Family Economics Review [1981, Number 2]

              A I 0 b , I 'l : q g I L-- I For Building Use Only
SPRING 1981
IN THIS ISSUE:
OUTLOOK MATERIALS:
CLOTHING AND TEXTILES
/ PENSIONS
/fAMILY FINANCIAL PLANNING
ECONOMY IN 1981-
~0NSUMER CREDIT
-
HOUSING
FOOD
Deoository
PP PERTY OF TH~
UBRAR(
rd\Y 4 1981
Un:versity o North Caroli. a
at Gre nsboro
U.S. DEPARTMENT OF AGRICULTURE
Science and Education Administration
FAMILY ECONOMICS REVIEW is a quarterly
report on research relating to economic aspects
of family living. It is prepared primarily for
home economics agents and home economics
specialists of the Cooperative Extension Service.
Editors: Kathleen K. Scholl
Katherine S. Tippett
Family Economics Research Group
Science and Education Administration
U.S. Department of Agriculture
Federal Building
Hyattsville, Md. 20782
Science and Education Administration, Family Economics Review, Spring 1981
Published by Science and Education Administration-Agricultural Research,
Northeastern Region, U.S. Department of Agriculture, Beltsville, Md. 20705
CLOTHING AND TEXTILES: SUPPLIES, PRICES, AND
OUTLOOK FOR 19811
By Joan C. Courtless2
Clothing expenditures and prices. According
to preliminary figures for the first three quarters
of 1980 (table 1), annual spending for clothing
and shoes during that year is an estimated $473
per person. This amol!flt exceeded 1979 spend­ing
by $23; however, 94 percent of this increase
is attributed to higher prices, rather than to in­creased
buying.
In an effort to gain customers and cut costs,
many retailers maintained close control over
inventories, cut back on the number of de­signer
lines, promoted their own labels, and
ceduced the range or variety of available
merchandise. Selling at a discount became
more prevalent among retailers attempting to
increase volume and net profits. In a nation­wide
survey of 1,250 men, the Daily News
Record, 3 found that 43 percent of those
interviewed bought some items of apparel from
discount stores or factory outlets.
As measured by the Consumer Price Index
(CPI), apparel and footwear prices in 1980
increased 6.5 percent over 1979. This increase
was less than the 13.8-percent increase for the
category "all items" during the same period
(table 2). However, consumers did not make
this distinction. In a nationwide survey4 of
1,300 men, 80 percent thought that price in­creases
for men's clothing have been equal to,
or greater than, price increases on nonapparel
items. Within the overall CPI category of cloth­ing
and footwear, men's shirts, infants' and
toddlers' apparel, boys' and girls' shoes, and
other apparel commodities increased relatively
1 Information in this paper is based on reports
available during the period January through October
1980. Discussion of business trends is based on trade
reports or news items in the Daily News Record,
the Wall Street Journal, the Washington Post, the
Washington Star, the Baltimore Sun, the New York
Times, the Kiplinger Newsletter, Business Week, and
Knitting Times. Other sources include : Board of
Governors of the Federal Reserve System, 1980,
Federal Reserve Bulletin 66(7). Textile Organon LI(9),
September 1980. U.S. Department of Agriculture,
Economics, Statistics, and Cooperatives Service, 1980,
Cotton and Wool Situation, CWS-22 and CWS-24.
U.S. Department of Commerce, Bureau of the Census,
SPRING 1981
more than other clothing items between
September 1979 and September 1980 (table 3).
Because Americans are beset by rising prices
in all directions and are concerned about the
extent of the recession, clothing purchases have
been declining since the end of 1979.5 Items
purchased are chosen for quality and are ex­pected
to last for several years.
"Classic," "traditional," "value," and "in­vestment"
are adjectives used over and over to
describe the clothing to be offered in 1981.
Consumers will find stores featuring shetland
wool crew- or v-neck sweaters, oxford cloth
shirts, and blazers of madras or tartan plaids.
Other plaids will be subtle or merged, in­cluding
muted greens and blues. Fabrics with
surface texture, including seersucker, pique,
fleece, velour, and terry, will be featured.
Although the less expensive grades of velour
and terry saturated the market during 1980,
those of l?etter quality and made mostly of
cotton are expected to retain their popularity.
Since quilted outerwear of down, even though
relatively expensive, is perceived by consumers
to be synonymous with warmth and value, it
is expected to sell well. Additionally, knit­wear,
which is warm and practical, will be
fashionable with argyle, jacquard, and intarsia
patterns.
Dress shirts for men will utilize oxford
cloth, stripes, checks, small prints, and dobbies.
Sports coats are expected to sell well because
they are more versatile and less expensive than
a suit and because their casualness projects a
1980, Population estimates and projections, Current
Population Reports, Series P-25, No. 891; Bureau of
Economic Analysis, 1980, Survey of Current Business
(table 11) 60(7):16; Industry and Trade Administra­tion
1980 U.S. Industrial Outlook. U.S. Department
of Labor,. Bureau of Labor Statistics, 1980, News
(Consumer Price Index monthly reports). _
2 Family economist, Family Economics Research
Group, Science and Education Administration.
3 oaily News Record, R. H. Bruskin, May 21,1980.
4 Daily News Record, R. H. Bruskin, August 27,
1980.
s Board of Governors of the Federal Reserve System,
1980, Federal Reserve Bulletin 66(7).
3
Table 1. Annual expenditures on clothing and shoes1
Percentage of Aggregate
Per capita expenditures expenditures
expenditures2 for personal
consumption Billions
Years of Billions
Constant Constant Constant of
dollars
Current dollars
Current dollars current
(1972)
dollars (1972)
dollars (1972) dollars
1960 •••••••• 0 0 •• 203 148 8.1 8.2 36.6 26.7
1961 ••• 0 •••••••• 203 149 8.1 8.2 37.3 27.4
1962 •••••• 0 ••••• 209 154 8.1 8.1 38.9 28.7
1963 ••••••••• 0 0 0 209 156 7.9 7.9 39.6 29.5
1964 •••••••• 0 0 •• 222 166 8.1 8.0 42.6 31.9
1965 •••• 0 0 •••••• 227 172 7.9 7.8 44.2 33.5
1966 ••••••• 0 0 •• • 239 186 8.0 7.9 46.9 36.6
1967 ••••• 0 •••••• 236 192 7.8 7.8 46.9 38.2
1968 ............ 242 208 7.7 7.8 48.6 41.8
1969 0 0 ••• 0 •••••• 245 223 7.6 7.8 49.6 45.1
1970 ••••• 0. 0 ••• 0 240 227 7.4 7.5 49.2 46.6
1971 •••••• 0 ••••• 249 244 7.5 7.6 51.6 50.5
1972 •••••• • • 0 ••• 264 264 7.5 7.5 55.1 55.1
1973 •••••••• 0 ••• 281 291 7.7 7.6 59.2 61.3
1974 ..... .. ..... 279 308 7.8 7.3 59.1 65.3
1975 •• 0 •••• 0 •••• 288 328 7.9 7.2 61.4 70.1
1976 • 0 •••••••••• 298 352 7.8 6.9 64.2 75.7
1977 •• 0 ••••••••• 308 377 7.8 6.8 67.4 82.4
1978 ••••• 0 •••••• 333 417 8.1 6.8 72.7 91.2
1979 ••• 0 ••••••• 0 347 450 8.3 6.6 76.5 99.2
19803
•••..•.••.•. 348 473 8.4 6.4 77.6 105.4
1 Includes yard goods but excludes such services as cleaning and repairing clothing and shoes.
2 Calculated by dividing aggregate expenditures for each year by population figures for July of each year.
3 Preliminary figures--average of estimates for first 3 quart~rs of 1980 (seasonally adjusted quarterly totals at
annual rates).
Sources: U.S. Department of Commerce, Bureau of the Census, 1980, Population estimates and projections,
Current Population Reports, Series P·25, No. 891. U.S. Department of Commerce, Bureau of Economic Analysis,
1980, Survey of Current Business (table 11) 60(7):16, and personal communication with the Bureau of Economic
Analysis.
more youthful image. The market for active
sportswear, including swimwear and apparel
for tennis, golf, and running, is expected to
increase by over 20 percent in 1981.
Consumer shopping patterns appear to be
in transition. For instance, retailers report that
more shopping is being done on lunch hours in
stores near places of work. This is one reason
why some are predicting that the market share
of stores in large regional malls will decline
in the eighties, supplanted by those in neigh­borhood
centers and downtown locations.
Sales from mail catalogs are also expected to
increase.
4
Outlook for Supplies of Raw Materials
Based on data for the first 9 months of 1980,
U.S. mill use of total fibers during that year is
estimated at 53.2 pounds per capita. This
includes 13.9 pounds of cotton, 0.6 pound of
wool, and 38.8 pounds of synthetic fibers.
Per capita use in 1979 was 57.4 pounds, which
included 14.0 pounds of cotton, 0.5 pound of
wool, and 42.9 pounds of synthetic fibers.
Cotton. The 1980 domestic cotton crop is
expected to be about 11.6 million bales, down
21 percent from last year's 14.6 million. Hot,
dry weather reduced the average yield per acre
FAMILY ECONOMICS REVIEW
Table 2. Annual percentage change in selected indexes of consumer prices
Consumer Price Index 1976 1977 1978 1979
-------------------------
All items ••••••• 0 •••••••••••••••••
Apparel and upkeep .............. .
Men's and boys' clothing ......... .
Women's and girls' clothing ....... .
Footwear .............. : . ... .
Other apparel commodities2
Infants' and toddlers•3 .......... .· .· .· ....
+5.8
+3.7
+3.5
+2.8
+4.0
+6.5
+4.2
+4.6
+3.2
+4.7
+4.6
+7.6
+3.4
+2.3
+1.8
+4.0
-0.1
+11.5
+4.3
+2.5
+1.5
+8.0
+7.4
+3.5
+13.8
+6.5
+4.2
+2.0
+8.2
+17.4
+9.6
19~:.reliminary estimates-average for first 3 quarters of 1980 compared with the average for first 3 quarters of
~Developed ~n 1976. Includes sewing materials and notions, jewelry and luggage
Developed m 1978. ' ·
l . Sour)· ce: U.S. Department .of ~abo~, Bureau of Labor Statistics, 1980, News, Consumer Price Index (monthly
Issues , and personal commurucat10n With the Bureau of Labor Statistics.
below the record high 548 pounds in 1979. In
1980, U.S. raw cotton exports decreased about
32 percent because of reduced production in
the United States and increased production in
China, Pakistan, India, and other countries.
However, exports are expected to be about 16
percent above the 1975-79 average. A compari­son
of 1979 and 1980 cotton production and
export figures can be misleading because 1979
was an exceptional year during which the
United States produced 22 percent of the
world's cotton crop, while consuming only
10 percent. The surplus, available for export,
accounted for 42 percent of the world trade in
cotton.6
corduroy by 14 percent over the same period
in 1979.
During the first 7 months of 1980, the price
of cotton averaged 84 cents a pound, an
increase of 16 cents over the same period in
1979. Because U.S. cotton supplies are expected
to remain limited throughout most of 1981,
prices will be especially sensitive to changes
in the world cotton supply.
The leading "end-use" market for cotton
fiber in 1979 was for men's and boys' trousers
and shorts; the second largest market was in
towels and washcloths. Apparel end-uses repre­sented
53 percent; home furnishings, 33 per­cent;
and industrial uses, 14 percent. During
the first half of 1980, cotton used in denim
fabric increased by 26 percent and increased in
6 Cotton and Wool Situation, ESCS, USDA, August
1980. (ESCS is now ESS.)
SPRING 1981
Wool. U.S. wool production for 1980 is
estimated at slightly under the 1979 yield and
1 percent above the 1978 yield. Mill consump­tion
of apparel wool through June was 12
percent above last year and 20 percent above
the average for the years 1973-78. Imports of
raw wool in the first 6 months of 1980 were
30 percent above the avera.ge of the last 2 years.
The 1981 outlook is for a 4-percent increase
in production and a 5-percent increase in mill
consumption of apparel wool. 7
Cashmere. The price of cashmere has tripled
in recent years as demand exceeded supply by
300 percent. Supplies were low because of
problems in the major producing countries,
which are China, Iran, and Afghanistan. Polit­ical
upheavals in the latter two made them an
unreliable source for the fiber. In addition China began manufacturing its own sweaters,'
so it exported less of the raw fiber. Demand
has increased because cashmere is a warm fiber ,
desirable in the energy shortage, and suitable
for current fashions.
Synthetic fiber. Shipments of synthetic
fibers by U.S. producers during the first 8
months of 1980 were 8.7 percent below a year
earlier, near the 1978 level. The price of
7 See footnote 6.
5
Table 3. Percentage change in selected index of consumer prices from
September 1979 to September 1980
Consumer Price Index Percentage change
All items ......................................................... . +12.6
Apparel and upkeep ................................................ .
Men's and boys' clothing ........................................... .
Men's:
Suits, sport coats, and jackets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Coats and jackets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furnishings and special clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shirts ........ . .......................................... .
Dungarees, jeans, and trousers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Boys':
Coats, jackets, sweaters, and shirts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
Furnishings ............................................... .
Suits, trousers, sport coats, and jackets ......................... . ... .
Women's and girls' clothing ......................................... .
Women's:
Coats and jackets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dresses .................................................. .
Separates and sportswear ....................................... .
Underwear, nightwear, and hosiery ................................ .
Suits .................................................... .
