Family Economics Review [1993, Volume 6, Number 3]

              FAMILY PROPERTY OF THE
BRARY
Editor
Joan C. Courtless
Editorial Assistant
Jane W. Fleming
Family Economics Review is written
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N 0 M I C s
II D II
1993 Vol. 6 No.3
OCT 211993
University of North Carolina
at Greensboro
Feature Articles • 2
8
Housing Expenditures of the Elderly:
Owners and Renters
F. N. Schwenk
Trends in Consumer Credit
Joan C. Courtless .· Building Us-e Onl.y \
Research Summaries • 18 A Profile of Nursing Home Users Under Age 65
21 Economic Implications of Rising Health Care Costs
24 Private Health Insurance Premiums in 1987:
Policyholders Under Age 65
26 Projections of National Health Expenditures
Regular Items • 29 Recent Legislation Affecting Families
30
32
33
34
37
38
39
41
Charts From Federal Data Sources
Data Sources
Journal Abstracts and Book Summary
Expenditures on a Child by Husband-Wife Families, 1992
Expenditures on a Child by Single-Parent Families, 1992
Poverty Thresholds
Cost of Food at Home
Consumer Prices
2
Feature Articles •
Housing Expenditures of the
Elderly: Owners and Renters
By F.N. Schwenk
Research Leader
Family Economics Research Group
Housing is of paramount economic importance to elderly households. It
represents a substantial portion of the net worth of owners. Also, housing
expenses are the highest category of expenditures for elders. Using the
1990 Consumer Expenditure Survey, this paper describes out-of-pocket
expenditures by elderly owners and renters with a special analysis for
widows who are often faced with the decision of whether or not to sell their
home. Results indicated that elderly homeowners allocate 32 percent of
expenditures to housing; renters spend 43 percent. Housing expenses are
not significantly different for owners and renters. Elders and their financial
advisers cannot assume that selling a house and renting an apartment will
lower housing expenses.
early four of five elderly
households own their home,
and their home equity is a
substantial portion of their
net worth (40 percent, on average) (2).
Also, the money spent for maintenance,
utilities, taxes, insurance, rent, and other
housing expenses is usually the largest
expenditure of the households, sur­passing
food, transportation, and health
care (3). In addition to economic con­siderations,
housing has importance to
the elderly because it may be basic to
their independence, social networks,
and general lifestyle.
The American Association of Retired
Persons reports that studies show "most
older people want to stay put." Seventy
percent of older people do not move
after they reach their 65th birthday (1) .
Indeed, community programs empha­size
"aging in place." Services such as
1rUB. OOV!:IUlKEftPIUJITIN'GOJ'J'I~ 1993- 715-<113- 1302/86254
meals on wheels, home chores, and
home health care programs are designed
to make it possible for people to stay in
their homes. Equity conversion plans,
such as reverse mortgages, are eco­nomic
tools for the elderly who need
access to their home equity but wish to
remain in their homes.
The costs of living in these homes, that
is, the out-of-pocket expenditures, are
presented in this paper. Expenditures on
housing and other goods and services
are reported for owners and renters who
are age 65 or older. In addition, a sub­group
of widows is highlighted. The
housing expenditures of elderly widows
living in single-family, detached houses
that they own are compared with those
of widows living in rented apartments.
Family Economics Review
Data
Data for this study are from the interview
component of the 1990 Consumer
Expenditure Survey (CE), conducted by
the Bureau of the Cen us for the Bureau
of Labor Statistics. The CE is an ongoing
survey that collects data on hou ehold
expenditures, income, and major socio­economk
and demographic charac­teristics.
A national sample of consumer
units 1 is interviewed once each quarter
for five consecutive quarters; the first
interview is used only for bounding
purposes. Using a rotating sample
design, about one-fifth of the sample
is replaced each quarter. The 1990 CE,
with a re ponse rate of 86 percent, con­tains
information from about 20,000
interviews. Quarterly expenditure data
are multiplied by four to provide esti­mates
of annual expenditures.
For this study, consumer units that had
a reference person or spouse 65 years
or older were selected. This sample of
4,363 units was weighted to represent
the 21 million elderly consumer units in
the Nation. The subsample of widows
included 590 women who owned a
single-family, detached house and 263
women who rented a high-rise, flat, or
garden apartment.
1 A consumer unit con ist of either: (I) all members
of a particular household who are related by blood,
marriage, adoption, or other legal arrangement;
(2) two or more people living together who pool
their incomes to make joint expenditure decisions;
or (3) a person living alone or haring a household
with others or living as a roomer in a private home
or lodging house or in permanent living quarters
in a hotel or motel, but who is financially inde­pendent.
To be considered financially independent,
at least two the three major expense categories
(housing, food, and other living expenses) have
to be provided by the respondent.
1993 Vol. 6 No. 3
Figure 1. Percentage of elderly consumer units, by housing
tenure and type of dwelling, 1990
Who Owns Their Home?
Elderly households may own or rent
their home-a detached house, duplex,
apartment (high-rise, flat, or garden),
mobile home, or other dwelling.
Seventy-eight percent own their homes
(figure 1). They have equity; in fact,
80 percent of owners do not have a
mortgage.
These data are presented two ways:
home ownership rates by socioeco­nomic
and demographic characteristics
are shown in table 1, p. 4, and the same
characteristics as a percentage of owners
and renter are shown in table 2, p. 5.
The two tables provide different views
of the same data.
First, table I shows that family type and
marital status are related to home owner­ship.
About two-thirds of women or
men who live alone are homeowners,
whereas 90 percent of husband-wife
families are homeowners. Marital status
distinguishes home ownership among
those who are not married. Seventy-one
percent of widows and widowers, 61
percent of never-married people, and
D Rent apartment
D Rent other
• Own single-family detached
• Own other type dwelling
56 percent of divorced and separated
people are homeowners. Those in the
younger age ranges are more likely to
be homeowners (85 percent of those
ages 65-69 compared with 69 percent of
those ages 80 or older). In the older age
groups, renters may once have been
owners. They may have sold their home
for equity conversion or reasons related
to location or maintenance. White
households have a higher rate of home
ownership than other races. Education
is also related; those with some college
education are more likely to be home­owner.
In addition to characteristics of the
family, characteristics of the dwelling
affect home ownership. Detached
homes and mobile homes are nearly
always owned when lived in by elders;
94 percent of detached home and 92
percent of mobile homes are owned,
not rented. About half of town houses
and 2-, 3-, or 4-plexes and about one­quarter
of apartments are owned. Rural
elderly families are more likely than
urban families to be homeowners; 87
percent of rural units, compared with 76
percent of urban units, own their home.
3
•
4
The mean total
expenditures for
owners is more than
half again that for
renters .... Even so,
housing expenses
are only slightly
higher for owners ...
Table 2 describes the characteristics
of owners and renters and the type and
location of dwellings that are owned
and rented. Over half of the owned units
are owned by husband-wife families,
whereas over half of the rented units are
occupied by females living alone, often
widows. The age category with the
largest proportion of owners is 65-69
years; one-third of owners are this age.
Among renters, the largest proportion
is 80 years or older; one-third of renters
are in this age category. A larger propor­tion
of owners than renters had college
experience; 28 percent of owners, 18
percent of renters. Eighty-two percent
of owned units are single-family,
detached houses; 62 percent of rental
units are apartments. Eighty-two percent
of owned units and 9 I percent of rented
units are in urban areas.
Mean expenditures for housing, and
the subcategories of shelter and
utilities; household operations; and
furnishings and equipment are shown
together with expenditures for other
categories of goods and services.
Shelter for owners includes mortgage
interest, 1 property taxes, insurance,
and repairs and maintenance expenses.
Shelter for renters includes rent and
tenants' insurance. Since utilities are
often included in the rent, it is not
possible to separate utilities from
shelter. Therefore, they are combined
for both renters and homeowners.
Household operations include personal
services, laundry and cleaning sup­plies,
postage, and similar expenses.
Services for housekeeping, gardening,
and care of invalids are part of house­hold
operations. Furnishings and
equipment include textiles, furniture,
floor coverings, and appliances.
1In the CE survey, mortgage principal is con­sidered
to be an investment, not consumption,
so is not included as a housing expenditure.
Table 1. Percentage of elderly1
households that own their home,
1990
Characteristic
Sample size
Population (in millions)
All
Family type
Husband and wife
Female living alone
Male living alone
Other
Marital status
Married
Widowed
Divorced, separated
Never married
Age (years)
65-69
70-74
75-79
80+
Race
White
Black
Other
Education
Not high school graduate
High school graduate
Some college
Type of building
Single family, detached
Town house, duplex
High-rise, flat, garden
apartment
Mobile home
Location
Rural
Urban
All units
65+
4,363
21
Percent
78
90
65
61
83
90
71
56
61
85
79
77
69
79
73
63
76
77
84
94
51
23
92
87
76
1
Reference person or spouse 65 years or older.
Family Economics Review
What Are Housing Expenditures
of Owners and Renters?
Housing expenditures of elderly owners
and renters reflect housing preferences
and choices that result from their family
composition, age, education, and other
socioeconomic and demographic
factors as well as the market differ­ences
(prices, tax aspects, interest rates,
availability) of owning or renting. The
housing expenditures of each group are
shown in table 3, p. 6. These are out-of­pocket
expenses so do not include
opportunity costs, such as the return if
the equity were invested elsewhere.
The mean total expenditure for owners
is more than half again that for renters
($18,613 for owners; $11,852 for renters).
Even so, housing expenses are only
slightly higher for owners ($5,875 for
owners; $5,112 for renters). Because
80 percent of owners had no mortgage,
their shelter costs were mostly property
tax, homeowners' insurance, and repairs
and maintenance. Owners' expenditures
for household operations and furnishings
are more than twice as high as renters',
but they are minor shares of the housing
expenditure.
Although the difference in housing
expenditures is modest, owners spend
more than twice as much as renters for
transportation and more than 1-1/2 times
as much for food and health expenses
(figure 2). Housing expenditures account
for 32 percent of owners' total expenses
but 43 percent of renters' expenditures.
1993 Vol. 6 No.3
Table 2. Characteristics of elderly consumer units, 1 by housing tenure, 1990
Characteristic
Sample size
Population (in millions)
Family type
Husband and wife
Female living alone
Male living alone
Other
Marital status
Marrried
Widowed
Divorced, separated
Never married
Age (years)
65-69
70-74
75-79
80+
Race
White
Black
Other
Education
Not high school graduate
High school graduate
Some college
Type of building
Single family, detached
Town house, duplex
High-rise, flat, garden apartment
Mobile home
Location
Rural
Urban
1 Reference person or spouse 65 years or older.
Own
3,377
16.3
53
27
8
12
55
35
7
3
34
26
21
19
90
9
45
27
28
82
5
5
8
18
82
Percent
Rent
986
4.5
21
54
17
8
23
50
19
8
22
25
23
30
87
11
2
53
29
18
19
16
62
3
9
91
5
What Are Housing Expenditures
of Widows Living Alone?
Because many widows consider
whether or not to sell their house and
move to a smaller apartment, housing
costs of widows who own a single,
detached house and those who rent an
apartment are shown on table 3. The
two types of buildings were chosen
because most widows who own a
dwelling own a single, detached house
(78 percent) and most widows who
rent a dwelling rent an apartment (72
percent). It cannot be assumed that
owners would spend as renters do if
they sold their houses and became
renters because they differ in other
characteristics. A longitudinal study that
followed the housing costs of women
who owned and then rented would be
needed. Yet, there are interesting com­parisons.
The owners have slightly
larger total expenditures (15 percent
higher), but their housing expenditures
are not significantly different (using
t-test comparisons of widowed owners
and renters). Housing accounted for 41
percent of total expenditures for these
widowed owners and 47 percent for
widowed renters.
Those who are in houses have more
living space. The owners have 5.7 rooms
(2.6 bedrooms, 1.2 baths), compared
with 3.4 rooms (1.3 bedrooms, 1.0 baths)
for renters. Widowed owners are also
purchasing more services, but renters
may pay for some of these services as
part of their rent. Owners spend an
average of $247 per year for gardening
services (compared with $1 for renters'
gardening services) and $78 for care of
invalids (compared with $5 for renters).
Owners and renters spent about the
same for housekeeping services, $68
and $69, respectively.
6
Figure 2. Expenditure shares for elderly consumer units,
by housing tenure, 1990
$thousands
20
18
16
14
12
10
8
6
4
2
0
$18,613
Owners
0 Other
0 Health
11 Transportation
11 Food
11 Housing
$11 ,852
Renters
Table 3. Mean housing expenditures of elderly consumer units,
by housing tenure, 1990
All65+1 Widow 65+ living alone
Rent
Expenditure Own2 Rent2 Own house3 apartment4
Total expenditures $18,613 $11 ,852 $ 11,977 $10,410
Housing 5,875 5,112 4,955 4,892
Shelter and utilities 4,828 4,686 4,040 4,547
Household operations 437 188 475 118
Furnishings/equipment 610 237 440 229
Food 3,514 2,295 1,970 1,911
Transportation 3,191 1,353 1,387 897
Health 2,301 1,342 1,565 1,291
Apparel 694 358 462 362
Entertainment 782 303 344 223
Personal care 254 150 191 169
Reading, education 205 104 208 124
Miscellaneous 1,797 835 895 541
I
2
Reference person or spouse 65 years or older.
30wn or rent detached house, apartment, or town house, duplex, mobile home, other.
4
0wn detached single-family dwelling.
Rent high-rise, flat, or garden apartment.
Family Economics Review
Conclusions
Two major conclusions may be made
from this study. First, elderly consumers
-whether homeowners or renters­spend
a large portion of their total
expenditures on housing. Elderly home­owners
allocate 32 percent and renters
allocate 43 percent to housing.2 An
even greater percentage of total
expenditures was spent on housing
by widows who live alone and rent
an apartment, 47 percent. This leaves
little money for other goods and services
and does not allow for much flexibility
in spending.
2-rhe share for all consumer units is 31 percent (3).
References
Second, it cannot be assumed that
selling a house and moving to a small
apartment will lower housing expenses.
