ASR s US Survey of Household Finances July 2011

Transcription

1 Global Alert europe in a global context 9 th September 2011 ASR s US Survey of Household Finances July 2011 The Importance of the Topic This timely survey provides unique and in-depth insights into the financial behaviour of US adults of working age. It sheds fresh light on why consumer confidence is currently so pessimistic. The fieldwork for our latest survey was conducted between 26 th and 31 st July Deleveraging & Housing Gloom Dominate Although Americans feel slightly more secure in the workplace than a year ago, that has not stopped more people feeling financially worse off. Moreover, they are also the gloomiest about the coming year since we launched the survey back in June What still worries people the most is inflation, which remains a much greater concern than fears of higher taxation. What leaps out from this survey is the pressure on household balance sheets from deleveraging and the negative wealth effect from the housing market. For example, 45% of those with debt regard their debt as excessive relative to their income; 23% have difficulty meeting the monthly payments on their loans; and two thirds say that the Financial Crisis has fundamentally changed their attitude to debt, with a third planning to reduce their borrowings over the coming year. But most shocking was the scale of the problems in the housing market. A third of homeowners thought that their house was now worth less than they paid for it. A quarter of those with a mortgage reported that the value of their house was now worth less than the amount owed on the mortgage. What makes matters worse is that people have turned much more bearish on house prices. In June 2010, the balance of those expecting prices to rise less those expecting them to fall was 17%. Now the bears are outstripping the bulls by 10%. Confidence Undermined at a Deep Level This survey also highlights the extent to which risk-taking and a belief in rising living standards have been undermined. Half of the respondents said that they were not prepared to take any risks with their savings two years ago the figure was only 40% and that was just after the peak of the Financial Crisis. Just 25% of those polled had a view on the stock market, and only 36% thought stocks had a role to play in saving for retirement. Most depressing is that 46% thought that their children when they reached their age - would have a lower standard of living. David Bowers +44 (0) DavidB@absolute-strategy.com Sarah Franks SarahF@absolute-strategy.com* Cross-Sectional Analysis: Debt, Housing & the Middle Class The debt and housing crises have left especially deep scars on America s middle class they are more likely than any other income group to report a fundamental shift in their attitude toward debt, and appear to be deleveraging in housing. Problems with housing stretch across lines of income and education, and those who have escaped some of the housing market fallout tell a very different economic story than those who have not. Fundamentally changed attitudes toward debt are prevalent even when most are able to manage their debt. More than half of those committed to deleveraging do not think their debt is too high relative to their income. See pages Authorised and Regulated by the Financial Services Authority 1 st Floor, 1-2 Royal Exchange Buildings, London, EC3V 3LF

2 Key Takeaways Americans feel slightly more secure in the workplace than they did a year ago. But more people report being worse off financially rather than better off compared with a year ago. Moreover, they are now the least optimistic about the next 12 months since we started the survey in June Contrary to what many politicians may be saying, it is not higher taxes than people fear; rather it is higher inflation. While Americans ability to save has improved over the past year, three out of every four Americans still believe that they are saving too little. And they are also extremely risk averse. The net balance of those prepared to take some risk less those that are not deteriorated from minus 9% a year ago to minus 23% the worst reading since the survey began in June Three out of every four Americans have some type of debt be it a loan or a mortgage. Roughly half have a mortgage. Of those with debt, 45% think that they have too much debt relative to their income. Of those with debt, 23% are having difficulties meeting the monthly payments on their borrowings. A third of those with debt are actively deleveraging and are planning to reduce their level of borrowing over the next 12 months. Two out of every three Americans with debt in this survey believe that the Financial Crisis has fundamentally changed their attitude to debt. The survey brings home the impact on household balance sheets of the problems in the housing market, as Americans brace themselves for further falls in house prices. A third of all homeowners in our survey believe their house is worth less than they paid for it. A significant number of borrowers are facing negative equity. 27% of those with a mortgage believe their house is now worth less than the mortgage. Over the past 12 months there has been an abrupt loss of confidence in the housing market. In June 2010 a net 17% of those polled thought that house prices would be higher in a year s time; in July 2011 that net balance has swung to minus 10%. The collapse in consumer confidence does appear to be driven by negative wealth effects from housing. Adults of working age expect to retire on average at 64.They are less pessimistic about being able to maintain their current standard of living when they retire. But still 69% do not think that they are saving sufficiently for retirement. Only 36% think that investing in the stock market is a good way to save for their retirement. The debt and housing crises have left especially deep scars on America s middle class they are more likely than any other income group to report a fundamental shift in their attitude toward debt, and appear to be deleveraging in housing. See page 15. Problems with housing stretch across lines of income and education. Those who have escaped some of the housing market fallout tell a very different economic story than those who have not. For those, some economic optimism has been retained, savings are more likely, and credit is more easily accessed. See page 17. Fundamentally changed attitudes toward debt are prevalent even as most are able to manage their debt. Even 58% of those who are actively deleveraging do not think their debt is too high relative to their income. See page 18. 2