Girls':
Coats, jackets, dresses, and suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Separates and sportswear ....................................... .
Underwear, nightwear, hosiery, and accessories ........ .. .............. .
Infants' and toddlers' ............... . .............. ........ ....... .
Other apparel commodities . .. . ..................................... .
Sewing materials and notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jewelry and luggage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Footwear ...... .. ......... ... ................................. .
Men's ............................................. . ....... .
Boys' and girls' ............................ .... ............... .
Women's ......................... . ......................... .
+7.1
+5.1
+0.0
+0.9
+8.2
+9.6
+4.5
+7.5
+4.5
+5.7
+3.5
+0.7
-1.1
+4.2
+6.9
+7.7
-1.2
+2.1
+7.5
+9.9
+16.9
+10.3
+19.4
+7.7
+7.4
+11.6
+5.0
Source: U.S. Department of Labor, Bureau of Labor Statistics, 1979, CPI Detailed Report September 1979;and
personal communication with the Bureau of Labor Statistics.
polyester increased by 4 7 percent between
February 1979 and July 1980, compared with
a 24-percent increase in the price of cotton
during the same period. In 1979, U.S. exports
of synthetic fibers rose 52 percent over 1978,
whereas imports dropped 4 7 percent.
Hides and leather. U.S. production of hides
in 1980 and 1981 will decrease each year as
fewer cattle go to market. This trend, however,
is expected to reverse in 1982.
The quantity of leather shipped by U.S.
tanners has been declining since 1965. The
value of shipments of leather and leather prod­ucts
continues to increase, however, due to
price increases in raw cattle hides and other
raw materials.
6
From 1968 to 1978, domestic shoe produc­tion
dropped 37 percent. Men's footwear is
expected to drop to 90 million pairs in 1980
from 93 million in 1979 and 102 million in
1978. In contrast, women's shoes and boots
have been manufactured at a steady rate of
about 149 million pairs for each year 1978-80.
Production of children's shoes, including
athletic shoes, is expected to decrease from 82
million pairs in 1979 to 7 5 million pairs in
1980.
In the 10-year period 1968-78, imports of
shoes increased by 106 percent. Currently,
about 52 percent of all shoes sold in the United
States are imported. This includes 41 percent
of men's footwear, 65 percent of women's
FAMILY ECONOMICS REVIEW
shoes and boots, 45 percent of children's shoes
33 percent of infants' shoes, and 75 percent of
athletic shoes. Although exports of U.S. foot­wear
are increasing, they are only 2 percent of
the total quantity and value of domestic
shipments.
Outlook for Fiber Finishes
All-cotton durable press. Shirts made from
fabrics treated with liquid ammonia, a process
patented by Sanforized Co., have been on the
market since January 197~. This process, called
Sanforset, 11 changes the molecular structure,
which preshrinks the fabric and eliminates
seam puckering. The Sanforset treatment is
reported to improve the fabric's wear and
abrasion resistance, while giving it a softer
hand. Cotton's comfort and breathability are
unaffected. In April 1980, the Van Heusen Co.
began selling all-cotton durable press shirts
made from fabrics finished with a new resin
process. These shirts are said to have similar
performance characteristics to those having the
Sanforset finish, plus the following advantages:
Vat dyes are used, permitting a greater range
of colors; shirts, white and colored, can be
laundered with liquid chlorine bleach; and the
retail price is lower due to a reduction in
manufacturing costs. An industry representa­tive
predicts all-cotton durable press shirts will
be 20 percent of the market by 1982, up from
5 percent in 1980.9
Bedsheets made of 100 percent cotton and
treated with the Sanforset process are on the
market. One sheet manufacturer is using a
combination of polyester and cotton fibers to
wrap each strand of polyester in cotton during
the spinning process. 'l'he polyester contributes
the wrinkle-free characteristics, and the cotton
is soft and pleasant next to the skin.
Comfort stretch. Comfort stretch was widely
promoted by Levi Strauss in its Action Slacks.
These pants were made from fabric woven of
8 Trade names are used in this paper solely for the
purpose of providing specific information. Mention of
a trade name does not constitute a guarantee or war­ranty
of the product by the U.S. Department of
Agriculture or an endorsement by the Department over
other products not mentioned.
'
9 Daniel Fitzpatrick, vice president of merchan­dising
of men's dress shirts, Arrow Shirt Company.
SPRING 1981
all polyester filament yarns that had been
woven wide and heat-set in a relaxed state to
provide stretch. Mills responded to the increas­ing
demand for stretch fabrics by adding com­binations
of filament and spun yarns and
blends of synthetic and natural fibers which, in
some cases, contained small amounts of Lycra
spandex. Lightweight fabrics suitable for shirts
and blouses were developed. Fabrics were con­structed
with two-way stretch. Canvas, sail­cloth,
oxford cloth, gabardine, denim, and
corduroy became available in stretch goods.
The outlook for 1981 is for an expanded use
of stretch fabric. Many consumers will find
that stretch garments are more comfortable to
wear, and the retailer will find stretch garments
a feature to promote. Since stretch fabric for
casual pants costs only a few cents per yard
more than a similar rigid fabric, most popularly
priced pants will be made from stretch goods in
1981.
Stain-Less. A process whereby the soil re­lease
finish is built into the fiber, rather than
added to the fabric, has been used by Donmoor
(a boys' knitwear manufacturer) since March
1980. Independent testing laboratories found
the finish durable through 50 launderings. This
process has not been patented.
Shrink-resistant wool. Japanese spinners
claim that a new process involving physical and
chemical treatment of wool increases shrink
resistance and improves hand and color fast­ness.
In January 1980, this process began to be
used commercially. .Patent applications have
been made in Japan and the United States.
Hydrophilic-enhanced nylon or polyester.
Several corporations in the United States and
abroad are working on increasing the hydro­philic
or moisture absorbent characteristics
of nylon and polyester. These corporations are
producing a new fiber with a modified nylon or
polyester polymer. A patent has been awarded
to one American company for hydrophilic
nylon with moisture absorption characteristics
similar to those of cotton.
Outlook for Government Regulations and
Trade Agreements Affecting the Apparel
Industry
The Wool Products Labeling Act, amended
by Congress on May 5, 1980, and effective
7
July 4, 1980, deletes references to "reproc­essed"
and "reused" wool and substitutes
"recycled." The new label informs the con­sumer
that the fibers were recycled by re­ducing
a previously manufactured product to
fibers, which were then carded, spun, woven,
and finished in exactly the same way as virgin
wool fibers are processed. The consumer can
no longer distinguish, however, between wool
obtained from a wool product previously used
by another consumer (reused) and wool from
a product never owned by another consumer
(reprocessed).
On September 17, 1980, the United States
and China signed a textile agreement that
established levels in six product categories and
provided for distribution of Chinese goods
embargoed in U.S. ports. These quota levels
were lower than those established for most
other nations. This agreement will last for 3
years, dating retroactively to January 1, 1980.
In 1979-80, China purchased 2.2 million bales
of U.S. cotton, or double the amount bought
by our next two largest customers, Japan and
South Korea. China currently ranks as the fifth
largest textile exporter.10
10 Ray Shockley, first vice president, American
Textile Manufacturers' Institute.
PENSIONS
By Frankie N. Schwenk1
A major financial goal of families and indi­viduals
is maximum economic well-being over
the life cycle. This requires the distribution of
income from earnings and assets in a manner
that balances income with changing income
needs. A retirement financial plan facilitates
the building of assets during employment years
to provide income for later years. For some
families, pensions are an important component
of that plan.
Trends in Pension Plans and the
Outlook for the Future
About 50 percent of the work force is
covered by a pension plan. The half million
pension plans in operation cover 30 million
persons, three times the number of people
covered in 1950.
During the 1940's and 1950's, the number
of pension plans in operation and the number
of persons covered grew rapidly for several
reasons. Although the Social Security Act was
passed in 1935, growth of the social security
system was slow and individuals turned to
1 Family economist, Family Economics Research
Group, Science and Education Administration, U.S.
Department of Agriculture.
8
pensions for additional security. Recalling de­pression
era experiences of relatives or friends,
employees were receptive to the idea of shared
saving for retirement. During the tight labor
market of the war years, employers offered
pension benefits to offset restricted compensa­tion
due to wage and price controls. In the
1950's, pension plans became a major issue in
collective bargaining. During the 1960's, most
of the growth in pension plans was due to in­creased
employment in firms that already had
pension plans, rather than the introduction of
new plans.
Pension coverage leveled off during the
1970's, and the outlook is for pension coverage
to remain at its current level. Several factors
account for this leveling off. A high percentage
of the most accessible employee groups has
been covered (14). Further, pension reform
legislation enacted in 1974 may constrain new
programs. This legislation, the Employee Retire­ment
Income Security Act (ERISA), was
designed to improve the financing and opera­tion
of employee pension plans. Since ERISA
was enacted, however, many small plans have
been terminated and the rate of formation has
decreased sharply. These actions may be re­lated
to increased administrative and disclosure
costs that are required for compliance of plans
FAMILY ECONOMICS REVIEW
with the provisions of ERISA, although the
majority of terminations seem to be related to
general economic and business conditions. In
addition, the increase and indexing of social
security benefits in the midseventies have in­creased
the replacement ratio of social security
benefits to preretirement earnings, requiring
employers and employees to increase their
contributions to social security. Finally, high
rates of inflation erode pension benefits,
whereas the social security program provides
automatic cost-of-living adjustments.
Pension coverage could grow if unions
continue to push for retirement benefits, if
pension coverage becomes mandatory, or if
pension plans continue to be afforded favor­able
tax treatment. However, it does not
appear to be a time for pension plan growth,
but rather a time for evaluating the equity
and role of present plans. At present levels,
pension assets are a significant component of
the Nation's economy and of the portfolios of
many individuals and families.
Pension plans vary widely, with differences
in funding, vesting, and benefits. Since em­ployers
pay 92 percent of the total contribu­tions
to retirement plans, individuals in most
plans are not required to contribute to their
private pension plan. Plans may be classified
as defined contribution or defined benefit.
In defined contribution plans, a fixed contri­bution
to an individual's account is made and
contributions are invested. Benefits received at
retirement are based on the amount of money
in the person's account at that time. In defined
benefit plans, the amount of benefits an indi­vidual
will receive upon retirement is determined
in advance by a formula that often is based on
an employee's length of service and earnings
history, with calculations based on either the
earnings averaged over the career or final earn­ings
just before retirement.
Families with higher incomes are more likely
to have benefits from pension plans than are
those with lower incomes. Of wage earners
with gross family incomes of $20,000, 70
percent are covered by either a public or private
pension plan, or both (9). In contrast, 70 per­cent
of wage earners with family incomes of
$10,000 or less are not covered.
Women are less likely to participate in a
pension plan and less likely to be entitled to
benefits than are men. This is because women
SPRING 1981
are less likely to have union status and are
more likely to work part-time, be employed in
small firms, and fill positions in low paying
industries and occupations. When women do
receive pensions, the benefits typically are
one-half the amount of men's because of the
fewer years of plan participation and lower
earnings (12). These benefits may be eroded
seriously by inflation over the retirement
period, which is generally longer for women
than for men. As spouses of plan participants,
women may be left without any pension plan
benefits because the husband died before
reaching retirement age or because he failed
to choose the survivor annuity option at
retirement. Moreover, pension plans usually
do not cover divorced wives.
A 1979 study of the Bureau of the Census
showed:
• The coverage rate was 50 percent for
white workers, compared with 46 percent
for workers of all other races.
• Almost four out of every five employees
represented by a union were covered by a
retirement plan, a proportion twice as
high as the coverage rate for employees
not represented by a union.
• Workers in establishments with 500 or
more employees were almost 2% times as
likely to have pension coverage as workers
in establishments with fewer than 100
employees.
• Coverage in most occupations was be­tween
50 and 60 percent, with low-paid,
high-mobility service, labor, and sales
jobs having significantly lower coverage
rates (J).
Concerns Related to Pensions
The President's Commission on Pension
Policy is examining the Nation's retirement,
survivor, and disability systems, and is develop­ing
recommendations to be reported in February
1981. Problems identifed in the interim report
( 9) include lack of pension coverage for many,
inequitable treatment of women, erosion of
benefits due to inflation, inadequate incentive
for retirement savings, and increased depen­dence
on pay-as-you-go programs. Two con­cerns
of considerable interest are portability of
pensions and age of retirement.
9
Portability. Portability addresses the con­cern
for preserving vested pension rights. 2
When an individual leaves a job, many years
may elapse between termination of employ­ment
and the age at which pension benefits
from that employment begin. A provision
allowing the terminating employee to carry the
present monetary value of his or her pension to
a central clearinghouse fund or to the next job,
could help individuals preserve pension benefits
and provide an opportunity for growth of the
assets.
Portability recommendations cover only
those employees who have vested pension
rights. ERISA allows three alternative vesting
schedules, but all result in at least 50 percent
vesting with 10 years of participation and 100
percent with 15 years (6).
In 1974, some changes were made by ERISA
to facilitate portability. Provisions were made
for a tax-free transfer of money from a pension
fund to the pension plan of a new employer or
to a qualifying IRA (individual retirement
account, annuity, or bond). Requirements
include a 60-day time limit. The Social Security
Administration maintains records of vested
individuals who have terminated employment
and supplies this information to those who
apply for social security benefits.
