computer market and introduced
models for more practical applications.
Many schools require computer classes
for graduation, and many parents are
buying personal computers for their
educational value.
The microwave oven reduced the
cooking time of many foods, which is
helpful to households that view time as
a limited commodity. Average annual
expenditure on these ovens peaked in
1984; the percentage of consumer units
reporting microwave oven expenditures
started to decline in 1986.
U.S. consumers allocated a larger share
of their spending dollars to services in
the 1980's. The increased availability
of cable television gave consumers the
opportunity to receive as many as 78
channels. From 1984 to 1990, average
annual expenditures for cable TV and
community antenna rose 95 percent,
and the percentage of households
purchasing them increased from 35
percent to 51 percent.
As the number of mothers working
outside the home increased, the need
for child-care services also increased.
These services may occur in the child's
home or in a day-care center. Among
husband-wife families with an oldest
child under 6 years, the percentage who
reported day-care expenses rose from
21 percent to 33 percent in the past
decade.
Also related to the increased numbers
of employed women is the percentage
of consumer units reporting expendi­tures
for meals away from home and for
housekeeping services. The percentage
of households that purchased meals in
restaurants increased from 74 percent
in 1980 to 79 percent in 1990. The
average expenditure and the percentage
of households reporting expenditures
for housekeeping services also increased
during the decade. A 42-percent rise in
the prices of housekeeping services
contributed to the increase in consumer
spending.
Source: Gray, M.B., 1992, Consumer spending
on durables and services in the 1980's, Monthly
Labor Review 115(5): 18-26.
Family Economics Review
Average annual expenditures1 and percentage of consumer units2 reporting expenditures for selected durable
items and services, Consumer Expenditure Survey, Interview Survey, selected years, 1980-90
Item 1980 1982 1984 1986 1988 1990
Durable goods
Sound components and component systems
Expenditures $25 $21 $20 $29 $28 $30
Percentage reporting 7.2 5.7 5.4 7.2 6.4 7.2
Videocassette recorders and video
disc players
Expenditures 6 22 42 50 47 44
Percentage reporting .7 2.4 7.1 11.5 9.8 8.8
Televisions
Expenditures 60 66 69 72 68 74
Percentage reporting 17.1 16.9 16.9 18.6 16.4 15.4
Telephones and accessories
Expenditures NA 4 9 8 11 14
Percentage reporting NA 17.4 14.8 15.0 18.1 19.6
Telephone-answering devices
Expenditures NA 1 2 4 4 5
Percentage reporting NA .6 1.6 3.3 4.5 5.8
Computers and computer hardware
Expenditures NA 9 26 36 43 46
Percentage reporting NA .8 3.7 4.9 4.2 4.4
Microwave ovens
Expenditures 14 20 24 20 14 9
Percentage reporting 2.9 4.4 6.6 8.0 6.7 4.4
Services
Rental of videocassettes, tapes, and discs
Expenditures NA .2 3 12 23 25
Percentage reporting NA .1 1.8 9.1 17.7 18.9
Community antenna and cable TV
Expenditures 29 59 84 107 137 164
Percentage reporting 9.2 29.6 34.6 41.7 47.4 51.0
Day care
Expenditures 30 38 55 71 87 106
Percentage reporting 3.4 3.7 4.3 4.9 5.1 5.3
Baby-sitting
Expenditures 44 53 62 76 72 88
Percentage reporting 6.8 7.4 7.3 6.8 5.9 6.5
Meals at restaurants, carryouts, and
other establishments
Expenditures 503 595 642 687 742 757
Percentage reporting 74.4 76.7 77.3 78.9 79.3 78.6
Housekeeping services
Expenditures 46 45 62 60 77 75
Percentage reporting 5.1 5.2 6.2 6.1 6.4 6.6
NA = Not available.
~Average annual expenditure calculated for all consumer units inlcuding those who reponed zero expenditures for the item.
-oata for urban consumer units only.
Source: Gray, M.B. , 1992, Consumer spending on durables and services in the 1980's, Monthly LL1bor Review 1 15(5): 18-26.