3 It is curious that despite a sense of job security, Americans confidence has collapsed historically those are closely related. Survey respondents have suffered two years of disappointment. 1. Financial Security Americans feel slightly more secure in the workplace than they did a year ago but that has not stopped them worrying about their financial situation. More people report being worse off rather than better off financially compared with a year ago. And there has been a steep drop in the balance of optimists over pessimists expecting a improvement financially over the coming year. Contrary to what many politicians may be saying, it is not higher taxes than people fear; it is higher inflation. What we find interesting is that the decline in confidence comes despite some stabilisation in the labor market. Historically, consumer confidence and the state of the labor market have been closely correlated. With 87% saying that they feel very/fairly secure in their job the highest reading since we started this survey back in June 2009 it is curious how Americans confidence in the outlook for the next 12 months has collapsed. People have now suffered two years of disappointment. In June 2009, a net 21% thought things would get better financially; a year later, a net 14% felt their financial situation had got worse. In June 2010, a net 19% thought they would see an improvement over the next 12 months; a year later, a net 15% felt things had gotten worse. As a result, they are now the least optimistic about the next 12 months since we began the survey in June Table 1: Do you worry about your financial situation? Jun 10 Jan 11 Jul 11 A lot 36% 33% 37% A little 54% 57% 51% Not at all 10% 10% 12% Don't know 0% 0% 1% Worry "a lot" or "a little" 90% 90% 88% Net % Worry 80% 80% 76% Table 2: Which one of the following worries you most at this time? Jun 10 Jan 11 Jul 11 Higher taxes 14% 11% 11% Drop in income (e.g. lower wages, investment income or benefits) 14% 12% 14% Unemployment 15% 15% 13% A rise in the cost of living (higher inflation) 28% 36% 39% Having insufficient savings 22% 18% 16% None of these 5% 6% 6% Don't know 1% 2% 2% 3

4 Table 4: At this time, how secure do you feel your job is? base=621, all employed Jun 09 Jan 10 Jun 10 Jan 11 Jul 11 Very secure 41% 40% 32% 29% 32% Fairly secure 43% 46% 49% 52% 55% Fairly insecure 11% 8% 11% 10% 8% Very insecure 4% 5% 7% 5% 4% Don't know 2% 1% 2% 3% 1% Very/fairly secure 84% 86% 81% 81% 87% Very/fairly insecure 15% 13% 18% 16% 12% Net % Feel Secure 69% 73% 63% 66% 75% 35% say they are worse off than a year ago And 20% think they will be worse off in a year from now. Table 3 shows how optimism has faded for those who think they are worse off than the previous year. two years ago 14% thought they would be better off a year later, now only 5% say the same. Table 3: Comparing the last two years Last year vs. next year 6/09 6/10 7/11 Better-better Worse-better Worse-worse About the same Table 5: Would you say that you are better or worse off financially than a year ago? Jun 09 Jan 10 Jun 10 Jan 11 Jul 11 Better off 19% 19% 23% 24% 20% Worse off 44% 40% 37% 29% 35% About the same 37% 40% 40% 46% 44% Don't know 0% 1% 1% 1% 1% Net % Better Off -25% -21% -14% -6% -15% Table 6: Do you think you will be better or worse off financially in a year's time? Jun 09 Jan 10 Jun 10 Jan 11 Jul 11 Better off 36% 36% 33% 30% 25% Worse off 15% 13% 14% 15% 20% About the same 40% 38% 44% 46% 43% Don't know 10% 13% 10% 9% 12% Net % Better Off 21% 23% 19% 15% 5% Table 7: CROSS-BREAK Expectations for Next Year vs Assessment of Last Year Do you think you will be better or worse off financially in a year's time? Would you say that you are better or worse off financially than a year ago? Better off Worse off About the same Don't know Better off 13% 0% 5% 1% Worse off 5% 16% 9% 6% About the same 7% 4% 29% 5% Don't know 0% 0% 0% 1% 4