Despite these changes, mobile workers may
still lose some pension benefits. For example:
1. To lessen administrative burdens to the
employer, ERISA allows employers to "cash­out"-
pay a lump sum to terminating em­ployees
that covers their vested benefits. Some
employees spend this cash, instead of putting it
in an IRA or other retirement plan. Although
this allows an individual a choice, it does
divert pension funds to nonretirement use.
A portable pension fund plan could provide a
place to channel "cash-out" amounts, thus
preserving the pension (13).
2. Vested pension benefits that remain with
the employer's plan are frozen as of the time of
separation and usually are not available if the
individual is disabled or dies before retirement.
2 "Vested" refers to the right to accrued benefits,
even if employment under the plan terminates before
retirement. Employee contributions are always fully
vested.
10
3. In an inflationary economy, a worker
with four jobs during his or her career receives
a smaller total pension than a worker with one
job. This is because benefits figured on the
final earnings will be less for the first job than
for the last job. In other words, although a
pension is based on final earnings in each job,
it will be based on earnings that are similar
to the average earnings over the career rather
than on final earnings. The higher inflation is,
the greater the penalty will be. For example,
at 6 percent annual inflation, a single-job
worker would receive almost twice the benefits
of a four-job worker with the same salary base
(8). Although benefits based on final earnings
provide implicit indexing for people who work
for one employer until retirement (because
wages rise with inflation), employers may
resist indexing vested benefits for terminated
employees. If individuals could transfer ~he
monetary value of their accrued pension credits
to the clearinghouse or succeeding employers,
the rate of return on accumulated assets might
help offset some of the effects of inflation.
Because individuals can use IRA's to provide
their own portable fund, a clearinghouse may
not be necessary. A clearinghouse would re­quire
widespread participation in a transfer
system, but employers may be reluctant to
accept the administrative costs of calculating
and effecting transfers. If required to make
large lump-sum transfers, pension plans may
have to keep more assets in liquid investments,
thus reducing the return on investments and
the assets available for benefits.
Choice of retirement age. In 1978, 61 per­cent
of the persons who retired under social
security were under 65 years of age, compared
with 32 percent in 1965. Currently, 36 percent
of the applicants for social security benefits
actually retire at 62 (11). If expectations were
the deciding factor, this trend would continue.
In a household survey of 6,100 adults, con­ducted
by the President's Commission on
Pension Policy, 4 7.5 percent indicated that
they expect to retire at age 62 or before (1 0).
However, several factors may lead to later
retirement, including inflation, increasing lon­gevity,
demographic changes, and legislative
changes. A major incentive to work longer may
be the surge in living costs. Inflation, combined
with earlier retirement and a longer lifespan,
FAMILY ECONOMICS REVIEW
can erode seriously the economic well-being
of individuals and families. At a 5-percent
annual rate of inflation, the value of a fixed
pension would drop nearly a quarter in 5 years;
at 10 percent, it would drop one-third in 5
years (3).
Average life expectancy rose from 47 years
in 1900 to 68 years in 1950, leveled off, then
increased again in the 1970's (11). With in­creasing
longevity, retirement might be set as
a percentage of the expected lifespan, rather
than at a particular age. A man at 65 today can
expect to live 14 years; a woman, 18 years.
Demographic-trends toward an older popula­tion
will result in a change in the worker/
dependent ratio. A declining number of workers
will support a growing population of retirees.
The baby boom generation will begin retiring
in 2010. By 2030,-1the ratio of people 65 and
over to the working age population will double
(11 ). In 1978, income transfer programs from
the working population to the retired popula­tion
represented 7 percent of the income of
the working population. If current average
retirement age continues, this share would
double to 14 percent of the working popula­tion
income by the year 2030 (11).
To meet the increased need for retirement
funding-(1) the working population may
accept an increased level of intergenerational
transfers to the elderly; (2) there may be more
advance funding of benefits where contribu­tions
of today's workers are set aside for their
future retirement, rather than pay-as-you-go
plans where contributions of today's workers
pay for benefits to present retirees; and (3)
retirement age may be increased.
Some steps have been taken to encourage
later retirement:
1. A 1978 amendment to the Age Discrimi­nation
in Employment Act made it unlawful to
forcibly retire workers under 70 years of age.
Although probably less than 10 percent of the
people reaching 65 will keep working, the law
makes it possible for individuals to elect to do
so.
2. In 1982, workers 70 or older will be
permitted to earn any amount and still draw
their full social security entitlement.
3. In 1982, social security benefits will
increase by 3 percent (instead of the present
SPRING 1981
1 percent) for every year a worker postpones
retirement after 65.
If eligibility ages for retirement benefits are
to be changed to discourage the present trend
of early retirement, a substantial amount of
advance warning must be given to allow for
retirement planning.
Pensions as a Component of a Retirement
Financial Plan
Current consequences of retirement plans.
For individuals and families in the early and
middle years of the life cycle, retirement plans
have current, as well as future, consequences.
The choice of financial instruments for retire­ment
planning affects present tax liability.
Taxes on many pension benefits do not need
to be paid until the worker retires and collects
benefits. At that time, the individual usually
is at a lower tax bracket than at the time the
benefits were earned. Thus, pensions and other
tax-deferred plans help equalize tax liabilities
over the life cycle. For many workers, a pen­sion
is the only available savings plan that has a
tax advantage.
Current insurance and savings programs may
be affected by components of a retirement
plan. For example, pension plan coverage may
affect life insurance decisions. Under some
plans, pension benefits are lost if an employee
dies before retirement, but pension benefits
under other plans are paid to the survivors. The
amount and nature of pension benefits also
may affect savings. If an individual has a variable
annuity retirement plan, other savings might
be placed where there is a fixed return.
Resources available for current consumption
also are affected by the amount and way a
family or individual sets aside resources for
retirement. Two out of three households save
or invest for retirement purposes, thus reducing
currently available resources.
The value of current employment is affected
by employer-sponsored retirement plans since
the total value of labor includes current wages
and benefits, as well as future benefits. In
1975, for every $100 of wages and salaries in
private industry, $4.73 was contributed to
pension plans (15).
Pensions and savings. Retirement financial
plans of families and individuals usually start
11
with a base of social security that is supple­mented
with income earned after retirement,
personal savings, and private pensions. These
components interact in ways that are not
entirely clear: Studies of time-series data in­dicate
that social security decreases private
savings (5, 7). Other studies, however, show
that either the social security system does not
have a significant effect on private savings or
that analysis of the time-series data does not
isolate that effect ( 4). Effects of social security
on savings may be offsetting. For example,
establishing a somewhat standard retirement
age may increase savings in response to ex­pected
retirement; expected benefits of social
security, however, may decrease private savings.
For some families, pensions represent a
substantial portion of their assets. Data in the
Flow of Funds Accounts, Federal Reserve
System (2), indicate that pension reserves com­prised
about 27 percent of all additions to
household assets in 1979. The chart shows the
contribution of pension reserves to household
assets over the last 10 years. Only half the
work force is covered by a private pension
fund, so pensions for those households repre­sent
an even higher percentage of additions to
household assets.
Planning for the future. Plans made in the
early and middle years of the life cycle affect
the time and style of retirement. Half of the
work force is not covered by pensions so they
must give particular attention to retirement
income plans. For that half who are covered,
understanding the features of their particular
pension plan may increase the effectiveness of
their retirement financial decisions and may
increase the pension benefits received. Rules
governing eligibility requirements, vesting,
early retirement, disability retirement, and pre­retirement
death benefits vary among plans and
are important in determining benefits. Under
ERISA, employees are entitled once a year to
request from the plan administrator a state­ment
of their vesting and accrued benefit
status.
Pension Reserves as a Percent of All Additions to Household Assets
Percent
35
30
25
20
15
10
5
0
1970 72 74 76 78
Source: Board of Governors of the Federal Reserve System, Division of Research and Statistics, 1980.
Flow of Funds Accounts, 1st Quarter 1980, I 80.
80
12 FAMILY ECONOMICS REVIEW
Decisions concerning pensions may be com­plex
because pensions often are tied to a choice
of employment and may be difficult to sort
out from other fringe benefits. Pension-related
decisions, however, may have a direct impact
on the retirement portfolio. For example, a
person who leaves a job before being at least 50
percent vested may lose pension contributions
from the employer. Mobile workers or persons
planning to drop out of the ·labor force and
then return could time that decision in a way
that would minimize loss of benefits.
There may be specific decisions related to a
choice of pension plans from the employer.
Some plans offer a choice between variable or
fixed annuities and between tax-deferred or
nondeferred plans. These decisions are made in
the early or middle years but affect the family's
financial affairs throughout life.
REFERENCES
1. Beller, Daniel J. 1980. Patterns of Worker
Coverage by Private Pension Plans. U.S.
Department of Labor, Labor-Manage­ment
Services Administration, Pension
and Welfare Benefit Programs.
2. Board of Governors of the Federal Reserve
System, Division of Research and
Statistics. 1980. Flow of Funds Ac­counts,
1st Quarter 1980, I 80.
3. Clark, Robert. 1977. The Role of Private
Pensions in Maintaining Living Stand­ards
in Retirement. National Planning
Association, Washington, D.C.
4. Esposito, Louis. 1978. Effect of social
security on saving: Review of studies
using U.S. time-series data. Social
Security Bulletin 41(5):9-17. U.S.
Department of Health, Education, and
Welfare, Social Security Administration.
5. Feldstein, Martin S. 1979. Social security
and private saving: Another look.
Social Security Bulletin 42(5):36-40.
U.S. Department of Health, Education,
and Welfare, Social Security Administra­tion.
6. Hefferan, Colien. 1981. Retirement in­come.
Family Economics Review.
Winter issue, pp. 3-12.
7. Munnell, Alicia H. 1976. Private pensions
and saving: New evidence. Journal of
Political Economy 84(5):1013-1032.
SPRING 1981
8. 1979. The impact of inflation on
private pensions. New England Eco­nomic
Review. March/ April issue,
pp. 18-31. Federal Reserve Bank of
Boston.
9. President's Commission on Pension Policy.
1980. An Interim Report. Washington,
D.C.
10. 1980. Preliminary Findings of a
Nationwide Survey on Retirement
Income Issues. Washington, D.C.
11. 1980. Working Papers. Varieties
of Retirement Ages. Washington, D.C.
12. 1980. Working Papers. Working
Women, Marriage, and Retirement.
Washington, D.C.
13. Schmitt, Ray. 1978. Major Issues Facing
the Private Pension System. The Library
of Congress, Congressional Research
Service, Education and Public Welfare
Division.
14. Skolnik, Alfred M. 1976. Private Pension
plans, 1950-74. Social Security Bulletin
39(6):3-17. U.S. Department of Health
Education, and Welfare, Social Security
Administration.
15. Yohalem, Martha Remy.1977. Employee­benefit
plans, 1975. Social Security
Bulletin 40(11):19-28. U.S. Depart­ment
of Health, Education, and Welfare,
Social Security Administration.
13
FAMILY FINANCIAL PLANNING-RESEARCH
By Colien Hefferan1
In a period of rapidly escalating prices and
visibly diminishing resources, family financial
planning becomes both more difficult and
more important. The economic uncertainty
that complicates the financial planning process
also accentuates its importance. For example,
how many families purchasing a home in 1965
anticipated that in 1980 their monthly home
utility bills might exceed their mortgage pay­ment?
How many couples retiring in 1970 with
a "comfortable" monthly annuity of $480
anticipated that estimated living costs for a
retired couple would exceed $650 per month
in 1978?2
These past economic conditions provide an
excellent lesson in the value of planning, but
how many families will be prepared to apply
these lessons to the contingencies of the future?
Are we prepared for an 8-percent rate of
inflation or a 12-percent rate or a 15-percent
rate? A difference of a few percentage points
in the rate of inflation makes substantial dif­ferences
in projections of future costs. Assum­ing
an 8-percent inflation rate, for instance, the
projected annual living cost for a retired couple
is $43,000 in the year 2000; at 12 percent in­flation,
the projection is $95,000. At 8 percent
inflation, the projected direct cost of raising a
child born in 1979 at age 18 is $134,000;3 at
15 percent it is $282,000. When the range of
economic possibilities is this broad, how can
families effectively plan their economic futures?
The purpose of this paper is to review research
related to family financial planning and to
analyze how this research might be used to
1 Economist, Family Economics Research Group,
Science and Education Administration, U.S. Depart­ment
of Agriculture.
2 Based on the intermediate cost level budget for a
retired couple calculated for autumn 1978 by the
Bureau of Labor Statistics. For more information,
see reference 12.
3 Based on estimates for the urban North Central
region at the moderate cost level. For more informa­tion,
see reference 7.
14
develop and implement programs to help fam­ilies
with their financial planning in uncertain
times. ·
Both the depth and breadth of interest in
family financial planning substantially increased
in the seventies. This interest is evidenced by
the introduction and successful expansion of
magazines and newsletters on financial manage­ment
and planning, a significant increase in the
number of column inches devoted to these
topics in general magazines and newspapers, an
expansion of radio and television coverage
related to family financial planning, growth in
the "profession" of financial counseling and
guidance, and increased demands on the
Cooperative Extension Service and other
educational systems for programs related to
family financial planning.
There are two basic approaches to family
financial planning. The first focuses on the
maintenance and enhancement of family
economic well-being, whereas the second
involves the remediation of family financial
problems.
Many groups and organizations assist families
seeking guidance in the area of financial plan­ning.
For example, the 7,000 members of the
International Association of Financial Planners
(IAFP) are involved in family financial plan­ning
from the prespective of enhancement.