1993 Vol. 6 No. J 31
•
Food Spending by
Female-Headed
Households
Review of Previous Research
Previous research indicates that female­headed
households have lower food
expenditures than married-couple
households. Female-headed households
constitute a growing proportion of the
total U.S. population, particularly of the
population receiving food assistance.
Female-headed households made up
3.4 million or 12 percent of all family
groups with children under age 18 in
1970. By 1988, the number had grown
to 8.1 million or 24 percent. Other facts
about female-headed households of
concern to policymakers are:
32
• Nearly 50 percent of all households
in poverty in 1986 were female­headed
households.
• An estimated 60 percent of all
children born today will spend
some of their childhood in a single­parent
household, most likely a
female-headed household.
• Whereas Blacks represented 15
percent of all family groups with
children in 1988, they accounted
for 35 percent of all female-headed
households. In 1988, single women
headed 56 percent of all Black
family groups with children under
age 18, 18 percent of White family
groups, and 29 percent among
Hispanics.
• About 50 percent of all households
receiving food stamps in 1988 were
headed by women, and about 33
percent of participants in the
Women, Infants, and Children
Program (WIC) lived in households
with no adult male present.
So Federal food program administrators
and policymakers need to understand
the patterns and determinants of food
expenditures of female-headed house­holds.
Large increases in numbers of never­married
and divorced mothers between
1970 and 1988 caused much of the rise
in the number of female-headed house­holds.
In 1970, 7 percent of all female­headed
family groups were headed by
never-married women; 32 percent were
headed by divorced women. In 1988,
never-married mothers made up 33
percent of all family groups headed by
single women, and divorced mothers
accounted for 38 percent. Women with
an absent spouse and widows made up
the rest.
Women who are heads of households
tend to be younger and less educated
than women in two-parent households.
The age at which a woman becomes a
single parent, her educational level, and
the way in which she becomes a single
parent greatly affect the stability of her
living arrangements and the economic
welfare of her household.
The incidence of poverty among female­headed
households is greater than that
among other types of households, with
about one-third of female-headed house­holds
being poor. The share of families
in poverty headed by women increased
from 23 percent in 1959 to 51 percent
in 1986. Whereas studies suggest that
poverty is rarely a permanent state for
a family, the persistently poor tend to
be concentrated in two overlapping
groups: Blacks and female-headed
households.
In 1988, 88 percent of children living in
two-parent households had at least one
working parent, compared with 52 per­cent
of children in female-headed house­holds.
Only 42 percent of children in
female-headed households had a parent
who worked full time. Among children
in female-headed households, the
proportions of children with a working
mother were: White, 59 percent; Black,
42 percent; and Hispanic, 38 percent.
A 1989 study, using data from the
Bureau of Labor Statistics' Continuing
Consumer Expenditure Survey for
1984-86, found that two-parent house­holds
had more than twice the income
of single-parent households, and that
sources of income differed between the
two types of households. Ninety-four
percent of married parents reported
income from wages and salaries, com­pared
with 71 percent of single parents.
Income from other sources, such as
public assistance, alimony, child
support, or food stamps, was reported
by 24 percent of married parents and
66 percent of single parents. Little is
known about the effects of different
sources of income on food spending
and marginal propensities to spend for
food.
Study Results
This study compared food expenditures
in female-headed (n=204) and two­parent
(n=936) households. The data
were derived from the diary portion of
the Bureau of Labor Statistics' 1988
Continuing Consumer Expenditure
Survey. Total food expenditures were
broken down into food at home and
food away from home. Expenditures
for food at home were categorized into
14 groups: Bakery and cereal products,
beef, beverages, dairy products, eggs,
fats and oils, fish and seafood, fruits,
other meats, miscellaneous prepared
food, pork, poultry, sugars and sweets,
and vegetables. Nine percent of the
sample households (36 percent of the
female-headed households and 3 per­cent
of the two-parent households)
participated in the Food Stamp Program,
and the value of food stamps was
included in the income variable.