5 2. Attitudes Toward Saving While Americans ability to save has improved over the past year (33% now say their income exceeds their spending up 5% points from June 2010), three out of every four Americans still believe that they are saving too little. What is both striking and deeply disturbing is that almost half those polled are not prepared to take any risk with their savings. The net balance of those prepared to take some risk (i.e. those prepared to take some risk less those that are not) deteriorated from minus 9% a year ago to minus 23% the worst reading since the survey began in June When it comes to the stock market, respondents tended to be more bullish than bearish (albeit eight days after the survey closed the US equity market was 13% lower!). But what is striking is that only 25% of those polled expressed an opinion; 42% were in effect neutral and a third simply did not know. The ability to save has improved over the past year, with a net 20% now spending less than they earn. But around 70% still think they are saving too little. Table 8: Which one of the following statements best describes your current financial situation? Jun 09 Jan 10 Jun 10 Jan 11 Jul 11 My income does not cover my expenditure (I spend more than I earn) I am managing to make ends meet (I spend what I earn) My income exceeds my expenditure (I spend less than I earn) Net % Spend Less Than Earn 28% 27% 15% 14% 13% 35% 33% 54% 49% 51% 36% 38% 28% 34% 33% 8% 11% 13% 20% 20% Don't know 1% 1% 3% 3% 3% Table 9: Generally speaking, do you think you are saving enough? Jun 09 Jan 10 Jun 10 Jan 11 Jul 11 I am saving too little 76% 77% 76% 71% 72% I am saving enough 21% 20% 16% 20% 18% I am saving more than I need to (too 1% 1% 2% 2% 3% much) Don't know 2% 3% 6% 7% 8% Net % Saving Too Little 75% 76% 74% 69% 69% 5

6 Risk appetite has declined by around 10% points over the last two years. Half of respondents say they are not willing to take risks with their savings. Table 10: Which of these best describes your view about your savings? Jun 09 Jan 10 Jun 10 Jan 11 Jul 11 I am not prepared to take risks with my savings I am prepared to accept occasional losses I am prepared to take substantial risks with my savings 40% 40% 45% 45% 50% 33% 33% 32% 32% 24% 4% 4% 5% 4% 4% None of the above 17% 17% 14% 14% 16% Don't know 6% 7% 4% 5% 6% Prepared to accept occasional losses / prepared to take substantial risks Net % Prepared to Take Risks / Accept Losses 37% 36% 36% 36% 28% -3% -3% -9% -10% -23% Only a net 13% think this is a good time to buy stocks. 33% do not have an opinion. Table 11: Do you think now is a good time to buy or sell stocks? Jun 09 Jan 10 Jun 10 Jan 11 Jul 11 Good time to buy 34%* 28%* n/a n/a 19% Good time to sell n/a n/a n/a n/a 6% Neither n/a n/a n/a n/a 42% Don t know 23% 31% n/a n/a 33% Net % Say Buy 13% * The earlier version of this question asked whether or not now is a good time to buy stocks, with the only answers yes / no / don t know. 6