IAFP members include persons with back­grounds
in insurance, investments, banking,
real estate, and related professions. About 25
percent of these members are "Certified
Financial Planners" and have been trained
through the College for Financial Planners in
Denver. IAFP members and related profes­sionals
annually reach an estimated 50,000
middle-income and upper-income individuals
and families.
Many organizations and professionals also
are involved in family financial planning directed
at the remediation of financial problems. The
National Foundation for Credit Counseling
estimates that more than 200,000 families are
reached each year through free or low-cost
services provided by 203 local, nonprofit
FAMILY ECONOMICS REVIEW
Consumer Credit Counseling Services.4 Similar
numbers of households are provided with ser­vices
through social service agencies, churches,
credit unions, labor unions, and fraternal
organizations.
The Cooperative Extension Service annually
reaches thousands of families at all economic
levels with educational programs designed to
both maintain and enhance economic well-being
and remedy financial problems through effective
family financial planning. Through its informa­tion
network, the Cooperative Extension
Service reaches many other individuals and
families with knowledge and strategies related
to family financial planning.
Research
Programs to help families plan their finances
are developed on the basis of two types of
research and knowledge. The first type concerns
the content of family financial affairs and in­cludes
such topics as forms of saving and
investing, principles of insurance, sources of
and regulations governing consumer credit, and
housing selection. The second type concerns
the principles of planning and includes research
related to the process of planning, that is,
research that identifies the motivation of plan­ning
and the skills necessary to effect a financial
plan. Other research in this category is related
to the characteristics of persons who are effec­tive
planners. This research identifies the life
cycle and family characteristics, as well as
socioeconomic and social psychological vari­ables
that are associated with planning behavior.
The following discussion focuses on research
and knowledge related to the principles of
family financial planning.
The concept of financial planning is distinct
from the more general notion of financial
decisionmaking. Family financial decision­making
generally . is defined as the conscious
direction of behavior at one point in time
toward the attainment of predetermined goals
(9). Family financial planning is defined as the
determination of these goals and the arrange­ment
of resources to reach these goals while
4 Personal communication with Mary Quinn, Na·
tional Foundation for Credit Counseling, Washington,
D.C.
SPRING 1981
maximizing well-being over time. Planning is a
dynamic process that includes the concept of
time-time as a resource to be exchanged for
another resource as well as the continuum on
which decisions are made. Financial planning
implies recognition that decisions made at one
point along the planning continuum affect the
resources, opportunities, and choices of the
future.
Process. Research related to the process of
family financial planning has confirmed: (1) the
rationality of behavior and (2) the resilience of
habits. Research suggesting that family financial
planning is a reasoned process generally has
been designed to test a specific behavioral
hypothesis of theory. For example, research
conducted by Kinsey and Lane (1 0) to assess
the relationship of debt to perceived household
welfare was based on an adaptation of general
investment theory. These authors contended
that consumers plan their saving and debt
based on their perceived rate of return from
these activities and their valuation of the
present time period relative to the future. This
application of investment theory incorporates
two important components of family financial
planning, recognition of the interrelatedness of
decisions and the role of time in the planning
process. Kinsey and Lane found that although
debt reduces the net worth of the family, it
can contribute to the household 's overall sense
of well-being, if it is used to rearrange financial
resources over time to match life cycle patterns
of needs and goals to life cycle patterns of
income.
In several classic studies, Bymers (2), Bymers
and Rollins (4), and Bymers and Galenson (3)
also analyzed the role of investment and debt
in family financial management as a way to
understand the process of financial planning.
They identified the time frames in which de­cisions
are made and developed a system for
classifying household expenditures and ac­counts.
In this system, expenditures are divided
into groups according to whether the expendi­ture
is for remedial purposes (such as debt
repayment) current needs, or future plans. This
system all~ws the researcher to identify the
types of families who are actively eng~ged ~n
financial planning and to study the relatwnsh1p
of planning to the overall budget ?rocess. ~t
also allows families to see how theu expendi-
15
ture behavior reflects commitment to the
financial planning process.
Families direct their planning behavior on
the basis of family financial goals. Several
financial goals often are cited as motivation for
financial planning. These include homeowner­ship,
education of children, and adequate
retirement income. Paynter (11) analyzed the
relationship of the strength of goal commit­ment
in the area of housing to the types of
behavior in which families would be willing
to engage to attain their goals. She reported
that strong commitment to housing goals was
related to the willingness to increase labor
force activities of family members, reduce
expenditures for such luxury items as meals
away from home and entertainment, and
reduce expenditures for such intermittent
necessities as dental care.
The resilience of attitudes and behavior
related to family financial planning has been
demonstrated by use of data from the Panel
Study of Income Dynamics. Duncan and Hill
( 5) report that attitudes and behaviors set at
one period of time are slow to change in
response to change in the broad economic
climate or the specific economic conditions
confronting the family.
Recent research regarding the process of
planning has attempted to distinguish several
"styles" of planning behavior, especially styles
that denote ability to adapt to change. Beard
and Firebaugh (1) developed a measure to
assess orientation to morphostatic planning
behavior; that is, behavior characterized by
difficulty in adjusting to change, and morpho­genic
planning behavior, which is behavior
characterized by ease of adjustment to change.
They reported several factors that distinguish
morphostatic and morphogenic planning be­havior.
Morphostatic planning behavior is
characterized by orientation to current needs,
inflexibility regarding standards and sequencing
of plans, and strong adherence to externally
imposed rules. In contrast, morphogenic
planning behavior is characterized by receptivity
to new demands, flexibility, broad participa­tion
by all family members in the planning
process, and foresight regarding the conse­quences
of current behavior. This research is
especially useful in designing programs to help
families with the process of financial planning.
16
An individual's basic orientation toward the
future may influence the way in which he or
she values the process of planning. The table on
page 17 presents a framework described by
Holman (8) for identifying the dimensions of
attitudes about the future and labeling charac­teristic
groups of these attitudes. In this classi­fication
system, "producers" are characterized
as seeing a single image of the future that is a
direct outcome of the present and the past.
Change is not valued by this group because it
may upset the predictable and uncontrollable
flow of events. This group would not find
much of value in the planning process. "Partic­ipants"
also see only one image of the future,
but unlike the "producers", they see the
future as different from the past. In this frame­work,
"participants" see themselves as in­fluencing
the course of events that lead toward
the future. This group would be viewed as good
candidates for financial planning. "Prospectors"
see several future scenarios, but do not perceive
themselves as controlling these alternatives.
Persons in this group probably would be
oriented toward financial planning so that they
would be prepared for whatever might occur.
The findings from studies related to the
process of financial planning have several
implications for program development. First,
since planning is a reasoned process that is
directed at the attainment of specific goals,
family financial planning programs should
include strong emphasis on goal identifica­tion
and clarification. Many families may be
ineffective planners because they simply do
not have goals.
Second, research indicates the importance of
developing programs that establish positive
planning behaviors early in the life cycle.
Although many circumstances, usually crises,
act to temporarily alter our established patterns
of behavior, positive, long-term, planning
behavior is most effectively initiated in the
early stages of the family life cycle.
Third, research provides evidence that there
are distinctive styles of planning behavior.
Families that have developed one style of
planning behavior may not benefit from
programs that attempt to implement another
style. For example, the findings of Beard and
Firebaugh (1) suggest that programs to help
families deal with economic change would need
FAMILY ECONOMICS REVIEW
Orientations toward the future 1
Ways of thinking about the future
Is the future predictable? ....... .. ... .
Does the individual have control
over the future? ..... . ..... · ..... .
What is the relationship of
the future and the present? ......... .
What is the nature of causality? ........ .
What is the rate of change in
the future? ......... .. ........ .
Is change valued? .. .. .... ...... ... .
Is change disruptive? . . . . . . . . ....... .
How many images of the future
are held? ............. ... ... . ..
Producer
Yes
No
Identical or
very similar
Antecedent
Slow or
none
No
Yes
One
Futurizing style
Participant Prospector
Yes No
Yes No
Linear but Discontinuous
positive slope
Prospective Concurrent
Constant Accelerating
Yes Yes
No No
One Many
1 A_dapted fr?~ Holman, Rebecca H. The imagination of the future: A hidden concept in the study of consumer
behaVIor. Assoc1atwn for Consumer Research, Annual Meeting 10/16-19/1980.
to be designed differently for families with
morphogenic planning behaviors than for
families with morphostatic behaviors. Other
factors that characterize style of planning
behavior, such as attitudes about risk, might
also influence program development and
acceptance.
Persons. Three sets of factors appear to
characterize families who are likely to engage
in financial planning: Degree of commitment
to goals (as discussed in the Process section);
stage of the family life cycle; and socioeco­nomic
characteristics. Often, these factors are
interrelated.
In a study of families in debt, many of
whom characterized themselves as ineffective
planners, Wright (13) described families with
severe credit problems as likely to have the
husband as the major breadwinner and unlikely
to have the wife employed (25 percent employ­ment
rate among wives), likely to have a bread­winner
with a high school diploma or slightly
less education, likely to be home renters
rather than owners, and likely to have many
creditors.
SPRING 1981
Bymers and Galenson ( 3) noted strong rela­tionships
among types of investment and level
of income, education, age, life cycle stage, and
family composition. For example, high income
was associated with investment in education of
children and other family members; the early
stage of the family life cycle was associated
with investment in durables and personal in­surance;
and an older family head was associated
with contributions to organizations.
Clearly, level of income is an important
determinant of family financial planning
behavior. Without adequate income to meet
current needs, families are handicapped in plan­ning
for the future. Nevertheless, low income
families in the early stages of the family life
cycle frequently exhibit planning behavior
suggesting that expected income, rather than
current income, is related to planning. Duncan
and Newman (6) report that the family life
cycle stage is among the most important
determinants of planning related to housing
goals.
New research is being initiated by the Family
Economics Research Group to analyze orienta­tion
to family financial planning including
17
styles and effectiveness of planning among
families at various stages of the life cycle.
This research will be useful in identifying the
stages at which families begin planning for
critical economic events such as retirement.
It will also identify the strategies that appear
most effective in the attainment of family
financial goals.
Research findings regarding the persons who
are inclined to be effective financial planners
suggest a recurring problem for program plan­ners-
those most likely to need planning skills
are the ones least likely to seek them. Con­sequently,
for families wishing to enhance their
economic well-being, programs might be de­signed
so that the responsibility for participa­tion
rests solely with the client. These programs
might be delivered by use of a gr~mp educa­tional
format. For families who need financial
planning skills to remedy a specific problem,
programs may require joint responsibility on
the part of the participant and the program
planner, and possibly referral from a third
party. For example, an individual "counseling"
program or small group session may be effec­tive
for teaching skills to resolve a specific
problem.
Trends
One of the primary purposes of the annual
Food and Agricultural Outlook Conference is
to identify the economic, social, and technical
trends that will be useful in predicting the
future. Several trends emerge for research re­lated
to family financial planning.
First is the trend toward research that focuses
on the broad spectrum of resources available
to families over the life cycle. For instance
there is evidence of renewed research interest
in the relationship of the use of time within the
household to the attainment of economic
goals. Currently, the Family Economics Re­search
Group is supporting projects at the
University of Wisconsin, the University of
Missouri, and the Ohio State University to
develop new research techniques that can be
applied to the analysis of household produc­tion.
This type of research will help us to
18
understand how household production relates
to the household's ability to save or adjust to
changing economic conditions.
Similariy, this trend toward analyzing re­sources
over time is seen in new research and pro­gram
efforts concerning family financial plan­ning
over the life cycle. Work has been done to
identify the planning tasks associated with each
stage of the life cycle and to determine the
information and skills needed to successfully
complete the tasks.
The second emerging research trend related
to family financial planning is the analysis of
life cycle costs. For effective planning, house­holds
need to estimate the total cost of owner­ship
and operation of household durables. This
is especially important in light of increasing
energy costs. Methodologies are being developed
to incorporate initial cost of purchase and life
cycle cost of operation and maintenance into
one overall estimate of cost that can be used
by households to make financial decisions.
Third is the trend toward analysis of resource
networks developed by families to attain their
financial goals. These networks can be seen in
the barter and exchange systems that have
developed in some communities-systems that
the Internal Revenue Service refers to as the
"subterranean economy"-and in the increased
interest in systems for the intrafamily transfer
of income and wealth.
The fourth trend that is likely to be reflected
in research related to family financial planning
is the increasing use of computers and other
electronic information systems in financial
decision making and transactions. In several
states, including Indiana, Michigan, and South
Carolina, extension specialists have developed
programs in which electronic technology pro­vides
individualized education to the public.
These or similar extension programs currently
are in use in all States with computer capability.
Research should be conducted for rating the
effectiveness of these tools in facilitating the
financial planning process, as well as the ac­ceptance
and use of these planning tools by
families.
FAMILY ECONOMICS REVIEW
REFERENCES
1. Beard, Doris, and Francille M. Firebaugh.
1978. Morphostatic and morphogenic
planning behavior in families: Develop­ment
of a measurement instrument.
Home Economics Research Journal
6(3):192-205.
2. Bymers, Gwen. 1963. Time Commitment
and Financial Position of Installment
Debtors. State College of Home Eco­nomics
Research Report No.7, Cornell
University, Ithaca, New York.
3. Bymers, Gwen J., and Marjorie Galenson.
1968. Time horizons in family spending.
Journal of Home Economics 60(9):
709-716.
