One Recession, Two Americas
II. The Two Faces of the Great Recession
By most broad measures of economic well-being, those who Held their Own and Americans who Lost Ground could hardly be more different. Among those who disproportionately experienced economic hardships during the recession, more than half (54%) say they are just getting by or fall short of meeting their monthly expenses and more than four-in-ten say the recession forced them to make “major” changes in the way they live.
In contrast, eight-in-ten of those who Held their Own during the recession say that they’re “living comfortably” or that they have money left over each month after paying their bills. And unlike their less fortunate counterparts, not a single one says the recession has forced major lifestyle changes.
It’s not surprising that some people were harder hit by the recession than others, or that people who, for example, suffered a spell of unemployment also had trouble making their rent or mortgage payments. What is striking, however, is the fact that the groups are roughly the same size yet the differences between them are so great.
For example, more than four-in-ten adults who Lost Ground (43%) say they were unemployed at some point during the recession, compared with less than 1% of those who Held their Own. Fully a third (35%) of those who Lost Ground had problems paying their rent or mortgage, while not a single one of those who Held their Own reported similar difficulties. Likewise, no one who Held their Own during the recession reported having trouble finding or paying for medical care, or having to borrow money from friends or family to pay bills, compared with 48% and 42%, respectively, of those who Lost Ground.
Nearly half of those who Lost Ground (48%) say their family incomes declined during the recession — more than three times the proportion of those who Held their Own (14%). Similarly, nearly two-thirds of those who Lost Ground say their family’s overall financial condition is worse now than it was before the recession. Again, that is more than twice the proportion of those who Held their Own (29%) who say their financial position worsened.1
So far this report has examined differences between the two groups only on the eight core questions that were used in the cluster analysis to form the groupings. Do differences exist between the groups on other questions measuring recession-related hardships?
The answer is, yes. For example, nearly one-in-five (19%) of those who Lost Ground during the recession say they had to increase their credit card debt to pay their bills, compared with 4% of those who Held their Own. Nearly three-quarters (74%) of those who suffered the most during the recession say they had to cancel or cut back on vacation travel, compared with 36% of those who Held their Own.
Those who Lost Ground are twice as likely as those who Held their Own to have cut back on the amount they saved during the recession (61% vs. 30%) and are significantly more likely to say they cut back on spending (74% vs. 47%). When both groups were asked whether their total amount of personal debt in the form of credit card bills, mortgage loans and other types of loans increased or decreased during the recession, those who Lost Ground were more than four times as likely to say they owed more during the recession than before the downturn began (19% vs. 4%).
And when it came to two of America’s favorite guilty pleasures, those who Lost Ground were more than twice as likely as those who Held their Own to say they cut back spending on alcohol or tobacco (41% vs. 16%) because of the recession.
Forming Clusters to Help Understand the Great Recession
Did the Great Recession affect Americans more or less equally, or did some Americans face few hardships while others caught the full fury of the economic storm? And if the recession hit some much harder than others, what are the relative sizes of these groups and what are their demographic characteristics?
To find out, a statistical technique known as cluster analysis was applied to these survey data. The analysis looked across the sample of 2,967 adults and grouped together those who answer key questions in similar ways.
For purposes of this analysis, eight questions were used to gauge the impact of the recession. They measured how people have fared since the recession began in December 2007, including whether the recession forced them to make “major” changes in their lives and how their family incomes and overall financial status were affected. Other questions tested whether people had personally experienced specific recession-related hardships such as a spell of unemployment, difficulty paying their rent or mortgage, or trouble finding or paying for medical care, as well as whether they had to borrow money from friends or family members, take money out of their savings or retirement accounts, or sell stocks and other investments to help them pay their bills. Only questions that were asked of all or nearly all of the entire sample were included in the analysis so as to produce the best possible model. Some of the omitted questions were asked of only half the sample, while others were asked of a relevant subsample such as homeowners or those who owned stocks, bonds and other investments.
Cluster analysis typically produces a number of “solutions,” each containing different numbers of clusters, or groups. These cluster solutions are then evaluated on the basis of their statistical properties as well as on the more subjective criteria of how easily explainable the clusters are and how well they appear to describe the data. In the end, a simple two-cluster solution described in this report emerged as the one with the best statistical properties as well as the one that made the most substantive sense.
Home Values and the Two Americas
The housing slump has affected nearly all American homeowners. But it has been particularly hard on those already reeling from other recession-related blows.
More than half (53%) of homeowners who Lost Ground during the recession say the value of their home declined in the past 2½ years, compared with 43% of those who Held their Own. While only 13% of all homeowners say their home increased in value, those who Held their Own are slightly more likely to report their house or condo is now worth more than it was before the recession (15% vs. 10%).
Moreover, while a smaller proportion of those who Lost Ground are homeowners than those who Held their Own (53% vs. 75%), those hardest hit owe a significantly larger share of their properties. More than four-in-ten (42%) of those who Lost Ground say they have paid off less than half of what they owe on their home, compared with 30% of those who Held their Own. It may come as no surprise, then, that they are twice as likely to say they owe more than they could get if they sold their home (29% vs. 14%) in today’s depressed housing market.
Still, the bad economy and dismal housing market may have only slightly dimmed their belief in homeownership as an investment: fully three-quarters (77%) of those who Lost Ground during the recession agree that “buying a home is the best investment that the average person can make,” a belief they share with 83% of those who Held their Own during the recession.
Belt-tightening vs. Pay Cuts
The different recession experiences of the groups is underscored when members are asked to say in their own words what has been the single biggest way the economic downturn has changed their lives.
More than seven-in-ten respondents answered the question, and their responses were transcribed by the interviewers.
Some respondents mentioned specific problems: “I lost my job” or “My sons have moved in because they could not find jobs.” Others spoke of the psychological toll the recession has taken: “Everybody is in a lot of stress” and “I’m not in control of my life.” Others talked about more modest impacts: “We’ve had to cut back on luxuries and vacations” or “We eat out less often and [spend] less money on entertainment.”
Grouping these responses together by subject reveals a telling pattern. Slightly more than half (51%) of those who Held their Own say the single biggest adjustment they had made during the recession was to change their spending habits, compared with 33 percent of those who Lost Ground.
In contrast, those who Lost Ground during the recession were more likely to name a specific financial problem (21% vs. 11%) or a job- related hardship (21% vs. 10%) as the way the recession most affected them.
- numoffset=”3″ Other evidence also suggests these two groups are very different. Those who Lost Ground experienced, on average, slightly more than four of the eight hardships tested in the survey. In contrast, those who Held their Own experienced less than one hardship compared with nearly four less than one for those who Held their Own. ↩