On average, renters paid as much in out­of-
pocket expenses (including shelter,
utilities, and furnishings) for their apart­ments
as owners did for their larger
houses. It does liquidate the equity,
however, which may be the primary
goal.
Each person's situation is different so
elderly householders must evaluate
their particular housing options. Com­munities
and policymakers may assist
by providing a variety of housing alter­natives
for the elderly so that they may
choose housing that best fits their needs
and resources. For some, this may be
maintaining the home they own.
1. American Association for Retired Persons. 1984. Housing Options for Older
Americans.
2. Taeuber, C.M. 1992. Sixty-Five Plus in America. Current Population Reports,
Special Studies, P23-178. U.S. Department of Commerce, Bureau of the Census.
3. U.S. Department of Labor, Bureau of Labor Statistics. 1991. Consumer
Expenditures in 1990. News. USDL No. 91-607.
4. U.S. Department of Labor, Bureau of Labor Statistics. Consumer Expenditure
Surveys: 1990 Interview Survey Public Use Tapes and Documentation.
1993 Vol. 6 No.3 7
8
•
Trends in Consumer Credit
By Joan C. Courtless
Family Economist
Family Economics Research Group
Consumer credit plays an important role in the U.S. economy. As measured
by the Board of Governors of the Federal Reserve System, outstanding
installment credit has increased as a percentage of disposable personal
income, from 7.1 percent in 1950 to 18.5 percent in 1990. By the third
quarter of 1992, this percentage had dropped to 16.6 percent. This decrease
may reflect the rise in home equity loans outstanding, which are not measured
in consumer installment credit statistics. Automobile financing is the largest
component of consumer credit; credit card accounts, however, are increasing
at the fastest rate. An estimated 70 percent of U.S. families, up from 50
percent in 1970, have at least one credit card. In 1990, bank cards and
general-purpose cards accounted for 58 percent of consumer revolving
credit outstanding. Credit card interest rates, sources of consumer credit,
selected studies on the use of credit, the creditor's view of credit and credit
scoring, and related legislation are presented.
[!] his article presents an over­view
of trends in consumer
credit. From a historical
perspective, various devel­opments
in consumer credit are described.
Types of credit available to consumers,
changing patterns in the use of credit,
and direct and indirect costs of credit­to
consumers, merchants, and creditors­are
discussed.
The concept of credit has existed for
over 3,000 years; people were using
credit before they were using money
(23). Future crops or labor could be
pledged in return for current food or
shelter needs.
Once, borrowing in order to purchase
nonessential consumer goods was con­sidered
unacceptable. Buying on credit
was a practice to be avoided whenever
possible. Today, however, there is little
or no stigma attached to buying on
credit (25). Creative applications of
credit use have been developed over the
years to make borrowing even more
convenient--overdraft provisions, for
example (23).
Consumer credit has become increas­ingly
important to the U.S. economy
(14). By making acquisition easier,
demand for goods and services is stimu­lated
and the economy is boosted. For
the individual family, however, monthly
installment payments reduce financial
resources for regular expenses as well
as savings. This raises the level of vul­nerability
to financial emergencies (27).
In 1945, consumer installment debt of
the average American family amounted
to 2 percent of its annual income (3). For
the next 10 years, outstanding consumer
debt increased by an average of 20 per­cent
per year, reflecting ( 1) demand for
goods and services unavailable during
World War II; (2) the beginning of the
baby boom; (3) an increasingly liberal
attitude toward credit; and (4) a rapid
growth in availability of credit (3) .
Family Economics Review
Credit expansion has moderated since
then except during 1977-78 and 1983-
85 when annual increases exceeding
15 percent occurred (3). Annual growth
in consumer installment and revolving
credit end-of-year balances averaged
9 percent over the period 1981-90
(table 1). Revolving credit balances, as
a share of total consumer installment,
grew from 19 percent to 30 percent over
the 10-year period (5).
As a percentage of disposable personal
income, outstanding installment credit
increased from 14.5 percent in 1981 to
18.5 percent in 1990 (5), then decreased
to 16.6 percent in the third quarter of
1992 (15). Forty years earlier, in 1950,
this ratio had been 7.1 percent; in 1960,
12.3 percent; and in 1970, 14.7 percent
(1 7).
Automobile financing has been the
single largest component of consumer
credit, 1 but credit card accounts are the
most rapidly expanding segment (figure
1, p. 1 0). Recent data indicate that auto­mobile
credit outstanding fell at an
annual average rate of 4 percent from
1989 to 1992, after increasing at an
average annual rate of 6 percent from
1987 to 1989 (15). Auto leasing has
become more popular with consumers
because monthly payments, based on
only a portion of the total value of the
car, are lower than with a traditional
auto loan. Of total passenger cars
delivered in 1992, 24 percent were
leased, compared with 12 percent in
1986 (15).
1Not only have automobile loans increased in
amount financed, the typical loan period has
increased from 3 to 4 to 5 years, and the
downpayment percentage has decreased (23).
1993 Vol. 6 No. 3
Table 1. Consumer installment and revolving credit outstandings:
1981-90
Consumer installment credit1 Revolving credit
Payments as a as a percent of
Year-end balances percent of disposable installment
Year (million$) personal income credit
1981 335,691 14.5 19.2
1982 355,849 14.2 19.7
1983 383,701 14.3 21.4
1984 460,500 15.6 22.1
1985 535,098 17.3 22.1
1986 577,784 18.4 23.4
1987 613,022 18.6 26.0
1988 659,507 18.6 26.5
1989 716,624 18.7 27.5
1990 739,014 18.5 29.5
1lncludes automobile loans, mobile-home financing, revolving credit, and other.
Source: Calem, P.S., /992, The strange behavior of the credit card marker. Business Review. January­February
issue (5); Canner, G.B. and Luckett, C.A. , 1991, Payment of household debts, Federal Reserve
Bulletin 77(4 ):218-229 (8); and other Federal Reserve Bulletins.
Credit Cards
When our society was less mobile, local
merchants knew their customers and
extended credit according to past experi­ence.
As the consumer began dealing
with merchants over a larger geographic
area, this personal trust had to be re­placed
with an established third-party
guarantor. The answer was the credit
card (23) .
There are two types of credit cards: a
two-party or retail card provides credit
for purchases from the issuer, typically
a gasoline company or retail estab­lishment;
and a general-purpose or bank
card, which may be used to purchase
goods and services from any merchant
who accepts the card. In addition to
Visa and MasterCard systems, issuers
of general-purpose cards include
AT&T, American Express, and Sears (5).
Although bank cards may be substituted
for retail cards, in most cases retail cards
cannot be substituted for bank cards.
In recent years, various organizations
have promoted affinity cards among
their members. These are bank cards
that bear the logo of the organization­a
club, university, labor union, profes­sional
association, or business (5).
It has been estimated that 70 percent
of U.S. families, up from 50 percent in
1970, have at least one credit card ac­count
(7); 2 of 3 have at least one retail
card (5); over half have one or more
Visa cards; and almost half have at least
one MasterCard (5). In 1990, bank cards
and general-purpose cards accounted
for 58 percent of consumer revolving
credit outstanding, compared with 51
percent in 1981 (5). The average num­ber
of accounts held by all cardholding
families, in 1989, was nearly six (7).
9
Figure 1. Consumer credit outstanding
$billions
BOOr------------------------------------------.
600
400
200
~9~80~~--~82~----~84~~---8~6~----~8~8~----~9~0--_j91
0 Auto • Revolving • All other
So~rce: U.S. Department of Commerce, Bureau of the Census, 1992, Statistical Abstract of the
Umted States, 1992, [112th ed.] (26).
Convenience Users and
Installment Users
According to Mandell (23), "With a
credit card you can buy yourself a new
car. Without it, you cannot even rent
one." Credit cards serve two primary
functions: a means of payment and a
source of credit. People also use credit
cards as a means of identification and to
order goods and services by telephone,
such as airline tickets (7). People may
choose to use credit cards rather than
pay cash because cash may not be avail­able;
it may be convenient not to carry
cash; savings may result from buying
now and paying later; and it simplifies
recordkeeping (29).
10
Convenience users of credit cards re­gard
them as a method of payment and
typically pay the balance in full each
month. About one-third of credit card
users are convenience users (5, 7,20).
Installment users consider credit cards
as an alternative method of financing
and choose to carry a balance from
month-to-month in spite of the interest
penalties.
Choosing an economically appropriate
credit card requires that the consumer
knows how the credit card will be used
and has made a comparison of credit
card costs (13). The best credit card for
a convenience user would be one with
no annual fee and a long grace period;
for an installment user, the best card has
a low interest rate (7, 13).
Interest Rates
Credit card interest rates have been rela­tively
stable for many years. Some con­sumers
discourage banks and retailer
from reducing their rates: convenience
users who don't incur interest charges
and don't respond to rate reduction and
poor credit risks who are very likely to
respond to lower rates because they
fully intend to borrow, thus increasing
the probability of losses through default
(19). Also, consumers may regard the
search and switch costs as too high.
These costs include the time and effort
to identify a more attractive card and
to complete an application, potential
consequence of having a credit rejec­tion
added to a credit bureau report,
possibility of lower credit limit with a
new issuer, uncertain quality of service,
and uncertain future rates and fees
(7,19).
During the past 2 years, however, credit
card interest rates have been falling (1 1).
A study conducted for the General
Accounting Office found that nearly
40 percent of credit cardholders paid
less than 16.5-percent interest on their
cards. Two years earlier, 9 percent of
cardholders reported such rates.
This reduction in rates can be attributed
to the many new nontraditional issuers
(such as General Motors and General
Electric Corporations) that want to build
relationships with their cardholders;
they are willing to offer better rates to
accomplish this purpose. In turn, tradi­tional
issuers have also lowered their
rates in response to this competition
and a heightened consumer awareness:
Other loan rates have fallen, consumer
interest is no longer tax-deductible, and
credit cards are competing with home
equity lines of credit.
Family Economics Review
Home Equity Loans as a
Source of Consumer Credit
Home equity loans include the tradi­tional
closed-end loan (a second mort­gage)
that typically requires repayment
of interest and principal in equal monthly
installments and the home equity line of
credit-a revolving account that allows
flexibility in borrowing and repaying
(6,9). Both types of home equity loans
enable homeowners to borrow against
the equity in their homes.
The home equity line of credit has be­come
a more popular source of credit
among consumers since the Tax Reform
Act of 1986 eliminated the deductibility
of interest paid on nonrnortgage con­sumer
credit (9). In 1986, a typical
home equity lender had a median of
about $14 million outstanding in home
equity loans and lines of credit. In 1991,
the median amount outstanding in home
equity closed-end loans was $52 million
and, in home equity lines of credit, $79
million (1 5).
Banks and other lending institutions
have aggressively marketed the home
equity line of credit. Interest rates
have been markedly lower than for
most other types of consumer credit,
especially credit cards. Most lenders
set a maximum line of credit equal to
70 to 80 percent of the homeowner's
equity; the equity is considered to be
the appraised value less any mortgage
or liens against the property (6). There
is usually a minimum credit line
(frequently $5,000) and, of course, a
maximum (around $100,000). Most
lenders allow homeowners to access
their line of credit by check; others
may permit telephone transfers or pro­vide
access through automatic teller
machines or credit cards. There may
be a minimum amount for each draw
on the credit line.
1993 Vol. 6 No.3
Finance rates are usually variable and
adjusted monthly. Most are based on
the prime rate, adding a fixed margin.
The Competitive Equality Banking
Act of 1987 requires all home equity
accounts established after December 9,
1987, to have an interest rate ceiling for
the life of the account. The act does not
specify any maximum or minimum rate
or restrict changes in interest rates (6).
Many lenders offer a low introductory
interest rate; after a specified period, the
rate increases to one that is determined
by a formula set forth in the contract,
usually an index plus margin. Other
promotional offers may include rebating
of initial fees, such as origination fees,
closing costs, property appraisal, credit
report, title insurance, and mortgage
recording fee (6).
The majority of home equity accounts
have a set term, usually 10 to 15 years;
many, however, have indefinite terms.
Usually, there are no restrictions or
penalties on repayment of outstanding
balances at any time. Minimum pay­ments
can be a fixed dollar amount, a
certain percentage of the outstanding
balance, or only the interest due. If the
loan is not fully amortized, the borrower
will owe a balloon payment (6).
In summary, major advantages of home
equity lines of credit are:
• For the borrower-lower interest
rates and deductibility of interest.
• For the lender-building a long­term
relationship with the borrower
who may need other banking
services and a relatively low
risk of default because loans are
secured by the borrower's home.
• ... 70 percent of U.S.
families, up from
50 percent in 1970,
have at least one
credit card account ...
11
Rermancing a Mortgage
In recent years, homeowners have often
refinanced their mortgage to obtain
lower interest costs on the existing
principal (9). Others have refinanced
for a longer term in order to reduce their
monthly payments. In a 1989 survey of
over 1,500 households, sponsored by
the Federal Reserve Board, nearly 60
percent of those who refinanced also
borrowed additional funds (9). This
accumulated home equity may be used
to finance the purchase of goods and
services or to repay other debts. Uses of
equity liquidized through refinancing
are shown in table 2. On average, con­sumers
who liquidize equity during
refinancing access about 25 percent
of their accumulated equity (9).
According to Canner, Fergus, and
Luckett (6), statistical models designed
to project growth in consumer and
mortgage credit indicate that consumers,
in the late 1980's, shifted from con­sumer
credit vehicles to a form of
mortgage equity loan but did not
increase their total borrowing to any
great degree.
Selected Studies on Credit Use
Eugeni observed trends in consumer
installment credit and compared them
with trends in home equity borrowing
and automobile leasing. She concluded
that consumer borrowing patterns have
changed: home equity borrowing has
been substituted for other types of
credit and auto leases are partly
replacing traditional auto loans. There­fore,
the most commonly used debt ratio
(consumer installment credit to dispos­able
personal income) understates
consumer indebtedness (15).