7 More than half have a mortgage, and more than half have another form of debt. 3. Borrowing and Access to Credit Three out of every four Americans have some type of debt be it a loan or a mortgage. Roughly half have a mortgage. Of those with debt, 45% think that they have too much debt relative to their income. Of those with debt, 23% are having difficulties meet the monthly payments on their borrowings. A third of those with debt are actively deleveraging and are planning to reduce their level of borrowing over the next 12 months. Two out of every three Americans in this survey believe that the Financial Crisis has fundamentally changed their attitude to debt. Table 12: Do you personally have a mortgage? Jun 09 Jan 10 Jun 10 Jan 11 Jul 11 Yes (either in your sole name or jointly) 56% 59% 58% 56% 54% No 44% 40% 40% 42% 45% Don't know 0% 0% 1% 0% 1% Would rather not say 1% 1% 1% 2% 1% Net % Have a Mortgage 13% 19% 18% 14% 9% Table 13: Do you have any other loans or borrowings other than a mortgage (such as credit card debt, a car loan, a bank loan, etc.)? Jun 09 Jan 10 Jun 10 Jan 11 Jul 11 Yes 62% 63% 67% 56% 58% No 37% 35% 31% 41% 40% Don't know 0% 0% 1% 1% 1% Would rather not say 1% 1% 1% 2% 2% Net % Have Other Debt 26% 28% 36% 16% 17% 24% of respondents are debt free. Table 14: Borrowing Structure Jun 09 Jan 10 Jun 10 Jan 11 Jul 11 Only a mortgage 15% 15% 12% 17% 17% Only other loans 22% 20% 22% 18% 20% Mortgage and other loans 41% 44% 45% 39% 37% No debt at all 22% 21% 19% 24% 24% Some kind of debt 78% 80% 81% 76% 76% 7

8 Credit conditions have not eased since the end of the recession. Table 15 shows that debt is not a problem for 45% of those with debt. But around 1-in-5 thinks their debt is too high and has trouble making payments. Table 15: Managing Debt Trouble making payments Debt Too High Yes No Yes 21% 23% No 2% 45% Does not show 9% who don t know or would rather not say 67% of the panel says their attitude toward debt has fundamentally changed as a result of the financial crisis. Table 16: At this time do you think it is easy or hard to get a mortgage, or loan? Jun 09 Jan 10 Jun 10 Jan 11 Jul 11 Very hard loan 25% 24% 24% 21% 19% Fairly hard 32% 35% 37% 37% 38% Fairly easy 22% 19% 20% 20% 18% Very easy 5% 5% 4% 6% 6% Don't know 16% 18% 15% 17% 18% Very / fairly hard 57% 59% 62% 58% 58% Very / fairly easy 27% 24% 24% 25% 24% Net % Think Hard To Get A Loan 29% 35% 38% 33% 33% Table 17: Do you feel that your total debt is too high relative to your income? base=732, all with some form of debt Jun 09 Jan 10 Jun 10 Jan 11 Jul 11 Yes 41% 43% 47% 43% 45% No 52% 50% 46% 49% 48% Don't know 6% 6% 6% 7% 7% Would rather not say 1% 1% 2% 1% 1% Net % Think Borrowings Too High -11% -8% 1% -7% -3% Table 18: Do you have difficulty meeting the monthly payments* on your mortgage or your loans? base=732, all with some form of debt Jun 09 Jan 10 Jun 10 Jan 11 Jul 11 Yes 19% 17% 15% 17% 23% No 79% 80% 80% 80% 74% Don't know 1% 2% 3% 1% 1% Would rather not say 1% 1% 2% 2% 1% Net % Have Trouble Making Payments -61% -63% -65% -62% -51% * In previous versions, this read interest payments. Table 19: Has the financial crisis fundamentally changed your attitude toward debt? base=732, all with some form of debt Jul 11 Yes: I now plan to reduce my total debt level over the next 12 months. 33% Yes: I am not taking on any further debt. 34% No: The financial crisis has not changed my attitude towards debt. 27% Don't know 5% Net % Say Yes 41% 8