In this sample, female-headed house­holds
had a household size of 3.03
members, a monthly income of $1,405,
Family Economics Review
Average monthly per capita expenditures for food and proportion of
households reporting expenditures
Food expenditures Proportion purchasing
Female- Female-
Item headed Two-parent headed Two-parent
households households households households
Dollars Percent
Monthly per capita
expenditures for food 89.37 105.31 100.0 100.0
Bakery and cereal products 8.72 10.08 96.1 98.4
Beef 5.34 5.83 65.2 79.1
Beverages 5.52 6.46 83.8 92.7
Dairy products 8.12 9.07 95.1 97.3
Eggs .79 .79 60.3 71.7
Fats and oils 1.44 1.68 55.9 74.6
Fish and seafood 1.47 1.81 39.2 51.3
Food away from home 29.95 38.03 82.4 94.2
Fruits 5.36 6.13 80.4 91.3
Miscellaneous prepared 7.68 9.43 84.3 92.6
foods
Other meats 2.12 2.65 63.7 75.5
Pork 3.30 3.14 57.4 67.0
Poultry 2.30 2.61 49.5 62.4
Sugars and sweets 2.39 2.70 68.6 81.7
Vegetables 4.87 4.89 79.9 92.5
Source: Frazao, E., 1992, Food Spending by Fenwle-Headed Households, Economic Research Service,
U.S. Departme/11 of Agriculture, Technical Bulletin No. 1806.
and a monthly food expenditure of
$253. Per capita monthly food spending
was $89.40 for total food-34 percent
was spent for food away from home.
Of these households, 25 percent were
Black, 79 percent had completed high
school, 10 percent had completed
college, and 74 percent were employed.
The two-parent households in this study
had a household size of 4.05 members,
a monthly income of $3,415, and a
monthly food expenditure of $412.
Per capita monthly food spending was
$105.30 for total food-36 percent was
spent for food away from home. Of the
1993 Vol. 6 No.1
female heads in two-parent households,
7 percent were Black, 88 percent had
completed high school, 21 percent had
completed college, and 76 percent were
employed.
Several household sociodemographic
characteristics were found to influence
household food expenditures, including
the size and age composition of the
household, time available for food
shopping, the household's racial/ethnic
background, the region of the country
in which the household was located,
and season of the year.
For all households in this study, per
person monthly food expenditures were
highest in the summer, in the Northeast,
among non-Blacks, and among nonpoor
households. Food expenditures were
lowest in the fall and in the Midwest.
Black households spent less than 70
percent of what non-Black households
spent for food, and poor households
(defined as having income less than the
1988 Federal Poverty Income Guide­lines)
spent about 56 percent of what
nonpoor households spent for food.
The relative importance of the 15 food
categories was similar for female­headed
and two-parent households.
Food away from home represented the
largest food expenditure item for both
types of households, followed by bakery
and cereal products, miscellaneous
prepared products, and dairy products.
But purchasing patterns differed some­what
between the two types of house­holds.
Although nearly all households
purchased bakery and cereal products
and dairy products, a smaller proportion
of female-headed households purchased
the 13 remaining food categories com­pared
with two-parent households (see
table).
Full-time employment did not signifi­cantly
influence total food expenditures.
Households in which the female head
works full time tend to spend more for
food away from home and less for food
at home.
After controlling for factors such as dif­ferences
in income, household size and
composition, race, location, season, and
age of household head, the study found
that female-headed households spend
about $6 less for food per person than
two-parent households spend. The dif­ference
is reflected almost entirely in
lower expenditures for food at home.
There was little difference between the
two household types in expenditures for
food a•.vay from home.
33
On average, for every $10 increase in
per-person monthly income, food expendi­tures
would be expected to increase by
$0.27. Eleven cents of that increase
would be allocated to food at home
and the rest to food away from home.
Female-headed households responded
the same as two-parent households
about how they allocate increases in
income to food expenditures.
Per-person income, participation in the
Food Stamp Program, race, age, and
education of the female head, time con­straints
of the female head, household
size and composition, region, and time
of year were found to be important
determinants for at least some of a
household's decisions to purchase a
particular food category. Per-person
income, for example, significantly
affected the purchase decision for dairy
products, fish and seafood, food away
from home, fruits, miscellaneous pre­pared
foods, and poultry, but had no
significant effect on the decision to
purchase bakery products and cereals,
beef, beverages, eggs, fats and oils,
other meats, pork, sugars and sweets, or
vegetables. Female-headed households
were less likely to purchase fats and
oils, fruits, and other meats, and to
spend less for other meats, compared
with similar two-parent households.