Fan, Chang, and Hanna developed a
model of optimal credit use with
uncertain future income. Their analysis
showed that both the rate of real income
12
Table 2. Uses of liquidized equity, by type of loan, 1988-89
Home equity lines Refinancing
Use of credit Traditional resulting in
Initial All other home equity liquidized
draw draws1 loan equity
Percent2
Home improvement 38 58 45 46
Repayment of other debts 40 28 35 36
Education 11 20 1 3
Real estate 10 2 16 17
Auto, truck 7 30 5 5
Medical 3 16 0 2
Business 4 7 6 8
Vacation 1 11 0 2
Other3 11 23 5 7
120 ne-third of account users made no drawdown after the original one .
May add to more than I 00 percent because multiple uses could be cited for a single loan or drawdown
and because a number of draws could be cited for one line of credit.
3Includes purchases of furniture or appliances, tax payments, personal financial investments, and
purchases of boats or other recreational vehicles.
Source: Canner, G.B. and Luckett, C.A., 1990, Mortgage refinancing, Federal Reserve Bulletin
76(8):604-612 (9).
growth and the probability of real in­come
growth are critical determinants
of the rational use of credit for current
consumption. Families and individuals
at the early stages of the family life
cycle are more likely to find borrowing
to be a rational choice, as income tends
to increase until retirement (16).
Chang and Hanna found that although
education had a positive effect on the
probability of search, most consumers
(80 percent) did not consider searching
for information before purchasing credit
(10). However, size of loan and educa­tion
level had positive effects on the
probability of search.
According to Sumarwan and Hira,
older money managers (compared to
younger) and those from households
with higher monthly income (compared
to those from lower income households)
used a smaller proportion of their
monthly income to make installment
payments (27).
Danes and Hira determined there was
a negative relationship between knowl­edge
of credit cards and age of the
money manager; this relationship was
positive for education level and house­hold
income level (12). The same study
found that people who use a high
number of credit cards and who often
accumulate finance charges have a
higher knowledge about credit cards.
Respondents with high levels of credit
card knowledge believe credit cards
should be used more for installment
purchases than for convenience.
Family Economics Review
A study by Was berg and others found
that age of money manager, income,
total assets, and amount of credit card
debt with which the manager was com­fortable
tended to be more significant
predictors of monthly payments and
total debt than credit card practices.
Credit card usage-number of cards­was
not associated with greater con­sumer
debt (29).
Lindley and others studied changes in
credit card possession and use over
time. They concluded that since growth
in new holders of credit cards appears to
be declining but credit card use appears
to be increasing, current holders of
credit cards are the best market for
additional credit cards (21).
A 4-year study conducted by the
University of Michigan's Survey
Research Center in the late 1960's
found that attitude towards debt was
related to debt/income ratio. Families
with highly favorable attitudes reported
credit levels twice as high as did those
with highly unfavorable attitudes. Also,
attitudes differed by stages of the family
life cycle. Families with children were
most likely to feel okay about borrowing,
followed by older couples without
children. Older single people were
least likely to have a favorable attitude
towards borrowing (17).
A later study, using data from the Survey
of Consumer Finances, corroborated
this family life-cycle effect. Highest
median amounts of credit card debt
were reported by families with a head
less than 54 years old (those most likely
to have children living at home) (figure
2). A higher percentage of these same
families reported credit card debt than
did older families (figure 2a). Family
income had a greater effect on median
credit card debt than on the likelihood
to carry any such debt (1 8).
1993 Vol. 6 No.3
Figure 2. Median credit card debt of families carrying such
debt, by age of family head and family income, 1989
Age of family head $thousands
Less than 35 1.0
35-44 1.2
45-54 1.0
55-64 0.9
65-74 0.5
75 and over 0.2-
Family income
Less than $10,000 0.3-
$10,000-$19,999 0.6
$20,000-$29,999 0.8
$30,000 - $49,999 1.0
$50,000 and over 1.7
Figure 2a. Percentage of families carrying credit card debt,
by age of family head and family income, 1989
Age of family head Percent
Less than 35 44.0
35-44 52.4
45-54 50.0
55-64 34.1
65-74 25.4
75 and over 10.6
Family income
Less than $10,000 15.0
$10,000 - $19,999 27.3
$20,000 - $29,999 48.9
$30,000 - $49,999 55.0
$50,000 and over 53.1
Source: Kennicke/1, A. and Shack-Marquez, J., 1992, Changes in family finance from 1983 to
1989: Evidence from the Survey of Consumer Finances, Federal Reserve Bulletin 78(1 ): 1-18
(15).
13
The Credit Card Industry
Perspective
In 1979, only 71 percent of banks
offered MasterCard or Visa. By 1985,
90 percent offered a Visa and 87 percent
offered a MasterCard. Banks held nearly
two-thirds of total credit card outstand­ing
balances in 1986, up from one-half
in 1982 (23). Holders of consumer
installment credit are shown in figure 3.
In 1992, there were about 6,000 com­mercial
banks and other depository
institutions that marketed general­purpose
(mostly Visa or MasterCard)
credit cards. Another 12,000 depository
institutions act as agents for issuers and
distribute credit cards to consumers (7).
Competition among banks and
companies such as AT&T, American
Express, and Sears has made it more
difficult and more expensive to sign
up new accounts.
Marketers of credit cards seek to gain
new accounts (1,26) by offering the
consumer:
• Fair fees-a low annual percentage
rate, or no annual fee
• Increased credit limit
• Customer service--extended
warranties on purchases, car rental
collision insurance
• Cash advance checks
• Skip-payment option
• Cash back bonus or rebates
• Coupons and sweepstakes
• Or they try to buy a competitor's
credit card portfolio.
Credit card issuers earn money three
ways: fees charged to customers,
charges assessed to merchants on each
purchase, and interest from outstanding
credit balances. About 70 percent of
14
Figure 3. Consumer installment credit,1 by holder, 1991
$billions
Commercial banks 339.6
Finance companies 121.9
Credit unions 92.3 - Retailers 44.0 ~
Savings institutions 40.3 ..
Gasoline companies 4.4 I
11ncludes most short- and intermediate-term credit extended to individuals that is scheduled to
be repaid (or has the option of repayment) in two or more installments.
Source: Board of Governors of the Federal ReseNe System, Federal ReseNe Bulletin, 1993,
Table 1.55 (4).
Citicorp's and Chase Manhattan's net
profits come from credit cards (26).
Earnings from fees and charges paid
by merchants are not sufficient to cover
costs. Substantial interest charges are
also needed to compensate for conven­ience
users who pay little or no finance
charges (7). Bank cards lost money or
were only marginally profitable until
the 1980's when interest rates were
allowed to rise (23).
Credit extended through credit cards
is unsecured.2 Losses on credit cards
(including those from fraud) have been
higher than losses on other types of
credit (7). A majority of these losses
(56 percent in 1987) result from
nonpayment (23).
2Some lenders will grant credit to people with
poor credit histories if they deposit money in a
savings account that serves as collateral and
usually pays passbook rate of interest (7).
Technically, this type of credit card is secured.
Credit Scoring
Credit scoring systems have been used
by institutions for many years to predict
whether credit applicants will repay on
schedule (2,22). Statisticians develop
sophisticated models that assign nu­merical
values to certain characteristics
of applicants that have been shown to
be effective predictors. Models can be
modified and used for scoring install­ment
loans, mortgage loans, and auto
loans in addition to credit card accounts.
The best (most successful in predicting)
models are both product- and institution­specific.
Most often, models include factors re­lated
to the account (past delinquencies,
relation of account balance to credit
limit, and the age of the account) and
attributes of the borrower (occupation
and employment history) (22). Accord­ing
to Money, common causes of credit
rejection include a recent move or new
Family Economics Review
Credit Card Milestones (23)
1914 - Retailers issue credit cards
1930's -Wanamaker's initiates
revolving credit
1949 -Diner Club
1958 - BankAmericard
Carte Blanche
American Express
1966 - BankAmericard goes
nationwide
1976 - BankAmericard becomes
Visa
1979 - J.C. Penney signs with
Visa
1980 - Master Charge becomes
MasterCard
Citibank purchases
Diners Club
Annual credit fees initiated
1985 - First affinity cards from
Visa and MasterCard
1986 - Sears launches
Discover Card
1990 - AT&TUniversalCard1
lDate when first offered was provided in a fact
sheet distributed by AT&T Universal Card
Services Corp.
job, too many credit inquiries, owing 80
percent or more of your credit limits on
two or more cards-or owing anything
on four or more cards, and if credit
payments plus mortgage or rent exceeds
35 to 45 percent of before-tax income (24).
Factors that are predictive in one area of
the country may not be in another (22).
Lenders with mainframe computer
capabilities can interview a prospective
borrower, key in the responses, and
then have the system check for fraud,
duplicate applications, and acceptable
1993 Vol. 6 No.3
debt ratio. Usually this entire process
takes less than 10 minutes (2).
Other types of scoring used by banks
and other lenders include:
• Behavior scoring--evaluates and
monitors current accounts. When
should credit limits be raised-or
lowered?
• Collection scoring-identifies the
likelihood that a specific customer
will become seriously delinquent
within a given time (2).
Selected Legislation Related to
Consumer Credit
Congress has enacted a series of laws
designed to aid and inform consumers
entering into credit transactions (14).
Federal protection of consumer borrow­ing
began in 1968 with the Consumer
Credit Protection Act. Title I of this
legislation is known as the Truth in
Lending Act. This act requires creditors
to disclose the important terms of con­sumer
credit contracts, thereby enabling
consumers to make better decisions
regarding credit use. The act further
states that rates quoted to consumers
either orally or in writing must be true
annual percentage rates (APR's). Also,
consumer credit advertising must
follow certain guidelines.
The Fair Credit Reporting Act of 1970
requires that the consumer be told and
be given the name and address of the
credit bureau whose report was used
when information in that report is used
as a basis for a creditor's decision to
deny, eliminate, or reduce a line of
credit (22). The consumer is entitled to
obtain a free copy of the credit report,
and, if the information is incorrect, the
consumer has a right to request that the
matter be investigated and the informa­tion
corrected.
The Equal Credit Opportunity Act of
1974 prohibits creditors from discrimi­nating
against credit applicants or
existing customers on the basis of race,
color, religion, gender, or marital status
(22). As long as the consumer is not
currently delinquent or in default,
lenders must notify the consumer
within 30 days of an adverse action­terminating
a credit card or reducing
the established credit line.
The Fair Credit and Charge Card
Disclosure Act of 1988 requires card
issuers to disclose credit terms on
applications and in solicitations (5,12).
Terms include the annual percentage
rate, fees, grace period, and balance
calculation method associated with the
credit card (1 3). Before this law was
passed, consumers often did not learn
the credit terms on their card accounts
until after their applications were
approved and they had received a credit
card accessing the account (19). The
law also establishes rules with regard
to advertising: creditors that mention
specific costs in advertisements must
also disclose other relevant cost
information. In contrast, if creditors
advertise that certain fees are not
charged on an account, no additional
disclosures are required (19).
15
16
References
1. ABA Banking Journal. 1992. What boosts card usage? Vol. 84, No.7,
pp. 82-85.
2. Alexander, W. 1989. What's the score? ABA Banking Journal81(8):58-63.
3. Bloom, D.E. and Steen, T.P. 1987. Living on credit. American Demographics
9(10):22-29.
4. Board of Governors of the Federal Reserve System. Federal Reserve Bulletin.
1993. Table 1.55.
5. Calem, P.S. 1992. The strange behavior of the credit card market. Business
Review. January-February issue, pp. 2-14.
6. Canner, G.B., Fergus, J.T., and Luckett, C.A. 1988. Home equity lines of credit.
Federal Reserve Bulletin 74(6):361-373.
7. Canner, G.B. and Luckett, C.A. 1992. Developments in the pricing of credit card
services. Federal Reserve Bulletin 78(9):652-666.
8. Canner, G.B. and Luckett, C.A. 1991. Payment of household debts. Federal
Reserve Bulletin 77(4):218-229.
9. Canner, G.B. and Luckett, C.A. 1990. Mortgage refinancing. Federal Reserve
Bulletin 76(8):604-612.
10. Chang, Y-C.R. and Hanna, S. 1992. Consumer credit search behaviour. Journal
of Consumer Studies and Home Economics 16(3):207-228.
11. Crenshaw, A.B. 1993. Pressures on 'plastic': Low rates, new players open
opportunities. The Washington Post, April 18 issue.
12. Danes, S.M. and Hira, T.K. 1990. Knowledge, beliefs, and practices in the use
of credit cards. Home Economics Research Journal18(3):223-235.
13. d' Astous, A. and Miquelon, D. 1991. Helping consumers choose a credit card.
The Journal of Consumer Affairs 25(2):278-294.
14. Durkin, T.A. and Elliehausen, G.E. 1978. 1977 Consumer Credit Survey. Board
of Governors of the Federal Reserve System.
15. Eugeni, F. 1993. Consumer debt and home equity borrowing. Economic
Perspectives XVII(2):2-13.
Family Economics Review
16. Fan, J.X., Chang, Y -C.R., and Hanna, S. 1992. Optimal credit use with uncertain
income. Financial Counseling and Planning. Volume 3, pp. 125-133.
17. Hendricks, G., Youmans, K.C., and Keller, J. 1973. Consumer Durables and
Installment Debt: A Study of American Households. Survey Research Center,
Institute for Social Research, The University of Michigan.
18. Kennickell, A. and Shack-Marquez, J. 1992. Changes in family finances from
1983 to 1989: Evidence from the Survey of Consumer Finances. Federal Reserve
Bulletin 78(1):1-18.
19. LaWare, J.P. 1991. Statements to the Congress. Federal Reserve Bulletin
77(12):983-987.
20. Lenora, M.C. 1991. Segmenting credit cardholders by behavior. Journal of
Retail Banking XIII(1):19-23.
21. Lindley, J.T., Rudolph, P., and Selby, E.B., Jr. 1989. Credit card possession
and use: Changes over time. Journal of Economics and Business 41(2):127-142.
22. Maland, E. 1991. Statements to the Congress. Federal Reserve Bulletin
77(6):40 1-405.
23. Mandell, L. 1990. The Credit Card Industry: A History. Twayne Publishers.
Boston, MA.
24. Manners, J. 1993. Make sure Visa will accept you. Money 22(2):34-40.
25. Millar, C. and Moran, A. 1990. Credit: the consumer perspective. Journal of
Consumer Studies and Home Economics 14(3):269-276.