9 The collapse in consumer confidence increasingly appears to be driven by negative wealth effects. Table 20 shows that homeowners and renters are equally bearish on the outlook for house prices. But homeowners are more likely to think now is a good time to buy a house. Table 20: Housing Outlook by Housing Tenure Homeowners* Renters Outlook for House Prices Next 12m Rise 20% 21% Fall 31% 30% Net % Say Rise -11% -9% Good Time To Buy a House? Buy 66% 45% Sell 2% 3% Net % Say Buy 64% 42% * Those who own outright or are buying with a mortgage 4. Housing The scale of the problems in the housing market are truly dramatic, as Americans brace themselves for further falls in house prices. 72% of those polled own their own home (either outright or with the help of a mortgage). Over the past 12 months there has been an abrupt loss of confidence in the housing market. In June 2010 a net 17% of those polled thought that house prices would be higher in a year s time; in July 2011 that net balance has swung to minus 10%. What we did not appreciate is the extent to which people were sitting on capital losses (33% of homeowners believe their house is worth less than they paid for it) and the extent to which people with mortgages are faced with negative equity (27% of those with a mortgage believe their house is worth less than the mortgage). Now imagine how that will look if house prices fall significantly. The collapse in consumer confidence appears to be driven by negative wealth effects rather than by an income squeeze (although the recent rise in inflation clearly has not helped). Table 21: Housing tenure Jun 09 Jan 10 Jun 10 Jan 11 Jul 11 I own it outright 20% 22% 18% 20% 19% I am buying my home with the help of a 53% 56% 55% 55% 53% mortgage or loan I pay rent (this includes paying directly or via 22% 18% 21% 20% 23% housing benefits) None of these - I don't pay any rent (someone else owns 4% 3% 5% 6% 5% it, pays the mortgage or pays rent) Other 1% 1% 0% 0% 0% Table 22: Thinking about the housing market in your country, how do you think property prices will behave over the coming year? Jun 10 Jan 11 Jul 11 Rise significantly 4% 3% 3% Rise a little 31% 26% 17% Remain more or less unchanged 38% 41% 35% Fall a little 13% 13% 20% Fall significantly 5% 5% 10% Don't know 9% 11% 15% Rise significantly/ a little 35% 30% 20% Fall significantly/ a little 18% 19% 30% Net % Think Will Rise 17% 11% -10% 9

10 Respondents think it is a good time to buy property although the percent expressing that view has fallen 15% points over the last two years. 33% of homeowners think they are sitting on a potential capital loss And 27% are underwater on their mortgage. 22% of the panel have a capital loss and are underwater, while 34% are in the exact opposite situation. Table 23: Do you think now is a good time to buy property or a good time to sell property? Jun 09 Jan 10 Jun 10 Jan 11 Jul 11 This is a good time to buy property 74% 63% 67% 63% 59% This is a good time to sell property 1% 2% 3% 2% 2% Neither 18% 25% 20% 24% 25% Don't know 7% 10% 9% 12% 14% Net % Say Buy 73% 62% 64% 61% 57% Table 24: Is the worth of your house more or less than when you bought it? base=710, all who own or have a mortgage Jul 11 Worth more than when you bought it 45% Worth about the same as when you bought it 19% Worth less than when you bought it 33% I would rather not say 0% Don't know 3% Net % Worth More 12% Table 25: Would you say that the value of your house today is worth less than the amount you owe on your mortgage? base=512, all who have a mortgage Jul 11 Worth less 27% Worth more 61% I would rather not say 2% Don't know 10% Net % Worth More 34% Table 26: CROSS-BREAK Capital Loss / Gain Vs Mortgage base= 512, all who have a Value of house compared to when you mortgage bought it Value of house compared to what is owed on the mortgage Worth More Worth the Same Worth Less Don t Know Worth more 34% 15% 12% 1% Worth less 3% 2% 22% 0% Don t Know 1% 4% 3% 2% 10