The results of this study suggest further
research to:
• Determine the marginal propensity
to spend for food out of cash income
and out of food stamps.
• Analyze the relationship between
food expenditures, food quality,
and food consumption.
•Investigate how differences in food
expenditures translate into actual
intake of food and nutrients for
female-headed and two-parent
households.
Source: Frazao, E., 1992, Food Spending by
Female-Headed Households, Economic Research
Service, U.S. Department of Agriculture, Technical
Bulletin No. 1806.
34
•
Developments
in the Pricing
of Credit Card
Services
Compared with most other types of
credit, interest rates on credit card ac­counts
are typically higher and fluctuate
within a narrower range. Surveys done
by the Federal Reserve since 1972 show
that the average interest rate on credit
card receivables has remained between
17 and 19 percent, whereas rates on
most other types of loans (such as auto
and home mortgage) have fluctuated
over a range of 8 percentage points or
more. One reason that credit card rates
have not varied greatly over time is that
few cardholders are thought likely to
switch cards to save on interest payments.
So issuers have little economic incentive
to reduce rates.
In November 1991, Congress made an
unsuccessful attempt to set a national
ceiling on credit card rates. Since then,
competition among credit card issuers
has begun to focus on rates. Almost
all the Nation's largest issuers have
reduced rates for at least some of their
customers since the beginning of 1992.
Historical Development of the
Credit Card Market
Credit cards for individuals were first
made widely available by major depart­ment
store chains in the early 1950's.1
The cards, furnished as a convenience
to the stores' regular charge account
customers, also provided an efficient
means of processing transactions and
managing accounts. Card holders were
expected to pay for charged items in
full upon receipt of their monthly bill,
1 Some department stores and gasoline companies
were issuing cards before 192{)-{)n a limited
basis and only to the most highly valued
customers.
and no interest fee was imposed. Most
stores levied a late fee of 1 or 1-1/2
percent per month if full payment was
not received within the billing period.
Later, stores were more. likely to allow
customers the option of paying either
in full or by installments, subject to
interest or finance charges rather than
late fees.
The general-purpose credit card for
individual consumers came into broad
use in the mid to late 1960's. By then,
commercial banks recognized the profit
potential from providing open-end
financing to consumers who were will­ing
to pay high interest rates to obtain
unsecured credit conveniently. Initially,
bank credit card operations were only
marginally profitable. Start-up costs and
operating costs per dollar of receivables
were relatively high, and a large percent­age
of cardholders were convenience
users who paid balances in full each
month to avoid finance charges. Statu­tory
limits on interest rates (typically
1-112 percent per month or 18 percent
per year) were in effect in most States
until the early 1980's.
Eventually, the profitability of bank
credit card operations improved as
operating efficiencies were developed
and use of credit cards became more
widespread. Profits came under intense
pressure in the late 1970's and early
1980's from inflation-related increases
in funding costs, causing banks to
impose annual fees on credit cards
to supplement income from interest.
About this time, State legislatures
moved to raise or remove the ceilings
on credit card interest rates. Currently,
16 States do not specify ceilings, and
14 States specify ceilings above 18
percent per year.
Many banks relaxed credit standards
and offered more card enhancements,
such as travel accident insurance and
auxiliary rental car insurance. Nonbank
firms, such as AT&T, Sears, and
Family Economics Review
American Express, have gained signifi­cant
market share by forgoing annual
fees, offering rebates on purchases, or
giving discounts on selected services.
. Current Situation
Today, about 6,000 commercial banks
and other depository institutions market
general-purpose credit cards (predomi­nantly
under the VISA or MasterCard
labels), and another 12,000 depository
institutions act as agents for issuers and
distribute credit cards to consumers.
Major retailers continue to offer store­specific
credit cards. About 70 percent
of all U.S. families have at least one
credit card, up from about 50 percent in
1970. The average number of credit
card accounts held by all card-holding
families is between five and six. By
1989, 54 percent of all U.S. families
had a bank credit card, up from 16 per­cent
in 1970 (table 1). In contrast, the
holding of credit cards issued by retail
stores has expanded very little in recent
years.