26. Saporito, B. 1990. Who's winning the credit card war. Fortune 122{1):66-71.
27. Sumarwan, U. and Hira, T.K. 1992. Credit, saving, and insurance practices
influencing satisfaction with preparation for fmancial emergencies among rural
households. Home Economics Research Journal21(2):206-227.
28. U.S. Department of Commerce, Bureau of the Census. 1992. Statistical Abstract
of the United States, 1992. [112th ed.]
29. Wasberg, C.A., Hira, T.K., and Fanslow, A.M. 1992. Credit card usage and
consumer debt burden of households. Journal of Consumer Studies and Home
Economics 16(1): 19-32.
1993 Vol. 6 No. 3 17
18
Research Summaries •
A Profile of
Nursing Home
Users Under
Age65
The appropriate use of nursing homes
is a matter of national concern. The
Omnibus Budget Reconciliation Act of
1987 established screening procedures
for all residents of Medicaid-certified
facilities to determine, through a combi­nation
of mental illness and physical
health criteria, whether residents should
be reassigned to other facilities more
appropriate to their needs. Federal .
financing arrangements may sometimes
encourage the use of nursing homes
when other types of care would be more
appropriate: because Medicaid does
not pay for home care, household chore
services, or for modifications to a home
or special equipment that would allow a
disabled individual to live independently,
many individuals are forced into skilled­care
facilities even though this level of
care and supervision is not necessary.
The number of nursing home residents
under age 65 is expected to grow for
several reasons. The parents of disabled
people born during the baby boom
period are aging and may no longer
be able to provide the informal care
required by their disabled offspring.
Individuals born with developmental
disabilities or those who have experi­enced
serious trauma are surviving
because of medical advances but will
increasingly require long-term care.
Also, individuals with AIDS will more
likely require long-term care services
as the course of the disease lengthens.
This report uses data from the Institu­tional
Population Component of the
1987 National Medical Expenditure
Survey (NMES) to characterize people
under age 65 who spent at least one
night in a nursing home in 1987. The
NMES Institutional Population
Component is composed of national,
representative samples of residents of
nursing and personal care homes and
facilities for the mentally retarded.
Data were collected in three phases
and four interviews. Data on resident
characteristics were obtained from a
baseline questionnaire administered to
staff responsible for direct patient care
or other designated staff. Facility data
were obtained from a facility question­naire.
Respondents were facility admin­istrators
or designated staff.
A facility is considered a nursing or
personal care home if it is certified by
Medicare or Medicaid or is a separate
place or unit of another institution
licensed or officially recognized by
a State. Personal care assistance is
defined to be nursing or medical care;
supervision of medications; and help
with bathing, dressing, walking, eating,
correspondence, or shopping.
About lO percent of all nursing and
personal care home users were under
age 65 (table 1 ). Nearly 5 percent were
between the ages of 18 and 54, and
about 6 percent were ages 55 to 64.
The number of men and women in these
age groups was evenly distributed, in
contrast to the population 65 years and
older where 72 percent were women
(table 2, p. 20). In 1987, about 20 per­cent
of nursing home users between
ages 18 and 54 were black. In the older
age groups, this proportion declined to
11 percent for the 55 to 64 age group,
and to 6 percent for the 65 and older
group.
Family Economics Review
More than 56 percent of nursing home
users ages 18 to 54 had never been
married; this likely reflects the type of
health problem that led to institutionali­zation.
In contrast, 33 percent of those
ages 55 to 64 had never been married.
Only 13 percent of nursing home users
ages 65 and over had never been
married.
The regional distribution of nursing
home users differed by age as well. The
age group 18 to 54 was evenly divided
between the Northeast, the Midwest,
and the South (29 percent each), with
only 13 percent found in the West. This
finding may reflect differences in both
the availability of nursing home beds
and in program incentives in the West
such as MediCal, which encourage
disabled individuals to remain in the
community. The regional distribution
of nursing home users in the age group
55 to 64 showed a higher proportion of
residents in the Midwest (31 percent)
and the South (30 percent) than in the
Northeast (20 percent) and the West (19
percent). A similar regional distribution
was observed among the elderly user
population.
More than 36 percent of nursing home
users 18 to 54 years of age had disorders
of the central nervous system, such as
multiple sclerosis, cerebral palsy,
paralysis, and epilepsy; 34 percent
suffered from psychoses; 34 percent
were afflicted by nonpsychotic mental
disorders; and 24 percent had mental
retardation.
Diseases of aging, such as ischemic heart
disease and hypertension, were reported
in 24 and 26 percent of nursing home
users ages 55 to 64. At 37 percent for
each, psychoses and nonpsychotic
mental disorders were the most preva­lent
conditions in the age group 55 to
64. Disorders of the central nervous
system were reported in only 21 percent
of this age group.
1993 Vol. 6 No.3
Table 1. People in nursing and personal care homes, by age,
United States, 1987
Age Number
(in years) (in thousands) Percent
Total population 2,235 100.0
Under 65 231 10.3
18 to 54 106 4.7
55 to 64 125 5.6
65 and older 2,004 89.7
Source: Agency for Health Care Policy and Research, National Medical Expenditure Survey­Institutional
Population Component.
Among nursing home users ages 65
and older, nearly 45 percent suffered
from psychoses, most likely dementia.
Nonpsychotic mental disorders were
found at rates similar to other age
groups. Elderly users also suffered
from diseases of the arteries (38 per­cent)
and arthropathies (32 percent),
which include rheumatoid arthritis
and osteoarthritis.
Twenty-six percent of those ages 18 to
54 had difficulties in activities of daily
living (ADL's)-such as bathing, dress­ing,
transferring from a bed or chair,
toileting, and feeding oneself-but no
mental disorders or mental retardation;
23 percent were without ADL limita­tions
but had one or more mental disor­ders
or mental retardation; and 24 percent
had a high number of ADL limitations
in addition to mental disorders and/or
mental retardation. In the group ages 55
to 64, over 14 percent had only a mental
disorder and no evidence of ADL diffi­culties;
30 percent suffered from ADL
limitations (with or without a mental
disorder). A majority of elderly nursing
horne users had high levels of ADL
limitations (63 percent), many in
combination with mental disorders
(37 percent).
Thirty-two percent of nursing and
personal care home users between the
ages of 18 and 54 had been admitted to
their resident facility from independent
living in the community; 16 percent had
been transferred from another nursing
home; and 40 percent came from a
hospital or other health care facility.
The rest came from retirement homes,
group homes, boarding houses, or the
street. Of nursing home users 55 to 64
years old, 27 percent came from their
home, and 53 percent came from a
hospital or other health care facility.
For users ages 65 and over, 44 percent
had been living independently in the
community and 40 percent transferred
from a hospital. Elderly users were most
likely among the three age groups to
have come to the nursing facility from
their home.
Nursing home users ages 18 to 54 had
been institutionalized longer (6.3 years)
than residents ages 65 and older (4.8
years). Only 10 percent of elderly users
had been institutionalized for I 0 years
or more, compared with 20 percent of
the group ages 18 to 54.
19
Table 2. Selected characteristics of people in nursing and personal care
homes: Percent by age, United States, 1987
Ages Ages Ages 65
Characteristic 18 to 54 55 to 64 and older
Total population (in thousands)1 106 125 2,004
Percent of users
Sex
Male 50.0 46.5 28.2
Female 50.0 53.5 71.8
Racial background
White 77.4 86.4 92.0
Black 19.8 10.8 6.4
Marital status
Married 14.3 25.5 18.0
No longer married2 26.8 41.1 68.8
Never married 56.5 30.9 12.5
Census region
Northeast 28.6 20.5 22.3
Midwest 28.9 30.9 31.4
South 29.2 29.5 29.1
West 13.2 19.0 17.3
Facility ownership
For profit, independent 22.3 22.6 24.3
For profit. chain 45.0 50.2 44.7
Nonprofit, independent 13.0 7.7 15.5
Nonprofit, chain 8.2 8.3 7.4
Public 11.4 11.2 8.2
Bed size
3-49 15.1 12.6 9.8
50-99 16.4 27.2 25.6
100- 149 27.8 27.7 33.0
150 or more 40.8 32.6 31.5
Certification status
Skilled nursing and intermediate 41.8 39.3 44.6
care facility
Skilled nursing facility only 17.6 21.4 24.2
Intermediate care facility only 17.4 25.5 21.2
Not certified 22.9 13.6 10.0
Place of residence
Independent living in the 32.4 27.5 44.0
community
Facility for the mentally 15.6 11.2 10.5
retarded or nursing home
Hospital/health care facility 40.3 53.2 40.4
Other3 11.7 8.1 5.1
1 Includes all other racial groups and people of unknown marital status.
2Widowed, separated, or divorced.
3Includes retirement homes, boarding houses, group houses, correctional facilities, training centers, or
the street; and all other facility types not shown separately.
Source: Agency Health Care Policy and Research, National Medical Expenditure Survey-Institutional
Population Component.
20
Expenditures for nursing home user
ages 18 to 54 were an aggregate $1.6
billion in 1987, compared with $26. L
billion for elderly users. Nearly half of
aggregate nursing home expenditures
for elderly patients was paid by the
elderly themselves or through family
support. For those 18 to 54 years old,
20 percent was paid out of pocket and,
for those 55 to 64 years old, 27 percent.
Of the total expenditures for nursing
home users, Medicaid paid 72 percent
for patients ages 18 to 54, 53 percent for
those ages 55 to 64, and 45 percent for
those ages 65 and over. The Department
of Veterans Affairs paid about 8 percent
of nursing home expenditures for users
55 to 64 years of age, in contrast to
about 1 percent for both of the other
age groups.
The severity and nature of the illnesses
afflicting young nursing home users and
their age-specific social and psychologi­cal
needs present the long-term care
system with a different set of challenges
than those of the typical elderly user.
Given both the nature and variability of
the nursing home population by age and
on other dimensions, further research is
needed to inform policymakers regarding
the expected demands and special needs
of institutionalized people of all ages.
Source: Lair, T., 1992, A Profile of Nursing Home
Users Under Age 65, National Medical Expendi­ture
Survey Research Findings 13, Agency for
Health Care Policy and Research, Public Health
Service, AHCPR Pub. No. 92-0060.
Family Economics Review
-------------- •
Economic
Implications of
Rising Health
Care Costs
This study, conducted by the Congres­sional
Budget Office (CBO) at the
request of the House ColTlJitittee on
Ways and Means, examines the effects
of rising health care costs on the
economy--on workers, businesses, and
governments. It also looks at the impli­cations
of providing health insurance
through an employment-based system.
In keeping with the CBO's mandate to
provide nonpartisan analysis, the report
does not include recommendations.
The CBO predicts that spending on
health care in the United States will
rise from 12 percent of gross domestic
product (GDP) in 1990 to 18 percent
by the year 2000, an increase as large
as that between 1965 and 1991. Total
national spending on health care includes
estimates of spending by the private
sector as well as by government. On
the Federal level, health spending is
the only category of the budget, with
the exception of net interest, that is
rising as a share of GDP. At the State
level, increases in Medicaid costs will
make it more difficult to fund other pro­grams
or provide tax relief. Compared
with other industrialized countries, the
United States spends a much greater
proportion of GDP on health than
would be expected from its per capita
income-without gaining a substan­tially
healthier population.
There are two main reasons why growth
in the health care sector is a cause for
concern. First, most U.S. consumers are
not concerned with costs when they
need major medical attention because
they are covered by health insurance.
Second, because most consumers know
little about medicine, they trust health
care professionals to make health care
decisions for them.
Most of the growth in health care spend­ing
in the United States seems to come
from a persistent upward trend in per
capita spending for health services.
This is especially true for hospitals' and
physicians' services, which together make
up about 60 percent of total national
health spending. However, measure­ment
problems make it difficult to
distinguish between the rising prices for
medical care and the rising quality of
care.
The growth in health care costs imposes
substantial pressures on government
budgets. Medicare and Medicaid, the
Federal Government's health care
entitlement programs, are the fastest
growing portion of its budget. Spending
on these programs has grown from
about 1 percent of GDP in 1970 to 3
percent in 1991, and is expected to
rise to 6.1 percent by the year 2002.
Increases in health costs will lead to
larger Federal budget deficits if law­makers
do not enact legislation to
finance these expenditures.
Rising health care costs exert similar
pressures on the budgets of State and
local governments. Because almost all
States have balanced budget agreements,
increases in health spending will have
to be financed by raising revenues or
cutting public services.
Rising health care costs place signifi­cant
burdens on American workers.
These rising costs have absorbed much
of the growth of employees' real com­pensation
over the past two decades.
Table 1. Payment sources for national health care expenditures as a share of total for selected years, 1960-90
Source 1960 1965 1970 1975 1980 1985 1990
Percent
Private 75.5 75.3 62.8 58.5 58.0 58.6 57.6
Out of pocket 49.2 45.7 34.4 29.0 23.8 22.3 20.4
Health insurance 21.7 24.0 22.5 24.8 29.3 31.7 32.5
Other 4.6 5.5 5.9 4.8 4.8 4.6 4.6
Government 24.5 24.7 37.2 41.5 42.0 41.4 42.4
Federal 10.7 11.6 23.9 27.4 28.8 29.2 29.3
State and local 13.8 13.2 13.3 14.1 13.3 12.1 13.1
Source: Congressional Budget Office based on data from Health Care Financing Administration.
1993 Vol. 6 No.3 21
Together with the slow growth of
productivity, the rising costs for health
insurance explain why workers' cash
wages have hardly grown during this
period.
The market for health care is different
from other markets. Consumers of
health care are often in no position to
shop around and usually lack informa­tion
upon which to base their choices
of treatment. As a result, many of these
choices are made by doctors and other
health professionals who are taught to
provide the best possible care-not the
most cost-effective care. Because
quality health care is so important to
the consumer and because most costs
are not paid out of pocket, neither the
consumer nor the doctor is likely to
pay much attention to the overall costs
of treatment at the point of service.
Furthermore, physicians can earn
more income by providing more care,
which may also contribute to excessive
spending.