4. Bymers, Gwen, and Mabel A. Rollins. 1967.
Classification Systems: Household Ex­penditures
Data and Household Ac­counts.
Agricultural Experiment Sta­tion
Bulletin No. 1014. Cornell Uni­versity,
Ithaca, New York.
5. Duncan, Greg, and Daniel Hill. 1975.
Attitudes, behavior, and economic
outcomes: A structural equations ap­proach.
In Gred J. Duncan and James
N. Morgan, editors. Five Thousand
American Families-Patterns of Eco­nomic
Progress, Vol. Ill. The Institute
for Social Research, Ann Arbor, Mich.
6. Duncan, Greg, and Sandra Newman. 1975.
People as planners: The fulfillment of
residential mobility expectations. In
Greg J. Duncan and James N. Morgan,
editors. Five Thousand American Fam­ilies-
Patterns of Economic Progress,
Vol. III. The Institute for Social Re­search,
Ann Arbor, Mich.
SPRING 1981
7. Edwards, Carolyn S. 1981. Users' guide
to USDA estimates of the cost of raising
a child: Part TI. Family Economics
Review. Winter issue, pp. 19-32. U.S.
Department of Agriculture, Science and
Education Administration.
8. Holman, Rebecca H. [In press.] The
imagination of the future: A hidden
concept in the study of consumer
behavior. In Kent B. Monroe, editor.
Advances in Consumer Research. Vol. 8.
Proceedings of the 1980 annual meeting
of the Association for Consumer Re­search
[Arlington, Va.].
9. Gross, Irma, Elizabeth Crandall, and
Marjorie Knoll. 1980. Management
for Modern Families. Prentice-Hall, Inc.,
Englewood Cliffs, N.J.
10. Kinsey, Jean, and Sylvia Lane. 1978. The
effect of debt on perceived household
welfare. Journal of Consumer Affairs
12(1):48-62.
11. Paynter, Maryann. 1975. An exploratory
study of commitment to family housing
goals. (Unpublished doctoral disserta­tion.)
The Pennsylvania State Uni­versity,
University Park, Pa.
12. U.S. Department of Labor, Bureau of
Labor Statistics. 1979. Three budgets
for a retired couple, autumn 1978.
News. USDL Pub. No. 78-588.
13. Wright, Lois A. 1978. Families in debt.
Journal of Home Economics 70(1):
38-39.
19
THE ECONOMY IN 1981
The information contained in this article is
condensed or abstracted from talks presented
at the annual Agricultural Outlook Conference
in November 1980, at Washington, D.C.
The Outlook in General
By Stephen M. Goldfeld
Member of the Council of Economic Advisers
The year 1980 started with policymakers
strongly concerned with containing the effects
of the 1979 oil shock and preventing this shock
from setting off a double-digit inflationary
wage and price spiral. That this concern was
warranted is evidenced by the sharp jump in
the rate of inflation in the first 3 months of
the year, when increases in both the consumer
and producer price indexes spurted into the 18
to 20 percent range. At the same time, wages
began to accelerate, after having increased
modestly during most of 1979- running at
about 81h percent in the face of an inflation
rate of over 13 percent. Inflationary expecta­tions
worsened and interest rates skyrocketed.
The reaction of some consumers was to buy
ahead, but this only added to inflationary
pressures.
In response to these developments, the
Administration and the Federal Reserve
Board (the Fed) took a number of actions
including the imposition of selective credit
controls. Collectively, these actions served
to contain the inflationary spiral, bringing
inflation sharply down. Interest rates plum­meted-
the prime rate dropped from 20
percent to 11 percent, while the Treasury
bill rate fell from a peak of nearly 16 percent
to just over 6 percent.
At the same time, the economy entered a
recession. The unemployment rate, which had
been in the neighborhood of 6 percent through
March 1980, jumped over the short space of
2 months to the 7. 7 5 percent level. With weak­ness
concentrated in autos and housing, real
GNP (Gross National Product) in the second
quarter fell at a record 9.5 percent annual rate.
Around the middle of the year most fore­casts,
including the Adminstration 's, were
projecting another substantial real GNP decline
in the third quarter, to be followed by a further
20
decline in the fourth quarter. Most private
forecasters had the unemployment rate rising
to the 8.75 to 9 percent range by yearend.
Once again, as it had done in 1979, the economy
proved more resilient than observers anticipated.
As the summer unfolded, various signs of
recovery began appearing. After a number of
months of decline, there was a pickup in hous­ing
starts and retail sales in June, in auto sales
in July, and in employment and industrial
production in August. For the third quarter
as a whole, real GNP advanced at a 1 percent
annual rate-hardly a buoyant recovery, but a
far cry from the 4 to 5 percent decline fore­cast
at the start of the quarter. Many observers
have suggested that the current recession has
run its course. If hindsight validates this view,
the 1980 recession will prove to be the briefest
on record.
The relative brevity of the recession is due to
a variety of factors. A few of these deserve
emphasis because they have direct implications
for the 1981 outlook. One factor in making the
recession brief is the apparent absence of a
sharp inventory cycle. Although inventory­sales
ratios are relatively high, the absolute
levels of stocks in many industries are reported
to be at operating minimuns and there are few
reports of business perceptions of heavy
inventories. This reflects heightened business
caution over inventory policy in the last year
and one-half or so. Some have suggested that
this caution stems from the fact that fore­casters
started proclaiming a recession well
back in 1979. Whatever the reason, the absence
of a sharp inventory cycle will tend to moderate
growth in the coming quarters, contributing to
a recovery that will be more modest than those
typically achieved following a recession.
A second factor was the rapidity with which
interest rates fell from their peaks of early
spring 1980. Unquestionably, this was instru­mental
in the prompt turnabout in housing,
and helped autos as well. A major reason for
the rapid movements in interest rates was the
adoption of a new set of operating procedures
by the Fed. More particularly, throughout
1980, the Fed pursued a reserves-oriented
strategy aimed at achieving better control over
the growth of the monetary aggregates. As a
consequence, compared with previous years, in
FAMILY ECONOMICS REVIEW
1980 the Fed was willing to witness substan­tially
greater fluctuations in interest rates.
As recent events have indicated, however, this
new strategy has led to financial conditions
that are historically unusual for the early stages
of recovery; that is, the runup in interest rates,
which has seen short rates rise some 700 basis
points from their June 1980 lows and long
rates up some 300 basis points. This unprec­edented
pattern suggests a second reason for a
sluggish recovery.
Aside from causes of the recession's brevity,
there is also one alleged consequence of that
brevity that deserves comment. In particular,
today one often hears that the recession was
too short, or put another way, that the patient
stopped taking its anti-inflationary medicine
before the medicine had a chance to work.
This view is based on a misreading of both
recent events and history. First, in comparison
to "what might have been," the intertwined
effects of economic policy and the recession
did serve to break the potentially dangerous
The Underlying Rate of Inflation
Percent
15
10
5
0
1960 65
inflationary spiral of early 1980. Second, the
record of past recessions does not suggest that
recessionary medicine has been particularly
effective treatment for the nation's underlying
inflation ills.
A sense of this can be gleaned from figure 1,
which plots the actual and "underlying" or the
"core" inflation rates over three inflationary
episodes. The first, the Vietnam episode,
saw excess demand drive up the underlying
rate, but the 1970-71 recession did little to
moderate it. The second episode, involving a
worldwide crop shortage and the first oil shock,
lifted the underlying rate further. Despite the
197 4-7 5 recession-the deepest in 40 years-the
underlying rate of inflation again proved
stubbornly sticky. With the 1979 oil shock, we
experienced a further ratchet upwards and
once again the ensuing recession appears to
have made little dent in the underlying rate.
All this indicates that the recessionary
medicine may be an overrated cure of inflation.
However, this discussion is not meant to indi-
The " Underlying Rate" used here is DRI's " Core Rate." Source: Data Resources, Inc.
Figure 1
21
SPRING 1981
cate a sanguine or fatalistic attitude towards
the inflationary process, or to deny the basic
proposition that we are coming out of the 1980
recession with an unacceptably high rate of
inflation. Furthermore, as elaborated below, it
is this rate of inflation, when coupled with
Federal Reserve determination in the pursuit of
monetary aggregates, that may well dictate the
nature of the recovery.
Both the recession and the recovery from
the recession are likely to be regarded as
historical freaks: The recession itself being
both unusually brief and unusually sharp; the
recovery being unprecedentedly sluggish. In the
previous six postwar recessions, the pace of
economic activity during the early stages of a
recovery has been quite brisk. For example,
for the four quarters after the trough of a re­cession,
real GNP typically has advanced by 7.5
percent. Most recent private forecasts suggest
that this time around the corresponding growth
of real GNP is likely to be in the 2.5 to 3 per­cent
range.
Consumer spending over the course of 1981
is likely to be considerably less buoyant than in
a typical recovery. To a large extent, this reflects
the effect of fiscal and oil drag on consumer
incomes. Among other things, the sources of
drag include the following: a scheduled social
security tax increase; inflation-induced tax
bracket creep; and an increase of windfall
profits tax revenues as world oil prices increase
and as the decontrol program permits larger
quantities of oil to be sold at world market
prices. Higher food prices also are likely to
serve as an additional source of drag on con­sumer
incomes. Another factor in the consumer
picture is that the personal saving rate is cur­rently
reported to be quite low by historical
standards. This suggests that there is little
room for a burst of consumer spending fueled
by a substantial decline in the saving rate (see
fig. 2). Such a decline was a factor in the early
stages of the recovery from the 1974-75
recession. On balance, the consumer is likely to
be faced with a number of factors contributing
to a sluggish growth in disposable income and
is not likely to be a major source of indepen­dent
strength in the recovery.
In the investment sector, it already was
noted that the likely absence of a major inven­tory
cycle will tend to contribute to a modera­tion
of the recovery. Business capital spending
22
Chart 118
Debt and Saving of Households
% disposable income
12
10
8
'''''''''''''''''4'''''"''"'''''-:.,,';, , ., .,,
6
4
1973 74 75
Source: Federal Reserve Board.
76
Figure 2
77 78 79
also is unlikely to be a major source of strength
in the near term. As is typical during a reces­sion,
business spending plans during 1980
were scilled down several times. With low
capacity utilization rates and depressed profits,
despite the advent of a recovery, real business
investment in plant and equipment is unlikely
to change much in the near term. However, if,
as seems likely, the prospective tax action
provides a significant investment stimulus,
capital spending is likely to pick up at the end
of 1981 and into 1982.
The remaining component of investment,
residential construction, is something of a
question mark. Currently, most private fore­casters
are projecting housing starts in the
fourth quarter of 1981 in the 1.6 to 1. 7
million unit range. Given the rapid recovery
of housing starts from the May 1980 low of
900,000 units to the September level of over
1.5 million units, and given strongly favorable
demographic factors, these housing start pro­jections
seem quite reasonable. They, of course,
imply that residential construction would be a
major source of gains in real GNP over the next
several quarters. The major uncertainty with
this view is the likely impact of financial condi­tions
on the housing market. The recent runup
in interest rates has spawned anecdotal evidence
of problems in mortgage markets, but it is
too early to tell for sure whether significant
problems are likely to arise.
FAMILY ECONOMICS REVIEW
Of the remaining components of aggregate
demand, neither State and local spending nor
net exports is likely to be much of an engine
for growth. On balance, then, it seems fairly
clear that the prospects are for quite a modest
economic recovery over the course of 1981.
The pattern of activity is likely to be a bit
sluggish in the first few quarters of the year,
but will pick up after midyear. Indeed, at the
end of the year, the economy should be
moving at a more healthy clip and this should
make for a somewhat improved situation in
1982.
In recent years, considerable attention has
been focused on the notion of the underlying
rate of inflation. Indeed, figure 1 is one version
of this concept-based on a relatively sophisti­cated
model. Of course, there are other simpler
ways to roughly gage the underlying rate. For
such purposes, one might look at standard unit
labor costs or various deflators excluding food
and energy. Taken as a whole, these various
measures suggest that inflation currently shows
an underlying momentum of about 9 percent.
The actual inflation rate obviously varies a
good deal more than the underlying rate, al­though
this behavior is considerably more
marked for the Consumer Price Index than for
the GNP implicit deflator. 1 Nevertheless, at
least for the deflator, an inflation performance
roughly in line with the underlying rate seems a
reasonable bet. However, for the longer term,
ways must be found to reduce the underlying
rate from its current unacceptably high level.
Obviously, the outlook for the economy
critically depends on the precise stance of
monetary and fiscal policy. As has been well
established, the Fed has embarked on a policy
motiviated by a longer term concern with
bringing down inflation. As previously noted,
under its new operating procedures, the Fed
has shifted to a regime that emphasizes achiev­ing
targets for the monetary aggregates. For
1981, the target range for M-1B2 is 3.5 to
1 See "Two measures of inflation: The Consumer
Price Index and the Personal Consumption Expenditure
Implicit Price Deflator," Family Economics Review
Winter 1981, pp. 13·18.
2The Federal Reserve System defines M1-B to
include: (1) Demand deposits at all commercial banks
other than those due to domestic banks, the U.S.
Government, foreign banks, and official institutions,
SPRING 1981
6 percent (before special adjustment for NOW
accounts). When this target was first unveiled,
the Fed and others emphasized the potential
problem of the consistency of the targets with
a nominal GNP forecast of the sort described
above. Achieving both forecast and targets
clearly requires a substantial increase in mone­tary
velocity. This in turn is usually associated
with a rise in interest rates, or, as in· the re­covery
from the 1974-75 recession, fortuitous
shift in the behavior of the public's demand for
money. Absent the latter, the question simply
is whether the rise in interest rates necessary
to elicit the needed increase in velocity is
consistent with the underlying forecast.