11 5. Retirement Adults of working age expect to retire on average at 64. They are less pessimistic about being able to maintain their current standard of living when they retire. But still 69% do not think that they are saving sufficiently for retirement. Only 36% think that investing in the stock market is a good way to save for their retirement. Most disturbing though is a sharp rise in the number of people that believe the children of their generation will have a lower standard of living when they reach that age. Almost half those polled now believe that the next generation will experience a lower standard of living. The average expected retirement age is 64. Most expect to rely on their own savings or own retirement plan for retirement income. Fewer expect the government to provide the bulk of retirement income than a few years ago. Table 27: At what age are you planning to retire? base= 892, all not retired Jun 09 Jan 10 Jun 10 Jan 11 Jul 11 I have never worked 4% 3% 3% 2% 3% Before I am 60 15% 15% 13% 12% 14% In my 60s 42% 45% 43% 45% 42% After I am 70 13% 10% 13% 15% 14% Don't know 26% 28% 28% 27% 28% Average Retirement Age Table 28: Which one of the following best describes your expected principal source of income following retirement? base= 868, all not retired and have worked Jun 10 Jan 11 Jul 11 The government 17% 17% 13% My current (or previous) employer 13% 10% 10% A private retirement plan (e.g. 401K or IRA) or my own savings 29% 32% 38% My family will support me 2% 1% 1% Too soon to know 26% 24% 24% Don't know 13% 16% 14% Table 29: When you retire, do you think your income will be sufficient to maintain your current standard of living? base= 868, all not retired and have worked Jun 10 Jan 11 Jul 11 Yes 17% 18% 19% No 38% 36% 34% Too soon to know 35% 37% 36% Don't know 11% 10% 12% Net % Yes -22% -18% -16% Table 30: Do you think you are saving enough for your retirement? base= 868, all not retired and have worked Jun 09 Jan 10 Jun 10 Jan 11 Jul 11 Yes 19% 20% 14% 18% 17% No 71% 68% 73% 70% 69% Don't know 10% 12% 13% 12% 14% Net % Yes -52% -48% -60% -52% -52% 11

12 Table 31: Do you think making long term investments in the stock market is a good way to save for your retirement? base= 868, all not retired and have worked Jun 09 Jan 10 Jun 10 Jan 11 Jul 11 Yes 42% 39% 36% 40% 36% No 33% 32% 38% 32% 32% Don't know 25% 29% 26% 29% 32% Net % Yes 9% 8% -2% 8% 4% 46% think the outlook for children of their generation will be worse than theirs. Table 32: Thinking about the children of your generation, how do you think their standard of living will compare with yours when they are your age? Jun 09 Jan 10 Jun 10 Jan 11 Jul 11 A lot better 7% 6% 4% A little better 21% 19% 15% About the same 24% 22% 19% A little worse 23% 24% 26% A lot worse 15% 17% 20% Don't know 10% 12% 17% A lot/ little better 27% 26% 19% A lot/ little worse 38% 41% 46% Net % Think Better -11% -15% -28% Of course, retirement plans can change depending on how close the respondent is to retirement Those under 34 think they will retire at 62, but only 2% think the government will be their main source of income in retirement. Table 33: Retirement Questions by Age Group Age: When will you retire? Before I am 60 19% 13% 15% 6% In my 60s 40% 38% 36% 59% After I am 70 8% 16% 18% 12% Don t know 30% 32% 27% 21% Avg. Expected Retirement Age Primary Source of Retirement Income? Government 2% 10% 14% 29% Own savings / private plan 31% 30% 30% 17% Net %* think will have enough retirement income to maintain 0% -21% -21% -17% standard of living Net %* think are saving enough for retirement -43% -60% -55% -45% Net %* think stocks are a good way to save for retirement 18% 5% 3% -16% Net % think children of their generation will have a better standard of living (% better - % worse) -12% -24% -35% -36% * Net % = % saying yes minus the % saying no. 12

13 Cross-Sectional Analysis July

14 This section goes beyond the headline numbers in the first half of the report. The middle class group are those with household incomes of $30k-$75k, a range consistent with Census data. Cross-Sectional Analysis In this section of the household survey, we have grouped the respondents based on their answers to what we think are key questions in the survey that warrant further attention. This analysis helps us in our efforts to answer key questions: 1. In what shape has the recession left America s middle class? 2. How deeply has the housing crisis cut across America, and what impact has this had on consumer attitudes? 3. Which consumers are most likely to have changed their attitude toward debt? Is consumer deleveraging coming to an end? Understanding each group The Middle Class. The term middle class is widely used but notoriously difficult to define. In this report we ve defined it as those with household incomes between $30,000 and $75,000, and we ve used the term high net worth to look at those households with total income over $75K. While this might seem a relatively broad definition of middle class, we feel comfortable with this for a variety of reasons. Firstly, U.S. Census data (Current Population Survey, shows that this definition does capture just a little over the middle third of U.S. households (33%). Secondly, the demographics of this group are consistent with what one might expect. The middle class in our sample population is twice more likely to have personal income under $40,000 than those in the HNW group, and are likely to assess their own income and wealth as lower than average. Fewer than 40% have a college degree, and are more likely to stick to plain vanilla investments for example, 23% own an individual stock or bond, compared to 48% of those with household incomes over $75K. Housing Difficulty. We ve created two groups based on homeowners assessment of their house. Our first group is made of those with some sort of housing problem : their house is either worth less than when they bought it (i.e., an unrecognized capital loss) or they owe more on their mortgage than what their house is worth (i.e. they are underwater or upside down ). The last group is in better shape, as they meet neither condition. Attitudes Toward Debt. In this category we ve created four groups based on whether or not the respondent believes their attitude toward debt has changed since the financial crisis. One group is made up of those who replied yes, and are either actively trying to reduce their debt levels or are comfortable with their debt levels but will not take on further debt. We also look at responses to those questions individually in the deleveraging and no further debt groups. Lastly we look at those who report that their attitude to debt is unchanged. In this analysis, we focus mainly on the first and last groups. 14