The medical care market is also different
from other markets because the govern­ment
subsidizes health care, allowing
some consumers greater access to
medical care than they would otherwise
have. In addition to Medicare and
Medicaid, employment-based health
insurance may be considered a major
subsidy because it is not considered
taxable compensation under the tax
code. This significantly reduces the
effective cost of the insurance and
encourages people to buy more health
insurance-and perhaps more medical
care-than they otherwise would.
Development and use of new and
expensive medical technologies, such
as innovative diagnostic procedures and
new drugs, have raised the overall costs
of health care. Insurance coverage
means that these advances have a ready
market among consumers and health
care providers.
22
Table 2. Health insurance coverage for U.S. population under age 65,
by source of coverage, 1990
Insurance coverage People under age 65
Population under age 65
Insured
Number (millions)
216.7
Percentage of total
100.0
Source of coverage 1
Private insurance
Employment -based
Other
Medicaid
Medicare
Veterans Administration
Not insured
183.5
150.5
14.6
14.6
3.0
0.8
33.1
84.7
69.5
6.7
6.7
1.4
0.4
15.3
1Refers to the individual 's primary insurance coverage when there are multiple sources of coverage.
Source: Congressional Budget Office calculations based on data from the Current Population Sun,ey,
March 1990.
In 1960, consumers paid out of pocket
for about half of all health care expendi­tures.
By 1990, they paid for only about
one-fifth (table 1, p. 21). Health insur­ance
effectively removes the incentives
for patients to seek out low-cost providers,
or for physicians to be cost conscious
on their patients' behalf. Other factors
such as demographic changes, rising
personal income, and higher medical
malpractice costs are sometimes blamed
for increasing the Nation's health care
bill, but they probably do not contribute
significantly to the increases.
In 1990, about 70 percent of the popula­tion
under age 65 was covered by health
insurance received through an employer
(table 2). Although the employment­based
health insurance system seems
to provide workers with insurance at
exceptionally low costs (employers
generally pay most of the premium),
in the long run employers' costs are
largely shifted back to workers in the
form of lower real wages and reduced
nonmedical benefits. Rising health care
costs and minimum-wage laws have
encouraged employers who offer health
plans to move low-wage workers to
part-time status with no coverage, or
replace them with contract workers.
Employers dominate the market for
supplying health insurance because
employers can offer coverage at lower
costs than alternative suppliers. Four
factors account for this cost advantage:
• Federal and State tax code­employer-
sponsored health insur­ance
can be deducted by employers
as an expense, but it is not taxed
as income to the employees. Also,
the portion of health insurance paid
by the employer is not counted in
the wage base for the purpose of
calculating payroll taxes.
• Lower administrative costs-the
fixed costs of setting up and admin­istering
an insurance policy for a
group are spread among many
people, resulting in reduced
average per-person costs.
Family Economics Review
- - • Reduced adverse selection-this is
the tendency for an insurance plan
to attract individuals with medical
needs that an insurance company
cannot detect. Employment-based
insurance policies can reduce
adverse selection by limiting the
easy entry and exit of policyholders
from the insurance pool. In addi­tion,
employers may impose waiting
periods before a new employee is
eligible for insurance and establish
personnel policies that reduce
employee turnover.
• The benefits of a healthy work
force-healthy workers spend less
time on sick leave and may be
more productive on the job, lower­ing
real costs of insurance to
employers.
Rising health care costs cause more
and more Americans to be uninsured.
In 1990, 33 million people under the
age of 65 did not have health insurance.
By the year 2000, CBO predicts that
number will grow to almost 40 million.
In the current employment-based system,
many people are uninsured because
(1) employers do not have to offer
health insurance and employees do not
have to take it; (2) insurance companies
are increasingly using rating and under­writing
policies that exclude high-risk
people; and (3) people with limited
income may not be able to afford health
insurance, relying on the subsidized
medical care provided in the emergency
rooms of public hospitals. Workers with­out
health insurance tend to work for
small companies (table 3), have low
incomes, few skills, and unstable jobs,
and tend to be young.
If the projected increases in Federal
health spending are not offset by in­creases
in taxes or cuts in other Federal
spending, rising health care costs will
mean a larger budget deficit. A larger
deficit reduces the Nation's overall
level of saving, which slows the rate
of capital accumulation, increases our
indebtedness to foreigners, and reduces
the competitiveness of American
industry. If policy makers could stabilize
health costs in relation to GDP, the out­look
for medium-term economic growth
and competitiveness would be much
brighter.
Table 3. Availability of employment-based health insurance plans,
by size of firm, 1989
Number Percentage Percentage of
of employees of firms employees covered
in firm offering plans by those plans
0 to 9 33 42
10 to 24 72 70
25 to 99 94 94
100 to 499 99 97
500 to 999 100 100
1,000 and over 100 100
All firms 43 77
Source: Congressional Budget Office based on data from 1989 Employer Survey by Health Insurance
Association of America.
1993 Vol. 6 No.3
There is enormous interest in reforming
the entire U.S. system of delivering
medical care in the hope of cutting its
cost and extending its reach. However,
health care reform could mean less
spending on research and development;
longer waiting times for access to new
technologies; and limitations on existing
choices of providers, health insurance
coverage, and treatment alternatives.
Whether these trade-offs are acceptable
depends on the priority that the country
places on controlling costs rather than
maintaining the other characteristics of
the health care system.
Source: Congress of the United States,
Congressional Budget Office, 1992, Economic
Implications of Rising Health Care Costs.
23
•
Private Health
Insurance
Premiums in 1987:
Policyholders
Under Age 65
This report, prepared by the Public
Health Service's Agency for Health
Care Policy and Research, presents
preliminary estimates of health insurance
premiums and sources of payment in
1987. The data were obtained from the
Health Insurance Plans Survey (HIPS)
and the Household Survey of the 1987
National Medical Expenditure Survey
(NMES). The NMES, a nationally
representative survey of the civilian
noninstitutionalized population, is de­signed
to provide a larger representation
of population groups of special policy
interest to the Federal Government than
would have been obtained from a ran­dom
sample. These groups include poor
and low-income families, the elderly,
the functionally impaired, and Black
and Hispanic minorities. The HIPS
component obtained premium data from
employers, unions, and insurance carriers.
In 1987, $153 billion was spent on
health insurance premiums for policy­holders
under the age of 65 and their
dependents. Employers contributed 77
percent of this total, policyholders paid
20 percent, and other payers such as
labor unions and professional associations
contributed the rest. On average, 1987
health insurance premiums were $2,606
for family coverage 1 and $1 ,042 for
single coverage.
Most people (86 percent in 1987) who
are privately insured receive their
health insurance through the work­place.
Employer contributions toward
health insurance are not taxed as income,
which reduces the effective price of em­ployment-
related insurance. People who
receive untaxed employer contributions
1Family coverage includes all multi person
coverage, including policyholders with both
single and family coverage.
toward their insurance thus have an
advantage over those who purchase
insurance directly from an insurance
company or association with after-tax
dollars. Also, workers with higher
incomes and higher marginal tax rates
receive a greater benefit from the tax­exempt
status of employer contributions
than do those with lower incomes.
There are several reasons why health
insurance premiums vary in cost. First,
employment-related insurance and insur­ance
offered to members of professional
or similar associations are usually pro­vided
as group insurance, with more
comprehensive benefits and less cost
sharing than its nongroup counterpart.
Second, premium expenses for family
coverage were about 2.5 times the cost
of single coverage in 1987. Third, differ­ences
in administrative costs create vari­ation
in premiums that are typically
related to the size of the group covered.
Other factors, such as medical under­writing
for particular individuals and
for small groups, also contribute to the
variation in premiums.
Table 1. Private health insurance premiums for policyholders under age 65 with single coverage plans
by family income, United States, 1987 '
Number of Total Total annual Total annual
Family income policyholders annual out-of-pocket employer
of policyholder (in thousands) premiums expense contributions
Mean
Total 31,171 $1,042 $263 $755
$10,000 or less 2,692 919 404 507
$10,001- $20,000 7,131 1,021 283 714
$20,00 I - $30,000 6,068 1,043 251 769
$30,001 - $40,000 4,605 1,082 294 758
$40,001 - $50,000 3,431 1,096 200 875
$50,001- $75,000 4,131 1,042 230 792
$75,001 or more 3,115 1,075 186 853
Source: Agency for Health Care Policy and Research, National Medical Expenditure Survey-Health Insurance Plans Survey and Household Survey.
24 Family Economics Review
Table 2. Private health insurance premiums for policyholders under age 65 with family coverage,
by family income, United States, 1987
Number of Total Total annual Total annual
Family income policyholders annual out -of-pocket employer
of policyholder (in thousands) premiums expense contributions
Mean
Total 46,199 $2,606 $478 $2,026
$10,000 or less 1,581 2,338 683 1,553
$10,001-$20,000 5,179 2,457 505 1,832
$20,001 - $30,000 7,808 2,539 523 1,889
$30,001 - $40,000 8,457 2,597 518 2,010
$40,001 - $50,000 7,072 2,655 433 2,087
$50,001 - $75,000 10,235 2,688 435 2,168
$75,001 or more 5,868 2,710 413 2,208
Source: Agency for Health Care Policy and Research, National Medical Expenditure Survey--Health Insurance Plans Survey and Household Survey.
Variation in out-of-pocket premium
expense reflects whether or not the
insurance is sponsored by an employer.
The great majority of policyholders
with insurance that is not employment­related
pay the full premium costs,
whereas about 50 percent of individuals
with employment-related insurance pay
nothing toward their coverage.
Employers contributed an average of
$755 toward the cost of single coverage
in 1987, and out-of-pocket premium
expenses averaged $263 (table 1).
Nearly one-half (49 percent) of policy­holders
paid nothing out of pocket
toward the cost of their coverage. Of
those with income of $10,000 or less,
30 percent paid nothing toward their
coverage, compared with 58 percent
of those with income over $75,000.
Of single-coverage policyholders with
income of $10,000 or less, 59 percent
had contributions from their employer,
compared with 86 to 90 percent for
those with income over $40,000.
1993 Vol. 6 No.3
Employer contributions averaged $507
for policyholders in the lowest income
group, compared with $714 to $875 for
other policyholders.
Policyholders with family coverage
averaged $478 in out-of-pocket pre­mium
expenses in 1987 (table 2). Forty­three
percent of these policyholders
paid nothing out of pocket toward their
coverage. Policyholders with family
incomes of $10,000 or less paid $683
out of pocket for their family coverage,
compared with $413 to $435 for policy­holders
with family incomes above
$40,000.
Employers contributed an average
of $2,026 toward the cost of family
coverage. A higher proportion of policy­holders
with family coverage (90 per­cent)
received help from employers in
paying for their health insurance than
did those with single coverage (82 per­cent).
However, those with family
coverage were less likely than those
with single coverage to have policies
paid for entirely by employers or other
sources (43 and 49 percent).
The distribution of health insurance
premiums should be useful to analysts
and policymakers in assessing the
potential implications of changes in
the tax treatment of health insurance
premiums.
Source: Vistnes, J., 1992, Private health insurance
premiums in 1987: Policyholders under age 65,
National Medical Expenditure Survey Data
Summary 5, Agency for Health Care Policy and
Research, Public Health Service, AHCPR Pub.
No. 92-0061.
25
•
Projections of
National Health
Expenditures
Spending on health care in the United
States has increased rapidly in recent
decades, placing considerable pressure
on both private and public budgets. This
report reviews the growth in national
health spending since 1965 and provides
projections through the year 2000. The
study was undertaken by the Congres­sional
Budget Office (CBO) at the
request of the House Committee on
Ways and Means.
CBO's projections of national health
spending assume that government
health programs, Jaws, and regulations
do not change over the rest of the
decade. The projections also assume
that current trends in clinical medical
practices and procedures will continue
and that there will be no major structural
change in the private sector's employer­based
health insurance system.
The growth in national health spending
can be divided into three distinct periods:
1965 to 1983, when it grew largely
unencumbered by policy or financing
constraints; 1983 to 1987, when govern­ment
and private cost-containment
efforts temporarily reduced the growth
of health spending and the number of
uninsured people increased signifi­cantly;
and 1987 to 1990, when more
rapid growth of expenditures resumed.
Projections are divided into two periods:
1990 to 1992, a time of recession; and
1992 to 2000, assumed to be a period
of relatively stable economic growth.
In 1965, national health expenditures
totaled $42 billion. Over the next 15
years, health spending grew at an
average annual rate of 12.7 percent
and totaled $250 billion in 1980. Total
spending on health care is projected to
26
reach about $800 billion in 1992 and
nearly $1.7 trillion in 2000. Between
1992 and 2000, spending on health
care is expected to grow at an average
annual rate of 9.6 percent, almost 4 per­centage
points faster than the projected
gross domestic product (GDP) growth
of 5.8 percent.
Despite the weak economy of the last 2
years, employment and incomes in the
health sector of the economy have in­creased
significantly. The total number
of jobs in the health sector increased by
639,000 from May 1990 through May
1992, while the number of nonhealth
jobs fell by 2.4 million. The average
net income 1 of physicians ($164,000 in
1990) grew at an annual growth rate of
6.6 percent between 1982 and 1990,
compared with a growth rate of only
4.3 percent a year for all full-time workers
during the same period. Similarly,
community hospital2 margins (the net
of revenues less expenses) were 5.2 per­cent
in 1991, higher than their 20-year
average of 4.2 percent.
Projections by Type of
Spending
Hospital, physician, drug, and nursing
home expenditures (all personal health
categories) accounted for nearly 75 per­cent
of national health spending in 1990
(table 1). CBO projects that hospital
spending will increase at an average rate
of 10 percent a year during the 1990's,
up from 9.5 percent in the 1980's.
Physician services will increase by 9.7
percent, down from 11.6 percent in the
1980's. Spending on drugs is projected
to grow by 7.5 percent annually in the
1990's and nursing home care, by 10
percent.
1Income less office expenses, malpractice
insurance premiums, and similar expenses.
1-he Health Care Financing Administration de­fines
community hospitals as "acute care hospitals
whose average length of stay is less than 30 days
and whose facilities and services are open to the
general public."
Smaller categories of personal health
spending, which accounted for about 16
percent of total national health expendi­tures
in 1990, include dental care, other
profe sional ervices, home health care,
vi ion product and durable medical
equipment, and other personal expendi­tures.