Since these concerns were first expressed
in midsummer, the economy has proved
stronger than originally forecast. As a result,
over the fall months of 1980, the economy
may have had a premature taste of the collision
between the targets and the recovery. Further
gyrations in interest rates were evident in the
last few weeks. On the whole, from the present
vantage , point, it is not clear how serious the
potential conflict between monetary targets
and the recovery is likely to be. Without
doubt, however, it is one of the important
elements of uncertainty in outlook.
. As for the fiscal policy in 19 81, in the
absence of any tax changes, the ratio of tax
receipts to GNP is likely to rise-somewhere
between 1.25 and 1.50 percentage points.
Coupled with Administration restraint in
Federal outlays, in the absence of any new
policy actions, the 1981 budget would represent
a significant tightening in fiscal policy. Un­doubtedly,
Congressional action will reduce
taxes in 1981. Nevertheless, an appropriately
sized tax cut might only partially moderate
the restrictive stance of fiscal policy. This
result is dictated by the concern with infla­tion
and the need to avoid putting excessive
pressure on capital markets in the light of cur­rent
monetary policy.
less cash items in the process of collection and Federal
Reserve float; (2) currency outside the Treasury,
Federal Reserve banks, and the vaults of commercial
banks; (3) negotiable order of withdrawal and auto­mated
transfer service accounts at banks and thrift
institutions; ( 4) credit union share draft accounts; and
( 5) demand deposits at mutual savings banks.
23
The Outlook for Consumer Credit
By Robert B. Evans
Senior vice president and general counsel
National Consumer Finance Association
The outlook for consumer credit for the
1980's is dependent on control Of the Federal
budget and money supply. If both can be
managed, then the supply and cost of con­sumer
credit will stabilize. If uncontrolled,
consumer credit will become more expensive,
and perhaps more scarce.
When the Federal Government borrows
money, the Fed may monetize a portion of the
debt. Put another way, the U.S. Treasury prints
money in the form of bonds and notes; then
the Fed purchases them. This results in an
increase in the money supply. A certain amount
of money needs to be printed to meet the
growth of the economy. However, when the
Fed is asked to do two things-accommodate a
large Federal budget deficit and a growing
economy-it must either create an excessive
amount of money, thereby fueling inflation or
stick to moderate growth ( 6 to 9 percent in
M1-B3 ), and accept the risks of volatile and
increasingly large swings in interest rates. The
Fed has chosen the latter course.
There are signs of slight relief from the
pressure on the Fed. Retail sales, consumer
credit, and housing starts are falling off,
although in October, industrial production
was up 1.6 percent. Soon the economy will
slow; we will reach a peak in interest rates, and
a gradual decline can then be expected.
As long as the inflation rate is persistently
high and the Fed tries to control money supply
rather than interest rates, the cost of borrowing
m?ney will be volatile. For example, earlier
thiS year, the Fed targeted the growth of Ml-B
at an annual rate of 6 to 9 percent. With credit
controls and the credit crunch in the spring,
Ml-B grew at an annual rate of 3 to 4 percent.
Fro.m August to November 1980 ' with an easmg of credit, Ml-B grew at an annual rate of
1. 8 percent. The Fed then clamped down ' and mterest rates for all types of credit, including
that used by consumers, immediately and signif­icantly
increased. In belated fashion the Fed
finally raised the discount rate to ban'ks. Banks
3 See footnote 2, page 23.
24
have responded by increasing their prime rates,
the rates of interest charged to their best
corporate customers. The interest charged
consumers for credit is somewhat higher than
the prime rate. Consumer credit will continue
to have a series of expansions and contractions
until inflation is brought under control, and
the money markets stabilize.
The impact of inflation on savings rates has
affected the cost of credit. In the spring of
1980, many consumers withdrew their money
from credit unions, savings and loans, and bank
accounts to purchase money market funds.
This is because the mandated maximum interest
rate on savings accounts is 5.25 percent for
banks and 5.5 percent for savings and loans,
which was much lower than the rate of infla­tion
and the rates offered on market instru­ments.
When consumers lend money, they
hope to maintain the real value of the money
they set aside, as well as earn a little profit.
When inflation reduces the value of the prin­cipal,
and tax liability reduces the profits,
consumers seek better savings mechanisms. In
the past several years, discretionary funds
have been withdrawn from savings institu­tions
to a far greater degree than ever before
in our history. It has created a crisis in the
savings market, one that was addressed in
1980 with the passage of the Depository
Institutions Deregulation and the Monetary
Control Act (see box). Over the next 6 years,
the interest rates on savings accounts in all
financial institutions will be gradually deregu­lated
so that they closely correspond to the
market. Now, consumers will be able to receive
more interest on money in their savings ac­counts
than previous legislation allowed.
Eventually, the variety of alternative devices,
such as money market certificates, will not be
so prominent. This new legislation will create
consumer banks from savings and loan associa­tions,
commercial banks, credit unions, and
other financial depository institutions. They
will becom~ neighborhood national finance
service centers, offering a number of consumer
financial services such as bill paying and
investment advice. Actually, they will perform
all of the financial services consumers have
wanted in the past but have been unable to
find in any one financial institution. In addi­tion,
investment brokerage firms are moving
in the same direction.
FAMILY ECONOMICS REVIEW
DEPOSITORY INSTITUTIONS DEREGULATION AND MONETARY
CONTROL ACT OF 1980
The Depository Institutions Deregulation and Monetary Control Act of 1980 (P.L.
~6-221), si~ed into law March 31, 1980, is a broad-ranging law containing nine titles,
five of which are to be known as separate acts themselves. These include the Monetary
Control Act of 1980, the Depository Institutions Deregulation Act of 1980, the Con­sumer
Checking Account Equity Act of 1980, the Truth in Lending Simplification and
Reform Act, and the Financial Regulation Simplification Act of 1980. The other four
titles of the law concern the powers of thrift institutions, amendments in the national
banking laws, foreign con.trol of U.S. financial institutions, and State usury laws.
Under the provisions of the Monetary Control Act of 1980, Fed deposit reserve re­quirements
will be uniformly imposed for all depository institutions on transaction
deposits and nonpersonal time deposits. These reserve requirements will be phased in over
an 8-year period for non-Fed member institutions. Member institutions will have their
reserve requirements phased down over a 4-year period. This and other provisions of the
act are designed to improve the ability of the Fed to effectively conduct monetary policy.
The Depository Institutions Deregulation Act of 1980 has two components: onere­lates
to interest rate ceilings on savings accounts and the other to interest-bearing, third­party
payment (checking) accounts. Under the act, all authority for interest rate ceilings
on all types of deposits will end in 6 years. A Deregulation Committee, with membership
from the Fed, Federal Deposit Insurance Corporation, Federal Home Loan Bank Board,
National Credit Union Administration, U.S. Department of the Treasury, and Comptroller
of the Currency, will administer the phased deregulation to assure maintenance of stability
in financial institutions. The law also provides that banks and thrift institutions through­out
the Nation will be able to offer third-party payment, interest-bearing accounts in the
form of negotiable order of withdrawal (NOW) accounts or other systems.
The Checking Account Equity Act of 1980 makes permanent the authority for share
draft accounts of credit unions, automatic transfer accounts at commercial banks, and
remote service units at Federal savings and loans. In addition, the law allows for change
in the usury ceiling at Federal credit unions from 12 to 15 percent.
The Truth in Lending Simplification and Reform Act changes some of the disclosure
and enforcement provisions of the Truth in Lending Law passed in 1968. Under this
act, compliance for creditors is simplified, while the consumer protection intent of the
original legislation is maintained.
The Financial Regulation Simplification Act of 1980 requires Federal financial institu­tion
regulatory agencies to insure that their regulations are needed and open to scrutiny
and debate by the public and interested third parties.
Other titles of P.L. 96-221 provide several types of overrides on State usury laws. For
example, State usury ceilings on mortgage rates are permanently preempted unless affected
States act within 3 years to reinstate them.
Currently, the economy is undergoing the
worst and by far the largest amount of bank­ruptcies
ever experienced. Consumer bank­ruptcy
touches many more lives than before.
It seems to be cutting across people of lesser
means, as well as people with six-figure in­comes.
Obviously, this is a very perplexing
problem and Congress soon may address this
issue despite the fact that the process of bank­ruptcy
reform that developed our current
system took 10 years.4
SPRING 1981
4 See "Bankruptcy reform", Family Economics Re­view,
Summer/Fall 1980, pp. 37-38.
25
The Outlook for Housing
By Robert J. Sheehan
Chief economist
National Association of Home BuUders
The outlook for housing in 1981 is made by
the National Association of Home Builders
(NAHB) based on a number of assumptions
about the economy-personal income growth,
the unemployment rate, inflation, personal
savings, and interest rates.
Personal income growth is expected to in­crease
less than 9 percent. Not since 1974 has
there been a nominal rate of growth of less
than the double-digit level. Also, the forecast
assumes a continuing decline in real income
until the middle of 1981 and then a movement
toward growth in the second half. Further, un­employment
is expected to increase to the 8
percent level by the first quarter of 1981 and
decline to the current level of 7.6 percent by
the end of 1981.
Inflation assumptions show a drop into the
single-digit range and a move closer to the
general underlying rate of inflation, which is
in the 9 to 10 percent range. This is a sharp
drop from the high double-digit inflation
experienced in the fourth quarter of 1980,
which resulted from the sharp increase in
mortgage rates. However, this forecast ignores
the potential problem in oil prices and supplies
arising in 1981 from the Iraq-Iran War. In
addition, a major deregulation of domestic oil
prices, which will increase prices, will start to
take effect in 1981. Hopefully, the weak
economic growth and its resulting limitation on
demand for energy will moderate the impact in
the short run of both domestic price increases
and those of OPEC. However, food prices
are another threat to keep inflation in the
double-digit range.
One distressing factor in the general econ­omy
is the low level of personal savings in the
third quarter of 1980, when only 4.6 percent
of disposable personal income was saved. This
represents a continuance of a trend of lower
savings rates almost every year since 1973. In
197 3, the savings rate was 7.8 percent. For­tunately,
the current level is decidedly above
the 3.5 percent low of the first quarter of
1980. The low level of savings in a recession
year is another unfortunate erosive effect of
sustained high inflation that destroys the in-
26
centive to forego consumption. Little basis is
left to support a strong general economic
recovery, and it certainly does not help to
increase the pool of potential homebuyers who
can qualify for mortgages at the expected level
of interest rates.
The most difficult assumptions to predict
are interest rates. They reflect the extreme
volatility of our economy. Assumptions by the
NAHB show that the prime may drop as low
as 10.5 percent from the current level of over
16 percent. The mortgage interest rate .. that
evolves from these assumptions is in the 12.5
to 13.5 percent range. These interest rate as­sumptions
are based on the constricted growth
rate in the economy. They also assume a more
stable economic environment, an adjustment of
the financial markets to the dramatic changes
in monetary policy and regulations that have
been occurring and will continue to occur over
the next several years as the banking industry
is deregulated.
In general, a rather positive outlook for in­terest
rates in a slowly growing economy has
been presented. If the economy grows more
rapidly or if a tax cut is imposed without
corresponding cuts in the Federal budget,
certainly personal income will rise and unem­ployment
drop, but inflation and interest
rates will increase. It can be expected that
if economic growth speeds up in the short run,
it will have an unsettling impact and push up
interest rates faster. This will give 9ur housing
starts forecast a downside risk.
Housing recovery will be delayed until early
1981. Forecasts for 1981 now estimate housing
starts to be 1.45 to 1.50 million units, about
22 percent over the 1.22 million anticipated
for 1980.
Of special note in the forecast mix is the
continuation of the little noted intensification
of the multifamily sector. There is a forecast of
a 35 percent share for multifamily units in
1981, the highest level since 1973 and well
above the 23 percent low point of 1975. The
increase in the multifamily share can be traced
to the resurgence and spreading of condominium
activity into more areas of the country.
Housing costs and demographics play a role
in increased condominium activity. Rapidly
rising housing costs are forcing more house­holds
to seek smaller units to provide afford­able
housing. There ar~ two related demo-
FAMILY ECONOMICS REVIEW
graphic trends that are promoting increased
condominium activity. The first trend is a
result of changes in the capital gains tax laws
affecting the treatment of profit from the sale
of a primary residence by a household with a
head over 55 years of age. Beginning in 1979,
these households were permitted to exempt
up to $100,000 of profit on the sale of their
primary residence on a one-time basis from
income taxation. This has given such house­holds
an opportunity for the first time to trade
down to a smaller unit. Hence, a condominium
in a multifamily structure is an attractive
alternative to many of these households, which
are now "empty nesters" (childless).
The second trend is the growth of single­person,
single-parent households. Both create
strong demand in the multifamily market for
condominium and rental units. During the
1970's, single-person households increased
706,000 per year, and one-parent households
increased by 79 percent. In 1970, 11 percent
of all families with children at home were
headed by one parent. By 1979, the proportion
had increased to 19 percent.
Certainly, as the recovery from the housing
recession of 1980 matures, the multifamily
share of starts will stabilize or may even decline,
but demographics and affordability will pro­mote
a significant share of multifamily units,
especially condominiums.