15 The Middle Class. Middle class deleveraging seems to have taken place in the housing sector. The higher net worth households are more likely to be in debt than the middle class is. The credit crunch seems to have left deeper scars for the middle class than for anyone else. The middle class is in no greater house trouble than the rest of the panel. 56% say their attitude toward debt has fundamentally changed. 1. America s middle class feels economic progress has deteriorated over the last year, and they expect little improvement next year. 2. The debt and housing crises have left especially deep scars on the middle class. They are more likely than any other income group to report a fundamental shift in their attitude toward debt. 3. The middle class attitude toward housing is changing: not only is deleveraging occurring (just under half having a mortgage, down substantially from January), but a third think house prices will fall over the next year (up substantially since January). The combination of a debt problem and a housing problem suggest the middle class is left with a confidence problem. Our sample suggests that the middle class, though worried about their financial situation, worry no more than everyone else. They also report a high level of job security, with 84% saying they feel very or fairly secure in their job. But when it comes to how the middle class feels about their standing compared to a year ago, the answers are devastating. The middle class sense of well-being seems to be disappearing: 39% now say that they are worse off than a year ago (compared to only 23% of HNW respondents) and, most surprisingly, 23% say they expect they will be worse off a year from now. Their pessimism has increased dramatically since the start of the year just seven months ago only 14% of respondents expected to be worse off in a year s time. 60% of our middle class respondents report that they are managing to make ends meet, and 23% say they are spending less than they are earning. Yet savings are a serious concern to these respondents: only 15% think they are saving enough. In general, our U.S. panel shows a degree of risk aversion, but this is significantly pronounced for those in the middle class sample. Only 23% are willing to take risks with their savings, down from 33% in January. And only 14% think it is a good time to buy stocks. Our survey data suggest that the middle class has done most of their deleveraging in the housing sector. 49% of our middle class sample has a mortgage, down from 58% earlier in the year. It is the HNW group with more respondents in debt than the middle class: in our sample, 22% of the middle class report no debt at all, only 12% of HNW households can say the same. Credit is a concern for the middle class, with respondents reporting difficulty in accessing credit and debt levels too high. The most striking debt statistic is how middle class attitudes toward debt are changing. A net 56% say their attitude has fundamentally changed, much higher than those in the HNW group, and higher even than those with incomes under $30,000. The credit crunch seems to have left deeper scars for the middle class than for anyone else. Around a third of our middle class panel think that house prices in their area will fall over the next year (a view generally shared by the rest of the sample), and 58% think now is a good time to buy a house, a view less widespread than the 72% of the HNW group. The middle class and HNW groups are equally likely to have a house that is worth less than when they bought it (perhaps because a similar percentage own their home outright and are likely to have been in their home longer), and are not significantly different in terms of being underwater on their mortgage. 15

16 The retirement outlook for the middle class looks bleak. Those in the middle class have a greater reliance on the government for retirement income, with only around a third expecting their own savings or a retirement plan to provide the bulk of their income. 37% say their retirement income is unlikely to be sufficient to maintain their standard of living, and more than 70% think they are not saving enough for their retirement. The middle class seems to have given up on equities as a way to save for retirement: only 26% think they are a good investment, compared to 53% of the HNW group. This chart shows how the middle class is doing in relation to the entire U.S. sample, as well as to those in the higher income category. The smaller the shape, the relatively worse the group is faring in that category. On all the measures shown, the middle class have a poorer showing than the U.S. average. Chart 1: How the Middle Class is Doing No Trouble Servicing Debt Rising House Prices 80% 60% Mangeable Debt 40% Better Than 1Y 20% Ago 0% Better in 1Y -20% From Now -40% -60% -80% Saving Enough For Retirement Spending Less Than Earning US Average HNWI Middle Class 16