These categories, with the excep­tion
of other professional services, are
characterized by relatively large propor­tions
of out-of-pocket payments and
lower rates of expenditure growth.
Other national health expenditures,
which do not apply to direct patient
care, include construction and research,
investments related to future health
care, and certain administrative costs
of government programs, public health
services, and private health insurance.
These other national health expendi­tures
accounted for about 12 percent of
total national health spending in 1990
and are expected to grow at an average
annual growth rate of 7. 7 percent be­tween
1992 and 2000.
Projections by Source of Funds
All health spending eventually comes
out of the consumer's pocket through
direct payments, higher taxes, and
lower wages. Direct patient payments
tend to grow much more slowly than
payments made by third parties.
Relatively slow growth in out-of-pocket
payments is consistent with the basic
motivation for health insurance­people
want to avoid large and
uncertain out-of-pocket expenditures.
Out-of-pocket payments by patients,
private health insurance payments, and
other private payments are projected to
decline, as a percent of national health
spending, from 58 percent in 1990 to 52
percent in 2000 (table 2).The proportion
of national health expenditures paid
directly by patients is expected to
decline from 20 percent in 1990 to
16 percent in 2000.
Family Economics Review
Table 1. Projections of National Health Expenditures, by type of spending
Selected calendar years
Type of pending 1965 1980 1985 1990 19921
$Billions
Ho pita! 14 102 168 256 310 416 671
Physician 8 42 74 126 153 204 316
Drugs, other nondurables 6 22 36 55 63 78 111
Nursing home 2 20 34 53 65 87 137
All other 12 64 110 177 218 287 444
Total 42 250 423 666 808 1,072 1,679
Average annual growth rate from previous year shown (percent)
Hospital 14.2 10.4 8.8 10.0 10.3 10.1
Physician 11.5 12.0 11.2 10.4 10.0 9.1
Drugs, other nondurables 9.0 10.9 8.6 7.1 7.5 7.4
Nursing home 17.9 11.3 9.3 10.5 10.3 9.5
All other 12.0 11.4 10.0 11.0 9.7 9.1
National Health Expenditure 12.7 11.1 9.5 10.1 9.9 9.4
Gross Domestic Product($ billions)2 703 2,708 4,039 5,514 5,931 7,104 9,322
Average annual growth of Gross Domestic
Product (percent)2 9.4 8.3 6.4 3.7 6.2 5.6
Ratio of National Health Expenditures to
Gross Domestic Product2 5.9 9.2 10.5 12.1 13.6 15.1 18.0
1 Projected.
2Economic assumptions reflect the Congressional Budget Office baseline of January 1992.
Note: Details may not add to totals because of rounding.
Source: The Congress of the United States, Congressional Budget Office, 1992, Projections of National Health Expenditures.
CBO foresee that private health
insurance benefits will continue to
grow rapidly despite a slow increase in
the number of people covered and a de­cline
in the proportion of the population
covered by private health insurance. On
the other hand, Medicare and Medicaid
are expected to cover an expanding
proportion of the population. Since both
are entitlement programs, CBO assumes
that under current law, spending for these
programs will continue to increase rap­idly
on behalf of the entitled populations.
1993 Vol. 6 No.3
Almost all the elderly have guaranteed
access to health care through the Medi­care
program, which pays the bulk of
hospitalization costs and offers a heavily
subsidized insurance program for physi­cian
services and other out-patient care.
The Medicaid program, which provides
medical services for about one-half of
the Nation's poor, is the fastest growing
source of funds for national health ex­penditures.
Its share of payments is
expected to rise from 11 percent in 1990
to nearly 19 percent in 2000. Recent
expansions in eligibility, rising reim­bursement
rates mandated by the courts,
and the weakening of private health
insurance account for this increase.
Medicaid furnished about 6 percent
of the population with their primary
coverage in 1991.
Other private payments include hospital
nonpatient revenues and philanthropy.
Other Federal funding is provided
through the Department of Defense,
the Department of Veterans Affairs, and
the National Institutes of Health. Other
State and local health payments include
workers' compensation, direct support
of public hospitals and school health
programs, and public health efforts.
27
Table 2. Projections of National Health Expenditures, by source of funds
Selected calendar years
Source of funds 1965 1980 1985 1990 19921 19951 20001
$ Billions
Private 31 145 248 384 441 574 869
Public
Federal 5 72 124 195 253 343 566
State and local 5 33 51 87 115 155 244
Total 42 250 423 666 808 1,072 1,679
Percentage of total
Private 75.3 58.0 58.6 57.6 54.5 53.5 51.7
Public
Federal 11.6 28.8 29.2 29.3 31.3 32.0 33.7
State and local 13.2 13.3 12.1 13.1 14.2 14.5 14.5
Average annual growth rate from previous year shown (percent)
Private 10.8 11.3 9.1 7.2 9.2 8.7
Public
Federal 19.7 11.4 9.6 13.7 10.7 10.5
State and local 12.8 9.0 11.3 14.7 10.6 9.5
National Health Expenditures 12.7 11.1 9.5 10.1 9.9 9.4
1 Projected.
Note: Details may not add to totals because of rounding.
Source: The Congress of the United States, Congressional Budget Office, /992, Projections of National Health Expenditures.
Contributors to Spending
Growth
Factors that may account for growth ; •
health care spending are: Population
growth, the demographic composition
of the population, trends in the per
capita use of basic health care services
(for example, hospital days and physi­cian
visits), overall inflation rates, trends
in the relative prices of health services,
and the intensity of the services provided. 3
The projected 9.8 percent average an­nual
growth in personal health spending
between 1992 and 2000 is based on the
combination of increasing prices, expen­sive
new services and procedures, and
additional services and procedures per
medical contact.
3Intensity can be either extra services provided
per contact or more involved, complex, or capital­intensive
procedures (such as the use of advanced
technolgies) per contact.
28
CBO projects relatively slow economic
growth during the rest of the 1990's,
with low inflation. Under these assump­tions,
GDP will average real growth of
2.6 percent per year between 1992 and
2000. Population growth, especially
that of the elderly, will slow somewhat
during the 1990's. The number of people
over age 65 will increase 1 percent per
year between 1992 and 2000, compared
with an average growth of 2 percent per
year in the 1970's and 1980's. The share
of people over age 85 will continue to
grow during the 1990's, increasing the
need for nursing home beds. However,
States, which pay for a significant
amount of nursing home care through
Medicaid, have been reluctant to issue
permits for new nursing home construc­tion,
preventing the number of nursing
home beds from keeping up with the
demands of the aging population.
In 1990, Medicaid paid for about 45
percent of all nursing home care, and
consumers paid for another 45 percent
out of pocket.
The share of national health spending
by governments is expected to grow
during the 1990's. Higher government
spending on health care has serious
implications for the Federal budget;
the projected increase in health care
spending outpaces the growth in all
other major components of the budget,
threatens to preempt resources from
other government programs, and makes
deficit reduction more difficult.
Source: The Congress of the United States,
Congressional Budget Office, 1992, Projections
of National Health Expenditures.
Family Economics Review
Regular Items •
Recent Legislation Affecting Families
1993 Vol. 6 No.3
Public Law 103-3 (enacted
February 5, 1993)-the Family and
Medical Leave Act requires businesses
to give employees up to 12 weeks of
unpaid leave a year for the care of a
new baby; the adoption of a child or the
placement of a foster child; the serious
illness of a child, spouse, or parent; or
the employee's own serious health
condition. Employees are eligible for
this benefit if they have worked for the
employer for at least 12 months and for
at least 1,250 hours during that period.
Employees who work for a business
with fewer than 50 employees within a
75-mile radius are excluded. Employees
must provide their employers with 30
days' notice when the leave is foreseeable.
The law allows employers to require
that a request for leave be supported by
a health care provider's certification of
the medical condition of the employee's
child, spouse, or parent. The certifica­tion
should include a statement that the
employee is needed to provide the care,
plus an estimate of the amount of time
employee will be needed. If the em­ployee
is ill, the certification should
include a statement that the employee
is unable to perform his or her job.
Employers are required to maintain
health care benefits for employees on
leave, and must restore any employee
who has taken leave to the position
held when the leave began or restore
the employee to an equivalent position
with equivalent employment benefits,
pay, and other conditions. Employers
can deny leave to the highest paid 10
percent of workers if such denial is
necessary to prevent substantial and
grievous economic injury to the
business. The law takes effect in
August 1993.
Public Law 103-6 (enacted March 4,
1993}--extends the Federal Emergency
Unemployment Benefits Program from
March 7, 1993, through October 2, 1993.
The bill will provide emergency benefits
for an extra 20 or 26 weeks, depending
on the unemployment rate in the
recipient's State, to an estimated 1.5
million workers who have exhausted
their State unemployment compensa­tion.
The cost, estimated at $5.7 billion,
will be paid entirely by the Federal
Government.
29
30
•
Charts From Federal Data Sources
Distribution of families, by income
100
80
60
40
20
0
White Black
$thousands
• >50
• 35-50
• 25-35
0 15-25
o<15
Source: Bennett, C.E., 1992, The Black Population in the United States: March 1991, Current
Population Reports, Population Characteristics, Series P-20, No. 464, U.S. Department of
Commerce, Bureau of the Census.
Percentage of householders with children under age 18 who
cannot afford a median-priced home 1 in region, 1988
Married-couple families
Northeast 43.9
Midwest 40.3
South 51.5
West 57.1
All 48.3
Female-headed families
Northeast 91 .0
Midwest 86.2
South 84.0
West 89.7
All 87.1
1 Using conventional, fixed-rate, 30-year financing.
Source: Fronczek, P.J. and Savage, H.A. , 1991, Who Can Afford to Buy a House? Current
Housing Reports H121/91-1, U.S. Department of Commerce, Bureau of the Census.
Family Economics Review
Living arrangements of children under 18 years, by race
100
80
60
40
20
0
White Black
1980
White Black
1970
D Two parents II Mother only II Father only 0 Others
Source: Saluter, A. F., 1992, Marital Status and Living Arrangements: March 1991, Current
Population Reports, Population Characteristics, Series P-20, No. 461, U.S. Department of
Commerce, Bureau of the Census.
Distribution of native.-born and foreign-born population, June 1988
Native born Latin America
Asia Europe
• Midwest • South 0 West 0 Northeast
Source: U.S. Department of Commerce, Bureau of the Census, 1992, Studies in American
Fertility, Current Population Reports, Special Studies, Series P-23, No. 176.
1993 Vol. 6 No.3 31
•
Data Sources
National Survey of Families
and Households
Sponsoring agency: Center for
Demography and Ecology, University
of Wisconsin-Madison.
Population covered: People age 19 and
older, living in households, and able to
be interviewed in English or Spanish.
Sample size: About 13,000 respondents
with an oversampling of minorities,
one-parent families, families with
stepchildren, cohabitors, and recently
married couples.
Geographic distribution: Nationwide
Years data collected: 1987-88
1988 National Survey of
Adolescent Males
Sponsoring agency: U.S. Department
of Health and Human Services
Population covered: Never married,
noninstitutionalized American males
15 to 19 years old with an oversampling
of Blacks and Hispanics.
Sample size: 1,880
Geographic distribution: The contigu­ous
United States
Years data collected: April-November
1988
32
Method of data collection: Personal
interview and self-administered
questionnaire to one adult in the house­hold,
with a shorter self-administered
questionnaire given to the spouse or
partner.
Future surveys planned: A 5-year
followup survey is planned.
Major variables: Household composi­tion,
household history, marriage and
cohabitation history, social background
of spouse, marital situation, fertility
history and expectations, quality of
relationship with children, social and
economic characteristics.
Method of data collection: Personal
interview (except for sensitive questions,
which were asked in a confidential self­administered
questionnaire).
Future surveys planned: A followup
survey was completed in 1990. Data
should be available in late 1993.
Major variables: Over 850 variables
focusing on: Education and knowledge
about human sexuality, contraception,
and sexually transmitted diseases;
history of sexual activity, contraceptive
use, alcohol or drug use; and socio­economic
characteristics.
Sources for further information
and data:
Center for Demography and Ecology
University of Wisconsin-Madison
4412 Social Science Building
1180 Observatory Drive
Madison, WI 53706-1393
(608) 262-2182
Sources for further information
and data:
Sociometries Corporation
170 State Street, Suite 260
Los Altos, CA 94022-2812
(415) 949-3282
Family Economics Review
•
Journal Abstracts and Book Summary
The following abstracts are reprinted verbatim as they appear in the cited source.
Kingson, E.R. and O'Grady-LeShane,
R. 1993. The effects of caregiving on
women's Social Security benefits.
The Gerontologist 33(2):230-239.
Using data from the Social Security
Administration's 1982 New Beneficiary
Survey, we tested a life-course model
that suggests that early- and late-life
caregiving reduce monthly Social
Security benefits of newly retired
women workers. Each child raised
was associated with a loss of $8 to
$16 dollars in the 1983 Social Security
primary insurance amounts (PIAs).
The 1983 PIAs of women leaving their
last jobs to care for others were $127
lower than the PIAs of women who left
because of the availability of Social
Security benefits, to receive a pension,
or because they wanted to retire. Leaving
work to care for others exerted a
stronger depressing effect on the Social
Security benefits of women with low­and
moderate- as opposed to high­earnings
histories.
McChesney, K.Y. 1992. Absence of a
family safety net for homeless families.
Journal of Sociology and Social
Welfare XIX(4):55-72.
Analysis of data from interviews of 80
mothers in five shelters for homeless
families suggests that the availability
of housing support from kin may be
a selection mechanism determining
which families become homeless. The
availability of kin housing support is
seen as a function of four factors: family
structure, proximity, control of ade­quate
housing resources, and estrange­ment.
Policy implications are discussed.
1993 Vol. 6 No.3
Meyer, D.R. and Garasky, S.1993.
Custodial fathers: Myths, realities,
and child support policy. Journal of
Marriage and the Family 55{1):73-89.
Men are increasingly receiving custody
of their children, and single-father
families with children are increasing
at a faster rate than even single-mother
families. However, many observers
still believe that there are few custodial
fathers. Indeed, there are a number of
myths concerning custodial fathers. We
examine three data sets and determine
that many of these assumptions about
custodial fathers are simply not true.
