Kansas State University

Transcription

1 Martin Seay, Ph.D. Kansas State University Cliff Robb, Ph.D.

2 Housing location, quality, stability, and cost impact multiple areas of well-being for adults and children. In America, inequality on many levels is determined by the neighborhood where one lives. On a public policy level, housing is viewed as an initial platform to address other problems such as neighborhood violence and crime, health, nutrition, minimum wage levels, and access to quality education.

3 Quality of housing and social economic make-up of a neighborhood has been shown to impact children s and adolescent s emotional and behavioral development, as well as cognitive skills. Stability of living in one location contributes to a household s sense of belonging in a neighborhood, cultivating relationships for social and support purposes, and building a sense of security for children. Housing costs are one of the largest expense areas for household budgets.

4 The traditional housing cycle was described as young adults left home, rented apartments and homes until they could afford a down payment on a home. Homeownership was seen as the American Dream. Older Americans transitioned back to renting in old age as their living environment needs changed or assistance needs increased

5 The 2008 housing crisis created a shift in the traditional housing cycle.. Young adults remain dependent upon their parents and are even living at home longer after high school. Marriage is being postponed, and a growing family is one of the largest driver of the home purchase.

6 The credit market also reacted to the housing crisis with stricter access to mortgages and an increased cost burden of PMI (private mortgage insurance) throughout the mortgage loan life if the down payment is less than 20 percent. Overall, the homeownership phase is being delayed. Whether this shift is permanent or simply long-term has not been determined.

7 Significant attention has been given to the concept of financial satisfaction, as evidence suggests that financial satisfaction is an important aspect of overall well-being Significant attention has been paid to the effect of homeownership on well-being, but most often as measured by housing satisfaction and life satisfaction.

8 The relationship between homeownership and financial satisfaction has been investigated as a part of broader studies. Two examples: o In an exploratory study of 220 works, Joo & Grable (2004) indicated that homeownership status was related to financial satisfaction through its effect on financial stress. o Baek and DeVaney (2004) indicated that homeownership was positively associated with financial wellness as a part of a broader study on financial ratios.

9 However, most of this work was done using data prior to the housing bust and the great recession. Additionally, not all homeownership is created equal. In a study of financial satisfaction over the life course, Plangnol (2011) provides evidence that it may be net home value, not home ownership itself, that is driving financial satisfaction.

10 What is the relationship between homeownership and financial satisfaction? Among homeowners, what is the effect of holding a mortgage on financial satisfaction? Among mortgage holders, is there a relationship between mortgage characteristics and financial satisfaction?

11 Data were utilized from the 2009 Financial Capability Study. Commissioned by the Financial Industry Regulatory Authority (FINRA), the National Financial Capability Study investigated the financial capability of U.S. adults through a series of three separate surveys. The state-by-state survey data, which were utilized in the present analysis, was collected online over five-month period between June and October, Contains roughly 500 respondents from each state plus D.C.

12 Financial Satisfaction was assessed using a single 10-point Likert-type question. Overall, thinking of your assets, debts and savings, how satisfied are you with your current personal financial condition? Please use a 10-point scale, where 1 means Not At All Satisfied and 10 means Extremely Satisfied. Mean Satisfaction Standard Deviation Full Sample Homeowners Mortgage

13 Full Sample Homeowners Mortgage Holders Homeownership Mortgage Type of mortgage Objective financial knowledge HELOC Missed payments Subjective financial knowledge Timing of purchase Difficulty paying bills Income shock Emergency fund Credit report Health insurance Retirement account

14 Control Variables Age Race Gender Marital status Education Number of children Employment status Household income

15 The full sample consisting of 16,909 respondents was used for this analysis. Homeowners reported significantly higher financial satisfaction, although the magnitude of the beta is comparatively small (.273). For example: o As compared to reporting no difficulty paying bills. Very difficult (-2.614). Somewhat difficult (-1.377). o Having an emergency fund (1.344). o Income shock (-.639).

16 Consistent with previous lit: o Objective financial knowledge was negatively associated with financial satisfaction. o Subjective financial knowledge was positively associated with financial knowledge. This is interesting when considered in the context of other research into financial behaviors: o High-cost loan behavior (Allgood & Walstad, 2013; Seay & Robb, 2013) Objective knowledge negatively associated, subjective knowledge positively associated

17 Sample was reduced to include only homeowners (n=8,466). Three variables were added: indicator of mortgage, HELOC, and timing of purchase. Those that held a mortgage reported significantly lower level of financial satisfaction, holding all else equal (beta = -.404). o Suggest much of the benefit of homeownership was wiped out for mortgage holders, (holding constant difficulty to pay bills). Surprisingly, timing of purchase was not a significant predictor of financial satisfaction. o May suggest that, despite different purchase prices relative to current market value, everyone felt the pain of the loss in home values equally due to adjusted references during the boom.

18 Use of a HELOC not significantly associated with financial satisfaction. Other results consistent with the previous model.

19 Sample was reduced to only mortgage holders (n=6,062). Two variables types were added: type of mortgage and missed mortgage payments. Interestingly, individuals that held an interest-only loan were more satisfied than those that held a fixed rate loan, holding all else equal. o Given the declining house prices in the market during this time, it may indicate immediate outcome of a lower monthly payment weighed more heavily that the forthcoming balloon payment. Additionally, individuals that had missed multiple mortgage payments were less satisfied than those that had not missed a payment. o Note about those that had missed only one payment.

20 Also of note is the relationship of household income to satisfaction. o In previous models, an increase in income group was strongly associated with higher levels of financial satisfaction. o However, among mortgage holders, only those that made more than $100,000 were significantly more satisfied as compared to those that made less than $35,000. o Given the way mortgage loan amounts are dependent upon income this may be expected, but still of note.

21 Homeownership is associated with higher satisfaction levels, but this increase in income is mitigated for homeowners that have a mortgage. Much more significant are characteristics related to the ability to meet monthly expenses or protect against unexpected expenses. Suggests homeownership should only be promoted after establishing financial security. Need to continue to explore the relationship between timing of purchase and financial satisfaction.

22 Suggests additional education is needed related to interestonly loans. Builds on the body of literature related to financial knowledge and financial satisfaction.