The Outlook for Food
By Paul C. Westcott
Agricultural economist
Economics and Statistics Service
Food prices are one of the most visible
aspects of inflation. Two reasons are often
cited for this. First, food is a basic necessity
making expenditures on food a required living
cost. Second, because of its perishability, food
is purchased frequently by consumers, usually
more than once a week.
At this time retail food prices in 1981 are
expected to a~erage 10 to 15 percent higher
than in 1980. Conditions that would push the
1981 food price increase into the upper end of
the forecast range include winter weather that
damages the citrus crop and reduces livestock
marketings, a poor grain harvest in t~e fall. of
1981, another surge in the general mfla~on
rate that would impact on food marketrng
SPRING 1981
costs, and an extremely poor global sugar
crop.
The retail food price forecast disaggregated
by the major food products is given in the table
on page 28. In 1981, the major source of food
price inflation will come from rises in meat,
poultry, and egg prices. Producer losses in the
first half of 1980 resulting from low hog prices
will lead to declines in pork production in
1981. With only slight increases in beef and
broiler production, 1981 per capita meat and
poultry supplies will be 2 to 4 percent below
the level in 1980, with the current assessment
showing an 18 percent price increase for meat
and poultry. In addition, increased demand for
eggs, as consumers substitute them for meats
and poultry, along with a slight decline in
production, will push retail egg prices up about
17 percent over 1980's relatively low prices.
In 1981, prices for dairy products are ex­pected
to rise slightly faster than in 1980, with
the price support program and rising marketing
costs again being the major causes.
Fruit and vegetable prices are one of the
major areas of uncertainty in the forecast be­cause
of their sensitivity to weather develop­ments.
Citrus production is especially depen­dent
on growing conditions in Florida and the
Southwest. Currently, fruit prices in 1981 are
expected to rise only moderately because of
record production levels. Vegetable prices are
expected to rise faster in 1981 than in 1980.
In response to the relatively low farm level
prices in the last few years, potato acreage in
the fall of 1980 was reduced to the lowest level
in 15 years. The resulting decline in supplies
will keep retail potato prices relatively high, at
least until next fall's harvest.
Following 1980's relatively small increases,
retail prices for fats and oils are expected to
rise more in 1981. Although carryover stocks
from the 1979 crop rose, reduced acreage and
yields have led to lower production of the ma­jor
oilseeds (soybeans, peanuts, cottonseed,
flaxseed, and sunflowers). Additionally, lard
production will likely fall in 1981 because of
reduced hog production.
Prices for sugar and sweets are likely to show
another substantial rise in 1981 with the size of
the increase depending upon 1980-81 global
sugar production. A great deal of uncertainty
exists because of the limited information avail­abile
about crops in the U.S.S.R. and Cuba,
27
and because of uncertainties about the extent
of potential Brazilian use of sugar cane in
ethanol production. Nonetheless, world sugar
production is expected to be below consump­tion
for the second consecutive year.
Prices for cereals and bakery products and
nonalcoholic beverages may rise more than the
general inflation rate in 1981. To a large
degree, these prices will be affected by food
marketing costs. However, the soft drink
component of nonalcoholic beverages and
prices for some bakery products will be affected
by the higher sugar prices. In addition, higher
grain prices will be passed through to retail
cereal and bakery product prices.
Retail food price changes, 197 8-81 1
Forecast
Food category 1978 1979 1980 1981
Percent change
All food •••••••• 0. 0 ••••• 0. 0 . 0 0 ••• 0 •• 10.0 10.9 8.7 12.2
Food away from home .................. . 9.0 11.2 10.0 10.4
Food at home ................... .. .. . 10.5 10.8 8.1 13.0
Meats . ............................ . 18.7 17.0 3.5 17.9
Beef and veal . . . . . . . . . . . . . . . . . . . . . . . 22.9 27.3 6.4 13.5
Pork ............................ . 12.9 1.5 -2.6 27.6
Other meats . . . . . . . . . . . . . ..... ... .. . 17.8 14.7 4.1 17.5
Poultry ........... . ................ . 10.3 5.0 4.1 18.0
Fish and seafood. . . . .................. . 9.5 9.8 9.2 9.6
Eggs .............................. . -5.5 9.5 -3.1 16.9
Dairy products . ......... ........ .... . . 6.7 11.6 10.2 10.7
Fats and oils ........................ . 9.5 8.0 6.7 11.0
Fruits and vegetables . . . . . . . . . . . . . . ..... . 11.1 8.0 7.0 8.0
Sugar and sweets. . . . . . . . . . . . . . . . . . .... . 12.2 7.8 22.4 21.5
Cereals and bakery products .............. . 8.9 10.1 11.9 10.9
Nonalcoholic beverages ... .. ... . ..... .. . . 5.7 5.0 10.8 12.0
Other prepared foods . . . . . . . . . . . . . ... . . . 8.0 10.1 10.9 10.3
1 Based on the Consumer Price Indexes, All Urban Consumers.
Sources: Historical data from the Bureau of Labor Statistics; forecast data estimated by the U.S. Department
of Agriculture.
28 FAMILY ECONOMICS REVIEW
HOUSING AND URBAN DEVELOPMENT ABSTRACTS
Aids to Understanding the U.S. Department
of Housing and Urban Development
U.S. Department of Housing and Urban
Development
Office of Administration
This annotated bibliography lists 95 publica­tions
under the headings of: (1) Basic congres­sional
and presidential actions establishing
major programs; (2) histories and chronologies;
( 3) influential reports; and ( 4) keeping current
with HUD. The publication is intended to serve
as a pathfinder for those interested in what
laws govern HUD, how the Department grew,
and how to keep aware of current actions.
Single copies of Aids to Understanding the U.S.
Department of Housing and Urban Develop­ment,
HUD-396-1-A(5), are available free from
the HUD Library, 451-7th Street, SW., Room
8141, Washington, D.C. 20410.
Measuring Restrictive Rental Practices
Affecting Families with Children:
A National Survey
U.S. Department of Housing and Urban
Development
Office of Policy Development and Research
This study, conducted for the Office of
Policy Development and Research, HUD,
examines the extent and nature of policies that
limit the ability of families with children to
find suitable rental housing. Based on tele­phone
interview data collected from a national
sample of tenants and managers, the experiences
of families with children, as well as the atti­tudes
and preferences of tenants and housing
managers, were studied. Factors associated with
differences in policies, such as characteristics
of the housing and residents, were examined.
The findings suggest that exclusionary practices
against children exist under a variety of circum­stances,
and that such practices have increased
in recent years. Single copies of Measuring
Restrictive Rental Practices Affecting Families
with Children: A National Survey, HUD­PDR-
603, are available free from Publications
Service Center, HUD, Room B-258, 451-7th
Street, SW., Washington, D.C. 20410.
SPRING 1981
1978 Statistical Yearbook
U.S. Department of Housing and Urban
Development
Office of Organization and Management
Information
This yearbook brings together comprehen­sive
and detailed data on the program and
financial operations of HUD and statistical
information related to housing and urban
activities. The first 10 sections present HUD
program status and activity data. An eleventh
section presents data published by other
Government departments and some private
organizations. This data covers such topics
as population size; household and family
characteristics; housing occupancy, vacancy,
production, and sales; construction expendi­tures
and costs; and mortgage finance. Single
copies of the 1978 Statistical Yearbook,
HUD-338-7 -UD, are available free from
Publications Service Center, HUD, Room
B-258, 451-7th Street, SW., Washington,
D.C. 20410.
The Conversion of Rental Housing to
Condominiums and Cooperatives
U.S. Department of Housing and Urban
Development
Office of Policy Development and Research
This study presents a national picture of
the extent, causes, and impact of condominium
and cooperative conversions. By using consis­tent
definitions for all jurisdictions, the study
analyzes the significance of the volume and
location of present and projected conversions.
Supply and demand factors contributing to
conversions and community, tenant, and owner
impacts are also evaluated. The conversion proc­ess
is described, as are Federal, State, and local
programs for and regulations on conversion.
Single copies of The Conversion of Rental
Housing to Condominiums and Cooperatives,
HUD-PDR-554, two appendixes, and an execu­tive
summary are available free from HUD
USER, P.O. Box 280, Germantown, Md. 20767.
29
Consumer Guide for Home Energy
Conservation
U.S. Department of Housing and Urban
Development
Office of Neighborhoods, Voluntary
Associations, and Consumer Protection
This bulletin includes a variety of useful in­formation
for consumers interested in energy
conservation. A checklist is included to help
identify energy-saving actions along with
estimated costs of materials and estimated
yearly energy savings. Services provided by
utility companies to encourage residential
customers to conserve energy are discussed, as
is the U.S. Department of Energy W eatheriza­tion
Assistance Program for Low-Income
Families. Eligibility and guidelines and contact
points for this program are included. Solar
energy information, including programs and
contact offices, is presented, followed by in­formation
on energy conservation counseling
training and assistance. A state-by-state listing
of contact points for State and Federal pro­grams
that can provide assistance to com­munity
groups interested in energy projects is
included. Finally, tax credits for home energy
conservation are discussed including informa­tion
on claiming these credits. Single copies of
Consumer Guide for Home Energy Conserva­tion,
HUD-599-NV ACP, are available free from
Publications Service Center, HUD, Room
B-258, 451-7th Street, SW., Washington, D.C.
20410.
How Restrictive Rental Practices
Affect Families with Children
U.S. Department of Housing and Urban
Development
Office of Policy Development and Research
This HUD sponsored report is based on
personal interviews with families who have
experienced housing problems because they
have children. The study documents how this
housing problem affects the lives of families
seeking rental housing. Single copies of How
Restrictive Rental Practices Affect Families
with Children, HUD-PDR-592, are available
free from HUD USER, P.O. Box 280, German­town,
Md. 20767.
30
Characteristics of New Housing: 1979
U.S. Department of Commerce
Bureau of the Census
This annual joint publication of the U.S.
Department of Commerce, Bureau of the
Census and HUD provides statistics on selected
financial and physical characteristics of new
housing. The report includes chapters on the
characteristics of single-family and multi­family
housing completed during 1979, single­family
houses sold during 1979, and contractor­built
houses started.
According to the report, an estimated
1,875,000 new privately owned housing units
were completed in 1979; 1,301,000 were
single-unit structures. Of these single-unit
dwellings, 60 percent had central air-condition­ing,
7 4 percent had two or more bathrooms,
64 percent had three bedrooms, and 23 percent
had four or more bedrooms. In addition, 51
percent were heated by electricity and 39
percent by gas. Further, 28 percent were from
1,200 to 1,599 square feet in size, 23 percent
from 1,600 to 1,999 square feet, 15 percent
from 2,000 to 2,399 square feet, and 15 per­cent
were 2,400 square feet or more.
The average sales price of new one-family
houses sold in 1979 was $71,800 compared
with $62,500 in 1978; the median was $62,900
in 1979, and $55,700 in 1978. The average
price per square foot of houses sold in 1979
reporting such a figure was $32.40, compared
with $28.50 in 1978. The price index of houses
sold in the United States rose from 182.1 in
1978 to 207.3 in 1979 (r972=100). Single
copies of Characteristics of New Housing: 1979,
Construction Reports C25-79-13, are available
for $2.25 from Data User Division, Customer
Service Branch (Publications), Bureau of the
Census, Washington, D.C. 20233.
1980 President's National Urban Policy Report
U.S. Department of Housing and Urban
Development
Office of Community Planning and
Development
This report represents a progress statement
on the comprehensive national urban policy,
"A new partnership to conserve America's
communities," that was announced in March
FAMILY ECONOMICS REVIEW
1978. Trends that have affected and continue
to affect communities and their residents are
analyzed and additions and refinements to the
original policy are presented.
The 1978 Urban Policy was the product of
an effort by Federal, State, and local officials
public interest groups, private sector leaders,'
and urban policy analysts-directed by the
Urban and Regional Policy Group (the secre­taries
of five cabinet agencies)-to analyze
urban problems and develop policy objectives.
In the 1978 Urban Policy, 9 key policies led
to 19 legislative initiatives, 4 executive orders,
and extensive administrative actions ineiuding
program changes, pilot programs, and inter­agency
agreements. A description and status of
these actions are included in the introduction.
An overview examines urban population
distribution and measures community need and
distress. A section on the central city looks at
the central city economy, labor market,
housing, neighborhoods, and fiscal conditions.
A similar focus is provided for suburban and
nonmetropolitan communities. A four-chapter
section on a framework for urban policy and a
program for future action complete the report.
Finally, a bibliography is included. Single
copies of the 1980 President's National Urban
Policy Report, HUD-583-1-CPD, and an execu­tive
summary, HUD-583-CPD, are available free
from Publications Center, HUD, Room B-258,
451-7th Street, SW., Washington, D.C. 20410.
Housing Our Families
U.S. Department of Housing and Urban
Development
Office of Policy Development and Research
Written in response to the International Year
of the Child and the White House Conference
on Families, this publication brings together
much of the existing HUD information on the
housing status of families with children. Chap­ters
include an overview of family housing and
an analysis of the adequacy and affordability
of housing to answer the question, "How well
are we housed?" An examination of the demand
for housing includes trends in family and house­hold
formation, income, and family composi­tion.
In addition, recent housing supply trends
are reviewed. Research on exclusionary prac­tices
affecting families with children and the
SPRING 1981
legal status of such policies are described.
Finally, HUD programs are reviewed in terms
of how well they serve families, and policy and
research options for the future are discussed.