We argue that current child support
policies should be reexamined to ensure
that they follow the same principles
when the custodial parent is the father
as when the custodial parent is the
mother.
Walden, M.L. 1992. The relative
benefits of making a higher down
payment or paying points for a lower
interest rate. Financial Counseling
and Planning, Vol. 3, pp. 63-77.
An overlooked decision in homebuying
is whether making a higher down pay­ment
or paying points to lower the mort­gage
interest rate is better. This paper
outlines the relative costs and benefits
of each option and then simulates the
options for various mortgage interest
rates, lengths of stay, and tax brackets.
Internal rates of return are derived as
the measure of relative benefit. In
typical cases, paying more points to
lower the mortgage interest rate is
superior to making a larger down
payment.
Friedman, M. 1991. A "Brand" New
Language. Greenwood Press,
Westport, CT.
This book brings together a series of
studies on changes in language found
in the popular Literature of the United
States since World War II. The studies
concern how commercial develop­ments,
as indicated by brand names,
have permeated the language used in
literary works.
Each of the studies is examined in a
separate chapter. The final chapter
summarizes the major findings of the
various studies.
Three measures were used to describe
the commercial influence upon
language: Frequency and variety of
brand names and frequency of generic
names. Results of content analyses of
popular novels, plays, and songs were
consistent: Since World War II, in
popular American literature,
• marked increases have occurred in
the number and variety of brand
names;
• parallel increases have not occurred
for generic name usage;
• brands most frequently mentioned
represent products high on the
dimension of value expressiveness
(such as automobiles and
magazines).
33
• Estimated Annual Expenditures on a Child by Husband-Wife Families,
Lower Income Level, 1992 1
Education,
Transpor- Health Child Care,
Age of Child Total Housing Food tation Clothing Care and Other
U.S. Overall (Income: <$32,100)
0-2 ........ .. . 4,630 1,880 690 620 330 270 840
3-5 ....•...... 4,970 1,820 780 680 370 250 1,070
6-8 ..... . . .. . . 4,940 1,820 1,000 730 400 260 730
9- 11 ....... .. . 4,780 1,690 1,130 650 410 270 630
12- 14 .......... 5,500 1,620 1,220 990 670 280 720
15- 17 .... . .. . .. 5,870 1,600 1,380 1,250 630 300 710
Total ....... ... . 92,070 31,290 18,600 14,760 8,430 4,890 14,100
Urban West (Income: <$32,300)
0-2 ........... 4,950 2,210 760 570 320 240 850
3-5 ........... 5,300 2,190 850 610 350 220 1,080
6-8 . ..... .. ... 5,310 2,180 1,080 660 380 230 780
9- 11 . . . ..... . . 5,180 2,050 1,230 580 390 240 690
12- 14 ......•. .. 5,890 1,980 1,320 920 640 240 790
15- 17 . ......... 6,230 1,950 1,470 1,190 600 260 760
Total . ... .. ..... 98,580 37,680 20,130 13,590 8,040 4,290 14,850
Urban Northeast (Income: <$33,000)
0-2 ........... 4,860 2,180 820 520 330 240 770
3-5 ........... 5,210 2,160 910 560 360 220 1,000
6-8 ......... .. 5,230 2,150 1,150 610 390 240 690
9- 11 .... .... .. 5,090 2,010 1,310 530 400 250 590
12- 14 ........•. 5,800 1,940 1,390 870 660 250 690
15- 17 .. ... ..... 6,1 60 1,910 1,550 1,140 i 620 270 670
Total . . .. . ... ... 97,050 37,050 21,390 12,690 8,280 4,410 13,230
Urban South (Income: <$31 ,600)
0-2 . . .. . .. .... 4,730 1,870 690 660 360 300 850
3-5 .. . .... ... . 5,080 1,850 780 700 400 270 1,080
6-8 .. ........ . 5,050 1,840 1,000 760 430 290 730
9- 11 . ..• ...... 4,910 1,720 1,140 680 450 300 620
12- 14 .......... 5,620 1,650 1,220 1,020 710 310 710
15- 17 .......... 5,990 1,620 1,370 1,290 670 330 710
Total ........... 94,140 31,650 18,600 15,330 9,060 5,400 14,100
Urban Midwest (Income: <$31 ,600)
0-2 ........... 4,540 1,800 650 580 350 250 910
3-5 . ... .....•. 4,890 1,770 740 620 380 230 1,150
6-8 ...... .. ... 4,850 1,770 950 670 420 240 800
9- 11 ... .... ... 4,670 1,640 1,080 590 430 250 680
12- 14 ... . . .. ... 5,390 1,580 1,160 920 700 260 770
15- 17 ........ .. 5,750 1,540 1,310 1,190 660 280 770
Total .... .... ... 90,270 30,300 17,670 13,710 8,820 4,530 15,240
Rural (Income: <$31 ,700)
0-2 ........... 4,090 1,350 580 750 320 290 800
3-5 ...... .... . 4,430 1,320 670 790 360 260 1,030
6-8 .. . .... . ... 4,400 1,320 860 860 390 280 690
9- 11 . .... . .... 4,210 1,1 90 980 780 400 290 570
12- 14 .......... 4,920 1,130 1,060 1 '110 660 300 660
15-17 .. .. ...... 5,270 1,090 1,210 1,380 620 310 660
Total ........... 81 ,960 22,200 16,080 17,010 8,250 5,190 13,230
1
Estimates are for the younger child in a two-child family.
Source: USDA, ARS, Family Economics Research Group. 1993. Expenditures on a Child by Families, 1992.
34 Family Economics Review
Estimated Annual Expenditures on a Child by Husband-Wife Families,
Middle Income Level, 19921
Education,
Transpor- Health Child Care,
Age of Child Total Housing Food tation Clothing Care and Other
U.S. Overall (Income: $32,100 to $51 ,900)
0 - 2 . .. ........ 6,610 2,490 870 1,040 430 340 1,440
3- 5 .......... . 7,010 2,430 1,000 1,100 460 320 1,700
6-8 ..... . .. . .. 6,960 2,440 1,270 1,180 500 340 1,230
9-11.. ........ 6,770 2,300 1,430 1 '110 510 350 1,070
12 - 14 ...•... . .. 7,540 2,240 1,510 1,440 840 360 1,150
15 - 17 .......... 8,000 2,210 1,680 1,710 790 380 1,230
Total ......... .. 128,670 42,330 23,280 22,740 10,590 6,270 23,460
Urban West (Income: $32,300 to $52,200)
0-2 ........... 6,860 2,800 920 1,000 410 310 1,420
3-5 ........... 7,280 2,770 1,070 1,040 440 290 1,670
6-8 .... . ...•.. 7,290 2,770 1,350 1,130 480 310 1,250
9 - 11 .......... 7,120 2,640 1,520 1,050 490 320 1,100
12 - 14 .......... 7,880 2,570 1,600 1,390 800 320 1,200
15 - 17 .. . ....... 8,300 2,530 1,770 1,660 760 340 1,240
Total ........... 134,190 48,240 24,690 21 ,810 10,140 5,670 23,640
Urban Northeast (Income: $33,000 to $53,300)
0 - 2 ........... 6,820 2,800 980 950 420 320 1,350
3 - 5 ........... 7,250 2,770 1,130 990 450 300 1,610
6-8 ........ .. . 7,240 2,770 1,420 1,070 490 320 1,170
9 - 11 .......... 7,080 2,630 1,600 1,000 500 330 1,020
12- 14 ...... . . .. 7,840 2,560 1,680 1,330 830 330 1 '11 0
15 - 17 .......... 8,270 2,520 1,850 1,610 780 350 1,160
Total ........... 133,500 48,150 25,980 20,850 10,410 5,850 22,260
Urban South (Income: $31,600 to $51 ,000)
0-2 . . ......... 6,650 2,430 850 1,090 460 380 1,440
3-5 . . .... .. . . . 7,110 2,410 1,000 1,140 500 360 1,700
6 - 8 ......... . . 7,040 2,400 1,260 1,230 540 380 1,230
9 - 11.. ........ 6,840 2,280 1,420 1,150 550 390 1,050
12- 14 .......... 7,610 2,210 1,500 1,490 890 390 1,130
15- 17 .... .. .... 8,090 2,180 1,660 1,760 840 420 1,230
Total . . ......... 130,020 41 ,730 23,070 23,580 11 ,340 6,960 23,340
Urban Midwest (Income: $31 ,600 to $51 ,1 00)
0 - 2 ........... 6,470 2,370 820 1,000 440 320 1,520
3 - 5 . . .. . .... . . 6,910 2,340 960 1,050 480 300 1,780
6 - 8 .... . ...... 6,820 2,340 1,210 1,130 520 320 1,300
9-11 ......... . 6,610 2,210 1,370 1,050 530 330 1,120
12- 14 . .......•. 7,400 2,140 1,450 1,390 870 340 1,210
15 - 17 .......... 7,880 2,110 1,610 1,660 830 360 1,310
Total . .......... 126,270 40,530 22,260 21 ,840 11 ,010 5,910 24,720
Rural (Income: $31,700 to $51 ,200)
0-2 ........... 6,020 1,910 740 1 '180 420 370 1,400
3-5 . . .. . .... . . 6,440 1,890 880 1,220 450 340 1,660
6 - 8 ........... 6,350 1,880 1 '11 0 1,320 490 360 1,190
9-11 ........ .. 6,140 1,760 1,260 1,240 500 370 1,010
12 - 14 .......... 6,920 1,690 1,340 1,580 830 380 1,100
15 - 17 .... .... .. 7,380 1,660 1,500 1,850 780 400 1,190
Total ........... 117,750 32,370 20,490 25,170 10,410 6,660 22,650
1
Estimates are for the younger child in a two-child family.
Source: USDA, ARS, Family Economics Research Group. 1993. Expenditures on a Child by Families, 1992.
L993 Vol. 6 No. 3 35
Estimated Annual Expenditures on a Child by Husband-Wife Families,
Higher Income Level, 19921
Education,
Transpor- Health Child Care,
Age of Child Total Housing Food tat ion Clothing Care and Other
U.S. Overall (Income: >$51 ,900)
0 - 2 ........... 9,430 3,730 1,050 1,430 530 420 2,270
3 - 5 .. . ........ 9,950 3,670 1,270 1,490 570 400 2,550
6 - 8 .........•. 9,800 3,680 1,520 1,600 610 430 1,960
9 - 11 ... . . . .... 9,580 3,540 1,710 1,530 620 440 1,740
12 - 14 .....• . .• . 10,470 3,480 1,870 1,860 1,000 450 1,810
15- 17 .......... 11 ,000 3,450 1,970 2,130 950 470 2,030
Total ...... . .... 180,690 64,650 28,170 30,120 12,840 7,830 37,080
Urban West (Income: >$52,200)
0-2 ........... 9,620 4,000 1,100 1,400 500 390 2,230
3-5 ........... 10,160 3,970 1,330 1,440 540 370 2,510
6 - 8 ........... 10,040 3,970 1,590 1,560 570 390 1,960
9- 11 .......... 9,850 3,840 1,790 1,480 590 400 1,750
12- 14 .......... 10,730 3,770 1,950 1,820 950 410 1,830
15 -17 .......... 11 ,210 3,730 2,050 2,100 900 430 2,000
Total ......... .. 184,830 69,840 29,430 29,400 12,150 7,170 36,840
Urban Northeast (Income: >$53,300)
0 - 2 ...... . .... 9,630 4,050 1,150 1,350 510 400 2,170
3 - 5 ........... 10,210 4,030 1,390 1,400 550 380 2,460
6-8 ........... 10,060 4,020 1,650 1,510 590 400 1,890
9 - 11 .... . ..... 9,850 3,880 1,860 1,430 600 410 1,670
12 - 14 .......... 10,740 3,810 2,020 1,770 970 420 1,750
15 -17 .......... 11 ,240 3,780 2,120 2,040 920 440 1,940
Total ....... . .. . 185,190 70,710 30,570 28,500 12,420 7,350 35,640
Urban South (Income: >$51,000)
0-2 ..... . ..... 9,400 3,580 1,030 1,490 570 470 2,260
3 - 5 .....•..... 9,930 3,550 1,250 1,530 620 440 2,540
6 - 8 . . ... . ..... 9,780 3,550 1,500 1,660 650 470 1,950
9 - 11 ... . .... . . 9,560 3,430 1,690 1,580 670 480 1,710
12- 14 ....•.... 10,440 3,360 1,840 1,920 1,050 490 1,780
15 - 17 .....•..•. 11 ,010 3,330 1,940 2,190 1,000 510 2,040
Total ...... . .... 180,360 62,400 27,750 31 ,110 13,680 8,580 36,840
Urban Midwest (Income: >$51 ,1 00)
0-2 . .......... 9,220 3,530 990 1,400 540 410 2,350
3 - 5 .... . ...... 9,750 3,500 1,210 1,440 580 380 2,640
6 - 8 ........... 9,570 3,500 1,450 1,560 620 400 2,040
9- 11 .......... 9,340 3,370 1,640 1,480 630 420 1,800
12 - 14 .......... 10,220 3,310 1,790 1,810 1,020 420 1,870
15 -17 .......... 10,770 3,270 1,880 2,080 970 440 2,130
Total .......... . 176,610 61,440 26,880 29,310 13,080 7,410 38,490
Rural (Income: >$51 ,200)
0 - 2 ........... 8,780 3,070 930 1,580 510 450 2,240
3 - 5 ........... 9,290 3,040 1,130 1,620 560 420 2,520
6 - 8 ......•.... 9,110 3,040 1,360 1,750 590 450 1,920
9 - 11 .......... 8,860 2,910 1,530 1,670 610 460 1,680
12 - 14 .......... 9,730 2,840 1,680 2,010 980 470 1,750
15 - 17 .......... 10,300 2,810 1,780 2,280 930 490 2,010
Total ...... . .... 168,210 53,130 25,230 32,730 12,540 8,220 36,360
1
Estimates are for the younger child in a two-child family.
Source: USDA, ARS, Family Economics Research Group. 1993. Expenditures on a Child by Families, 1992.