Functions of Credit Cards
In 1990, credit cards were used by
consumers to purchase $445 billion
worth of goods and services. Credit
card charges accounted for about 13
percent of all consumer expenditures,
up from almost 11 percent in 1980.
The advantages of using credit cards to
conduct transactions include conven­ience,
safety, automatic recordkeep­ing,
and an interest-free grace period
for settling accounts. A consumer who
uses a credit card as a payment device
would likely choose a card based on the
level of any annual fee, the length of the
grace period, the availability of enhance­ments,
and the credit limit. The interest
rate is not likely to be important to this
consumer.
1993 Vol. 6 No. J
Table 1. Consumer holding of selected types of credit card accounts,
by family characteristics, 1970 and 19891
Any credit card Bank card Store card2
Family characteristic 1970 1989 1970 1989 1970 1989
Percent
Family income (1989 dollars)
Less than $10,000 20 30 2 16 12 25
$10,000- $19,999 28 56 5 37 15 48
$20,000-$29,999 50 79 14 63 31 65
$30,000- $49,999 69 87 22 74 52 77
$50,000 or more 79 95 35 87 60 85
Age of family head (years)
Less than 25 42 38 12 29 25 28
25-34 61 63 20 48 41 55
35-44 57 73 23 62 42 65
45-54 59 77 19 63 43 67
55-64 46 69 12 57 33 59
65 or more 31 67 5 49 21 56
Education of family head
0-8 grades 25 39 5 23 15 32
9-11 grades 40 45 10 32 28 38
High school diploma 54 67 17 49 36 58
Some college 61 79 20 . 65 44 66
College degree 82 93 34 85 63 83
All families 51 68 16 54 35 58
Mean number of accounts NA 5.6 NA 1.9 NA 3.5
1 Figures for 1970 are based on card use; therefore, card holding in that year is somewhat understated.
2Includes local store cards as well as national chain retail cards, such as Sears, J.C. Penney, and
Montgomery Ward.
Source: Katona, G., Mandell, L. and Schmiedeskamp, J., 1970 Survey of Consumer Finances; and
Board of Governors of the Federal Reserve System, 1989 Survey of Consumer Finances.
In contrast, a consumer who views a
credit card as a debt instrument and
regularly rolls over part of his/herbal­ance
to future billing periods, incurring
interest charges to do so, will regard the
interest rate as very important. Credit
cards account for a substantial and
growing share of consumer installment
debt. By the end of 1991, revolving
credit (mainly outstanding balances on
credit cards) stood at over $240 billion
and accounted for about 33 percent of
all consumer installment debt out­standing.
According to the 1989 Survey
of Consumer Finances, 60 percent of
surveyed credit card holders had carried
over balances from the previous month
(table 2, p. 36). Industry statistics show
that about two-thirds of accounts are
revolving at any point.
35
Table 2. Distribution of credit
card holders by amount of
outstanding credit card debt,
1989
Amount outstanding1
(dollars)
1-100
200--499
500-999
1,000-1,999
2,000 or more
Total
Mean2
Median2
Proportion with debt
(percent)
Percentage
distribution
15
17
18
18
32
100
2,090
1,252
60
1 Amount outstanding on hand and store credit
cards after most recent payment was made.
2Excludes credit card holders who have zero
balances.
Source: 1989 Survey of Consumer Finances.
Costs of Credit Card Operations
The cost structure of credit card opera­tions
differs from the cost structures of
other types of bank lending. Credit card
activities involve higher operating costs
and greater risks of default per dollar of
receivables than do other types of bank
lending. Unlike most other forms of
bank credit, credit extended through
credit cards is unsecured. Losses on
credit card plans, including losses due
to fraud, have been higher than losses
on other types of credit. Credit card
issuers, therefore, must generate
relatively higher levels of revenue per
dollar of receivables to cover costs than
is necessary for other types of lending.
Although card issuers obtain noninterest
revenue from merchant discounts and
from a variety of fees, the amount is
usually not enough to eliminate the
36
need for substantial interest income
from credit cards. Interest received on
credit card balances