A bibliography is included. Single copies of
Housing Our Families are available free from
HUD USER, P.O. Box 280, Germantown,
Md. 20767.
Bibliography on Urban Policies and Housing
Programs-A Background List
U.S. Department of Housing and Urban
Development
Office of International Affairs
Books, government reports, and periodical
articles dealing with housing and community
development policies and programs are cited and
briefly abstracted. Single copies of Bibliography
on Urban Policies and Housing Programs­A
Background List, HUD-A-531, are available
free from the HUD Library, 451-7th Street,
SW., Room 8141, Washington, D.C. 20410.
Neighborhoods: A Self-Help Sampler
U.S. Department of Housing and Urban
Development
Office of Neighborhoods, Voluntary
Associations, and Consumer Protection
This book describes what people across the
country have done to revitalize their com­munities.
The major part presents interviews
with members of self-help groups who describe
what they have done, why, and how. Following
each narrative is a step-by-step section that can
help readers replicate the same kind of project
in their communities. Also included are hous­ing
rehabilitation projects, economic develop­ment
programs, arts and culture centers,
neighborhood improvement projects, and social
services centers. Appendixes include mini­factsheets
on neighborhood-oriented programs
of the Federal Government, a resource direc­tory
of organizations that can provide technical
assistance, and an annotated bibliography.
Single copies of Neighborhoods: A Self-Help
Sampler, HUD-536-(a)-NVACP, are available
free from Publications Service Center, HUD,
Room B-258, 451-7th Street, SW., Washington,
D.C. 20410.
31
MONEY INCOME AND POVERTY STATUS
OF FAMILIES AND PERSONS IN THE UNITED STATES: 1979
In 1979, the median income of all families
in the United States was $19,680, according
to results of the Current Population Survey
conducted in March 1980 by the U.S. Bureau
of the Census. The 1979 median family income
was 12 percent higher than the 1978 median
(see table 1). However, after adjusting for the
11.3 percent increase in prices between 1978
and 1979,1 there was no significant change
in real median family income.
For certain types of families, however, there
were significant increases in real median in­come
during 1979. Examples include married­couple
families with a wife in the labor force,
who increased their real median income by 2
percent, and families with a female house­holder,
no husband present, who increased
their real median income 5 percent.
There was no significant difference in the
change in real income between 1978 and 1979
experienced by white, black, and Spanish­origin
families. However, families with a house­holder
who completed 4 or more years of
college and families whose householder was
employed as a professional, technical, and
kindred worker (many of whom are college
educated) experienced decreases in real median
income of 3 to 4 percent.
Income levels in the 1970's were affected by
recession, high-level inflation, and changes in
family structure. Between March 1970 and
March 1980, there was a substantial increase in
the proportion of families maintained by a
female householder with no husband present
(from 11 to 15 percent). Additionally, there
was an increase from 28 to 30 percent in the
proportion of families maintained by younger
1 The percentage increase in prices between 1978
and 1979 is computed by dividing the annual average
Consumer Price Index (CPI) for 1979 by the annual
average value of the CPI for 1978.
32
persons (under 35 years of age). The changes in
family structure have exerted a downward
influence on overall median income, since
families maintained by women and younger
persons tend to have lower incomes.
In 1979, about 25.2 million persons were
below the poverty level, constituting 11.6 per­cent
of the U.S. population. The size of the
poverty population did not change significantly
from the 1978 level, although one group,
persons 65 years old and over, did significantly
increase from 3.2 million to 3.6 million. This
is the first increase in the elderly poor since
the 1974-75 recession years (see table 2). The
poverty threshold for a nonfarm family of four
was $7,412 in 1979.
The size of the poverty population fluctu­ated
throughout the 1970's. Declines in the
number of poor during the early part of the
decade were offset by increases during the
recession years of 1974 and 1975. There has
been no significant change in either the number
or percent of persons below the poverty level
since the 1975-76 period.
Some of the lack of progress against poverty
during the 1970's can be attributed to the
problems of recession and high rates of infla­tion,
as well as changes in family composition.
In particular, the increase in the proportion of
families with a female householder with no
husband present has greatly affected the
poverty population, because the poverty rate
for such families is very high compared with
other families. In 1979, for example, 30 per­cent
of families maintained by women with
no husband present were poor compared with
only 5 percent of all married-couple families.
Source: U.S. Department of Commerce, Bureau of
the Census, 1980, Money income and poverty status
of families and persons in the United States: 1979
(advance report), Current Population Reports, Con­sumer
Income, Series P-60, No. 125.
FAMILY ECONOMICS REVIEW
1979
1978
1977
1976
1975
1970
1960
1950
Table 1. Median family income in 1950 to 1979 in current and constant dollars
Year
• 0 •••••• 0 ••• 0 0 0 •••••• 0 ••• 0 ••• 0 0. 0 •••• 0 ••
••• 0 0 ••• 0 ••••••• 0. 0 ••••• 0. 0 •• 0 ••• 0 •• 0 0 ••• 0
••••• 0. 0. 0 0. 0 •••• 0 •••••••••••••• 0. 0 0 ••••••
••••• 0 ° ••• 0 0 •••••• 0. 0 ••••••••• 0 •••• 0. 0 0 •• 0
0 ••••••••• 0 ••• 0. 0. 0 0. 0 •••••••• 0 0 •••••• 0 •••
In
current
dollars
19,684
17,640
16,009
14,958
13,719
9,865
5,620
3,319
Median family income
Dollars
In
1979
dollars
19,684
19,626
19,176
19,073
18,502
18,444
13,774
10,008
~~urce: U.S. Dep~rtment o~ Commerce, Bureau of the Census, 1980, Money income and poverty status of
families and persons m the Uruted States: 1979 (advance report), Current Population Reports, Consumer Income,
Series P-60, No. 125.
Table 2. Persons and families below the poverty level: 1978 and 1979
[Numbers in thousands, as of March of the following year]
Selected characteristics
All persons ....................... . .... .
White ...... ... ................... .
Black .............................. .
Spanish origin 1 . • . . . . . . . . . . . . . . . . . . • . . .
Under 65 years ........ ... .......... . .. .
65 years and over . . . ................. .
In metropolitan areas ................... .
In central cities ..................... .
Outside central cities .................. .
Outside metropolitan areas ................ .
All families . . . . . . . . . . . . . . . . . . . . . . . .... .
Married-couple families .................. .
Male householder, no wife present ........ . .. .
Female householder, no husband present ...... .
1 Persons of Spanish origin may be of any race.
Below poverty level
1979
25,214
16,688
7,840
2,671
21,630
*3,584
15,612
9,421
6,191
9,602
5,292
2,552
172
2,568
1978
24,497
16,259
., ,625
2,607
21,264
3,233
15,090
9,285
5,805
9,407
5,280
2,474
152
2,654
Poverty rate
1979
11.6
8.9
30.9
21.6
11.1
*15.1
10.6
15.6
7.1
13.7
9.1
5.3
10.1
30.1
1978
11.4
8.7
30.6
21.6
11.0
13.9
10.4
15.4
6.8
13.5
9.1
5.2
9.2
31.4
Source: U.S. Department of Commerce, Bureau of the Census, 1980, Money income and poverty status of
families and persons in the United States: 1979 (advance report), Current Population Reports, Consumer Income,
Series P-60, No. 125.
Note: An asterisk(*) preceding the estimate indicates statistically significant change at the 95 percent level.
SPRING 1981
33
WOMEN SOCIAL SECURITY BENEFICIARIES AGED 62 AND OLDER
Women's participation in the labor force has
substantially increased over the past half
century. In 1930, 10 million women were in
the labor force, representing 24 percent of all
working age women and 22 percent of the total
work force. By 1979, the number had more
than quadrupled. With the participation rate
at 51 percent, women workers represented 41
percent of the total work force.
Generally, when a woman reaches age 62 she
may become entitled to social security benefits
as a retired or disabled worker based on her
own earnings record, as a wife or widow based
on her husband's earnings record or as a
dependent surviving parent based on her
child's earnings record. Some women are
entitled simultaneously to a retired- or disabled­worker
benefit and to a second payment from
a wife's, widow's, or parent's benefit, which
may be a larger amount. Under dual entitle­ment,
the woman receives the retired- or
disabled-worker benefit plus the difference
between that benefit and the amount of the
wife's, widow's, or parent's benefit. She can­not
receive both the retired- or disabled-worker
benefit and the full amount of the dependent
or survivor benefit.
A result of the increased labor force partici­pation
of women has been a substantial in­crease
in the number and proportion of women
who are entitled to benefits based on their own
earnings records. From 1960 to 1979, the
number of women receiving benefits based on
their own earnings record increased 213 per-
, cent, whereas the number of women receiving
benefits as dependents and survivors increased
only 85 percent. Although the number of
34
women who have worked long enough in
covered employment to qualify for benefits
based on their own earnings records has grown,
often these benefits are lower than the benefits
they would receive as dependents and survivors.
Social security benefit amounts are based on
the worker's primary insurance amount (PIA).
The PIA is related to the worker's earnings in
covered employment, averaged over a period of
time. The full PIA is payable to a retired worker
at age 65 or to a disabled worker at any age. A
widow may receive the full PIA and a wife up
to 50 percent.
For retired women workers the PIA levels
are considerably lower than those for retired
men workers. At the end of 1979, the average
PIA for women retired workers was $24 7 .80,
compared with $344.50 for men (see table).
These differences in the PIA reflect the
lower earnings of women and their more spo­radic
participation in the labor force. Data
from a 1972 study of the lifetime covered
earnings of retired workers entitled to benefits
show that 69 percent of the women, compared
with 35 percent of the men, had lifetime
covered earnings of less than $40,000.1
1 Barbara A. Lingg, 1977, Lifetime covered earnings
and quarters of coverage of retired and disabled work·
ers, 1972, Social Security Bulletin 40(10):3-16, U.S.
Department of Health, Education, and Welfare, Social
Security Administration.
Source: U.S. Department of Health and Human
Services, Social Security Administration, 1980, Women
social security beneficiaries aged 62 and older, 1960-79,
News and Brief Reports, Social Security Bulletin
43(7) :28-31.
FAMILY ECONOMICS REVIEW
Beneficiaries aged 62 and over, by type of benefit in current payment status and sex
December 31, 1979 '
Average
Type of benefit and sex1 Primary
insurance Monthly
amount benefit
(PIA) amount
Dollars
Retired workers and dependents:
Retired workers •••••••••• •• ••• 0 •••• 0 •••••••• 0 •••• 0.
Men Worn~~ ....................................... .
••••••••••••••••••••••••• 0 ••••••••••• 0 ••
Wives .... .... .. ...... ......... ...... . .......... .
Husbands ••••••• •• •••••• 0 ......... 0 ••••• 0 • ••• • ••••
299.76 294.27
344.50 326.75
247.80 256.54
349.59 151.80
244.04 116.01
Disabled workers and dependents:
Disabled workers . . . . . . ............................ .
Men ......................................... .
Women ............... .... ........... ....... .. .
325.98 324.84
361.05 359.66
256.36 255.72
Wives .......................................... .
Husbands ....................................... .
387.55 109.80
289.18 84.12
Survivors of deceased workers:
Aged
Widows . ............ ..... ..... ........... . .... . 296.33 270.68
Widowers ..................................... . 248.58 212.36
Disabled
Widows ....................................... . 312.05 191.64
Widowers .. .. . . .... ............. ... .......... . . 286.27 168.34
Widowed
Mothers ...................................... . 309.73 223.33
Fathers ....................................... . 223.30 137.97
Parents
Mothers ...................................... . 295.02 239.89
Fathers ....................................... . 292.55 214.65
1 Excludes special age 7 2 beneficiaries and adults receiving benefits because of childhood disability.
Source : U.S. Department of Health and Human Services, Social Security Administration, 1980, Women social
security beneficiaries aged 62 and older, 1960-79, News and Brief Reports, Social Security Bulletin 43(7):28-31.
SPRING 1981 35
CHARGES AND SOURCES OF PAYMENT FOR DENTAL VISITS
It is generally known that most dental care
is paid for out-of-pocket by patients or their
families. Less well known are differences in
charges according to population characteristics
and the extent of third-party payments from
private health insurance or government pro­grams.
The National Medical Care Expense
Survey provides the most comprehensive statis­tical
picture to date of how health services,
including dental services, are used and paid for
in the United States. During the period be­tween
January 1, 1977, and March 31, 1977,
the coverage charge for a dental visit was
$31.71. 1 Of this average charge, the family
paid $24.42, private health insurance paid
$4.12, and public sources paid the remaining
$3.17. The average charge for dental visits
was higher in the West ($38.42) than in the
South ($29.99) and the North Central region
($28.68). The largest proportion of visit
charges paid by the family and the lowest
1 A dental visit is defined as any reported visit to a
dentist, dental surgeon, oral surgeon, orthodontist,
other dental specialist, dental hygienist, dental tech­nician,
or any other person for dental care.
36
proportion paid by private health insurance
were found in the South.
A combination of sources paid for 10 per­cent
of dental visits, with 90 percent of all
visits paid by one source. That one source was
the family in 75 percent of all dental visits.
Both private health insurance and Medicaid
paid under 10 percent, with other public
sources--such as the Veterans Administration­paying
under 5 percent of all dental visits.
The average proportion of the charge paid
by the family increased with age. On the aver­age,
large proportions were paid by the family
for visits of persons 45 to 64 years of age and
those 65 or older. The latter group accounted
for the highest proportion of d