36 Family Economics Review
• Estimated Annual Expenditures on a Child by Single-Parent Families,
Overall United States, 19921
Education,
Transpor- Health Child Care,
Age of Child Total Housing Food tation Clothing Care and Other
Income: Less than $32,100
0 - 2 ........... 4,030 1,450 740 1,030 190 100 520
3-5 ....•...... 5,110 1,690 770 1,300 270 160 920
6-8 ....•...... 5,520 1,930 1,010 1,250 300 170 860
9 -11 ......... . 5,840 1,930 1,080 1,370 340 200 920
12- 14 .... .. • . .. 5,690 1,780 1,220 1,340 640 240 470
15-17 ........ .. 6,020 1,890 1,290 1,510 630 220 480
Total ........... 96,630 32,010 18,330 23,400 7,110 3,270 12,510
Income: $32,100 or more
0-2 . . .. . ...... 8,400 3,200 1 '11 0 1,810 290 260 1,730
3-5 . . ......... 9,810 3,440 1,210 2,170 380 370 2,240
6-8 ........... 10,130 3,680 1,490 2,040 420 390 2,110
9 -11 .......... 10,540 3,680 1,690 2,200 460 440 2,070
12- 14 . . .....•.. 10,310 3,530 1,800 2,160 840 500 1,480
15-17 .. .... .... 10,720 3,640 1,870 2,380 830 460 1,540
Total ........... 179,730 63,510 27,510 38,280 9,660 7,260 33,510
1
Estimates are for the younger child in a two-child family.
Source: USDA, ARS, Family Economics Research Group. 1993. Expenditures on a Child by Families, 1992.
1993 Vol. 6 No.3 37
•
Poverty Thresholds
Weighted average poverty thresholds 1 for nonfarm families of specified size, 1965-92
Families of 2 people or more
Unrelated individuals 2 people Annual average
Calendar Householder Householder 3 4 5 6 CPI, all items
year Under Age 65 under age 65 people people people people (1982-84 = 1 00)
All ages age 65 or older All ages age 65 or older
1965 $1 ,582 $1,626 $1,512 $2,048 $2,114 $1 ,906 $2,514 $3,223 $3,797 $4,264 31 .5
1966 1,628 1,674 1,556 2,107 2,175 1,961 2,588 3,317 3,908 4,388 32.5
1967 1,675 1,722 1,600 2,168 2,238 2,017 2,661 3,410 4,019 4,516 33.4
1968 1,748 1,797 1,667 2,262 2,333 2,102 2,774 3,553 4,188 4,706 34.8
1969 1,840 1,893 1,757 2,383 2,458 2,215 2,924 3,743 4,415 4,958 36.7
1970 1,954 2,010 1,861 2,525 2,604 2,348 3,099 3,968 4,680 5,260 38.8
1971 2,040 2,098 1,940 2,633 2,716 2,448 3,229 4,137 4,880 5,489 40.5
1972 2,109 2,168 2,005 2,724 2,808 2,530 3,339 4,275 5,044 5,673 41.8
1973 2,247 2,307 2,130 2,895 2,984 2,688 3,548 4,540 5,358 6,028 44.4
1974 2,495 2,562 2,364 3,211 3,312 2,982 3,936 5,038 5,950 6,699 49.3
1975 2,724 2,797 2,581 3,506 3,617 3,257 4,293 5,500 6,499 7,316 53.8
1976 2,884 2,959 2,730 3,711 3,826 3,445 4,540 5,815 6,876 7,760 56.9
1977 3,075 3,152 2,906 3,951 4,072 3,666 4,833 6,191 7,320 8,261 60.6
1978 3,311 3,392 3,127 4,249 4,383 3,944 5,201 6,662 7,880 8,891 65.2
1979 3,689 3,778 3,479 4,725 4,878 4,390 5,784 7,412 8,775 9,914 72.6
1980 4,190 4,290 3,949 5,363 5,537 4,983 6,565 8,414 9,966 11,269 82.4
1981 4,620 4,729 4,359 5,917 6,111 5,498 7,250 9,287 11,007 12,449 90.9
1982 4,901 5,019 4,626 6,281 6,487 5,836 7,693 9,862 11,684 13,207 96.5
1983 5,061 5,180 4,775 6,483 6,697 6,023 7,938 10,178 12,049 13,630 99.6
1984 5,278 5,400 4,979 6,762 6,983 6,282 8,277 10,609 12,566 14,207 103.9
1985 5,469 5,593 5,156 6,998 7,231 6,503 8,573 10,989 13,007 14,696 107.6
1986 5,572 5,701 5,255 7,138 7,372 6,630 8,737 11,203 13,259 14,986 109.6
1987 5,778 5,909 5,447 7,397 7,641 6,872 9,056 11,611 13,737 15,509 113.6
1988 6,024 6,155 5,674 7,704 7,958 7,158 9,435 12,092 14,305 16,149 118.3
1989 6,311 6,451 5,947 8,076 8,343 7,501 9,885 12,675 14,990 16,921 124.0
1990 6,652 6,800 6,268 8,512 8,794 7,906 10,419 13,360 15,800 17,835 130.7
1991 6,932 7,086 6,532 8,867 9,164 8,238 10,857 13,921 16,457 18,590 136.2
19922 7,141 7,299 6,729 9,132 9,411 8,489 11,187 14,343 16,951 19,146 140.3
1
The poverty thresholds are used by the Bureau of the Census to prepare its statistical estimates of the number of individuals and families
in poverty. The poverty guidelines are a simplified version of these poverty thresholds and are issued by the Department of Health and
Human Services for administrative purposes. The poverty guidelines are used to determine whether a person or family is financially
eligible for assistance or services under a particular Federal program.
2
Preliminary data: 1991 weighted average poverty levels raised by 3.0 percent to correspond with the 1992 increase from the 1991
Consumer Price Index (CPI-U) for all urban consumers.
38 Family Economics Review
• Cost of Food at Home
Cost of food at home estimated for food plans at four cost levels, May 1993, U.S. average 1
Cost for 1 week Cost for 1 month
Sex-age group Thrifty Low-cost Moderate- Liberal Thrifty Low-cost Moderate- Liberal
plan plan cost plan plan plan plan cost plan plan
FAMILIES
Family of 2:2
20 - 50 years . . .. .. . .. ..... . .. .. $51 .20 $64.80 $79.80 $99.60 $221.40 $280.60 $345.70 $431 .00
51 years and over .. .. . .... . ... . . 48.40 62.40 76.70 91 .70 209.80 270.10 332.50 397.50
Family of 4:
Couple, 20 - 50 years
and children-
1 - 2 and 3 - 5 years .. .. .. .. .. . . 74.30 93.10 113.70 140.00 321 .80 403.20 492.60 606.10
6 - 8 and 9 - 11 years ........... 85.10 109.30 136.50 164.70 368.50 473.50 591 .60 713.40
INDIVIDUALS3
Child:
1 - 2 years ... .. .... . . ..... .. . . . 13.40 16.40 19.20 23.20 58.10 71 .00 83.00 100.50
3- 5 years ... . ........ . .. . ... .. 14.40 17.80 22.00 26.30 62.40 77.10 95.30 113.80
6- 8 years . . .. . ......... .. . . . . . 17.60 23.60 29.50 34.40 76.30 102.20 127.70 149.10
9- 11 years . . .... ... .... . .. . ... 21 .00 26.80 34.50 39.80 90.90 116.20 149.60 172.50
Male:
12- 14 years ..... .... . . ... . . .. . 21.90 30.40 37.90 44.50 94.80 131 .80 164.20 193.00
15- 19 years ...... . ..•...... . .. 22.60 31.40 39.10 45.30 97.90 136.10 169.30 196.20
20 - 50 years ... . .....• .. . .. . .. • 24.40 31.30 39.00 47.40 105.50 135.70 169.10 205.20
51 years and over ........... . ... 22.10 29.80 36.60 43.90 95.70 129.10 158.70 190.40
Female:
12-19 years ............ . ...... 22.00 26.30 32.00 38.70 95.10 114.10 138.60 167.60
20 - 50 years ...... . ....... .. . . . 22.10 27.60 33.50 43.10 95.80 119.40 145.20 186.60
51 years and over ..... . . . .. . ... . 21.90 26.90 33.10 39.50 95.00 116.40 143.60 171 .00
1Assumes that food for all meals and snacks is purchased at the store and prepared at home. Estimates for the thrifty food plan were
computed from quantities of foods published in Family Economics Review 1984( 1). Estimates for the other plans were computed from
quantities of foods published in Family Economics Review 1983(2). The costs of the food plans are estimated by updating prices paid by
households surveyed in 1977-78 in USDA's Nationwide Food Consumption Survey. USDA updates these survey prices using information
from the Bureau of Labor Statistics, CPI Detailed Report, table 4, to estimate the costs for the food plans.
2Ten percent added for family size adjustment. See footnote 3.
~he costs given are for individuals in 4-person families. For individuals in other size families, the following adjustments are suggested:
1-person-add 20 percent; 2-person--add 10 percent; 3-person-add 5 percent; 5- or 6-person-subtract 5 percent; 7- or more-person-subtract
1 0 percent.
1993 Vol. 6 No.3 39
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Family Economics Review
•
Consumer Prices
Consumer Price Index for all urban consumers [1982-84 = 100]
Group
All items ....... .. . .. . .... .. . .. . ........ . .. . .... . .
Food . .......... . .. .. ......................•..•
Food at home . . ... . .. . ....................... .
Food away from home .... .......... . .... . .... . .
Housing ....... . ... .. . ........ . ... . . .. . .... . .. .
Shelter .......... . ... . . . . .... ... . .... .. ... . .. .
Renters' costs 1
..... . ... .. . .................. .
Homeowners' costs 1
. .. .. . ..• ..•.•.•• •. ••.• . .•
Household insurance 1
. . ...•.... . .. . •.. • .....
Maintenance and repairs . . . . .......... ...• .....
Maintenance and repair services .. . ........... .
Maintenance and repair commodities .......... .
Fuel and other utilities . ... . . .. ... . .. . ........... .
Fuel oil and other household fuel commodities ..... .
Gas (piped) and electricity ................... .. .
Household furnishings and operation ..... ... .... . . .
Housefurnishings ... . . .. .. . .................. .
Housekeeping supplies ......... .. .•.. .. ... .. . .
Housekeeping services ......... .. . .. . .. . ... .. .
Apparel and upkeep ............................. .
Apparel commodities ............ . .. ..... . .... . .
Men's and boys' apparel .... . . .. ... ..... . . .... .
Women's and girls' apparel . . .. . . .. . . .. .. ...... .
Infants' and toddlers' apparel. .. . . . .. . ...... . ... .
Footwear ... . . .. . . .... . . .. ..... ..•. . . .......
Apparel services ... . . . . ..... . ................. .
Transportation . .. . . . .... . .... . ....... . ..... .... .
Private transportation ... .. ........•.....•... ... .
New vehicles .........•..•.....•..•..• ..... . .
Used cars ................. . .. ... .... .... . .. .
Motor fuel ........................... .. .. ... .
Automobile maintenance and repair . ............ .
Other private transportation ........ ........... . .
Other private transportation commodities ..... . . .
Other private transportation services ........ . . . .
Public transportation ................ . .. .. ..... . .
Medical care . ........ . ... .. . .. . . . ..... . .. ..... . .
Medical care commodities ... .. ..... . .. .. ... .... .
Medical care services . . .. ..................•..•.
Professional medical services ........ . .... . .... .
Entertainment .................... . ...... . ...... .
Entertainment commodities .... . . . . ......... .... .
Entertainment services .. .. . .. . .... . ... .. . .. . ... .
Other goods and services . ... ..................... .
Personal care ... .... .. ... . ...............•..•.
Toilet goods and personal care appliances . .. . . ... .
Personal care services .. . ... . . . ............... .
Personal and educational expenses . .... .. .... . ..•.
School books and supplies .. ...... . .... . ...... .
Personal and educational services ........ . . . ... .
11ndexes on a December 1982 = 100 base.
Source: U.S. Department of Labor, Bureau of Labor Statistics.
1993 Vol. 6 No. 3
May
1993
144.2
141 .1
140.7
142.9
140.5
154.9
164.2
159.4
145.5
131 .6
135.4
126.6
120.5
91 .3
117.3
119.1
109.3
131.3
135.1
135.0
132.5
128.5
134.4
127.7
127.8
150.9
130.2
127.5
132.4
131 .5
99.7
145.4
156.1
103.5
168.2
165.5
200.5
194.2
202.0
184.4
145.0
133.0
159.6
193.2
141.0
138.7
143.4
207.7
196.1
208.8
Unadjusted indexes
March April
1993 1993
143.6
140.1
139.4
142.4
140.2
154.8
165.2
158.7
144.9
131 .5
135.8
125.8
119.5
92.8
115.1
118.7
109.3
129.6
134.6
136.2
133.9
128.7
138.4
125.9
126.3
150.6
129.0
126.3
132.0
126.6
97.3
144.7
156.3
103.9
168.3
163.5
198.6
193.9
199.7
182.3
144.8
133.1
159.0
192.0
140.7
138.4
142.9
206.3
195.7
207.3
144.0
140.6
140.0
142.7
140.4
155.0
164.9
159.2
145.2
131 .8
134.9
127.7
119.6
92.6
115.3
119.2
109.7
130.6
135.0
136.9
134.5
129.0
138.6
126.5
127.1
150.8
129.4
126.8
132.2
128.7
98.4
145.2
156.1
103.9
168.1
162.8
199.4
193.7
200.7
183.0
145.3
133.2
159.9
192.4
140.6
138.1
143.2
206.7
195.8
207.8
May
1992
139.7
137.4
136.2
140.4
136.7
150.2
159.5
154.4
141.4
128.1
131 .9
123.0
116.8
89.8
113.0
117.9
109.2
129.5
131 .0
133.1
130.9
127.5
132.6
130.3
126.0
146.8
126.3
124.3
129.2
120.5
99.4
140.8
152.5
104.8
163.2
151 .6
188.7
187.6
188.9
174.7
142.0
131 .2
155.3
181 .3
138.0
136.1
139.8
194.0
188.4
194.7
41
Highlights
Elders' Housi
Consumer Credit Trends