17 Housing Difficulties It s important to note that housing trouble affects around 37% of people in some form personal income makes little difference. Even those without housing trouble say their attitude toward debt has changed. The chart shows how trouble with housing goes hand in hand with wider economic worries. The smaller the shape, the relatively worse the group is faring in that category. 1. Struggles with housing occur across the income and education spectrum. 2. Respondents who have escaped some of the housing market fallout have a dramatically different experience than those who did not: some economic optimism has been retained, savings are more likely, and credit is more easily accessed. 3. That these differences in the two groups are so pronounced suggests it is unlikely that general consumer sentiment can rebound without some significant housing market improvement. In total, our sample suggests that around 36% of homeowners have some sort of housing difficulty, with 33% of total responses in a house that is worth less than when they bought it and 27% underwater on their mortgage. 15% of the entire panel is in an extremely precarious position, both underwater and with a capital loss. It is worth noting that housing troubles cut across income lines, with over 40% of both groups having an income under $40k. The wealth of the troubled group, however, does tend to be lower. The two groups are equally likely to have continued their education until at least the age of 20, and the proportion of both groups with a college degree is roughly similar. The unemployment rate is different: for those with housing difficulties, it is around 8%, compared to only 5% of those who do not have trouble. We d note that there is a very troubled group (underwater and with a capital loss), with unemployment even higher at 12%. A respondent who managed to avoid the problems plaguing the U.S. housing market has a very different outlook than one who hasn t. Although both groups worry about their overall finances, they both feel secure in their employment but the shared sense of financial security stops there. 41% of those with some sort of housing trouble say they are worse off than a year ago, a view shared by only 29% of the untroubled group. 27% think they will be worse off in a year s time, compared to only 17% in the group without housing trouble. It is striking that the majority at least 60% - of both groups say that their attitude toward debt has fundamentally changed because of the financial crisis. Even of those respondents whose house is relatively unscathed, 33% want to actively delever while 32% plan to take on no more debt. Chart 2: Housing Difficulty No Trouble Servicing Debt Rising House Prices 80% 60% 40% 20% 0% -20% -40% -60% Better Than 1Y Ago Better in 1Y From Now Saving Enough For Retirement Spending Less Than Earning Mangeable Debt US Average No Housing Problems Some Housing Problem 17

18 Attitudes Toward Debt Those with an unchanged attitude toward debt report a sense of greater financial progress over the last year, and fewer think they will be worse off in a year from now. Those who have not felt that they ve changed their attitude toward debt since the financial crisis are in a stronger position than those who have. (The smaller the shape, the relatively worse the group is faring in that category.) 1. A changing attitude toward debt is much more prevalent among those who have relatively less job security, are underwater on their mortgage, and are more likely to have unsecured (non-mortgage) debt. 2. This rethink on debt is occurring even though most respondents are managing their debt. At least 70% of all groups say they do not struggle with debt service. And even of those who actively want to delever, 58% do not think their debt is too high relative to their income. Almost 70% of the sample with debt report that their attitude toward debt has changed since the financial crisis, with 27% reporting their attitude is unchanged. While there are some similarities (both worry about their overall finances, and generally share their assessment of the equity and housing markets), the differences are pronounced. For those with an unchanged attitude, there is more job security, a sense of greater financial progress over the last year, and less pessimism about what the next year will bring. The group reporting a change in attitude tends to be much more risk averse, with only 24% prepared to take risks with their savings, compared to 41% of those who have not changed their attitude. In terms of the structure of debt, it s interesting to see that those with an unchanged attitude are less likely to hold non-mortgage debt: 67% hold other forms of loans, compared to 82% of those who report a changed attitude. They are also more likely to find it easier to get credit, with 39% saying that getting a loan is easy. 87% of those with an unchanged attitude toward debt do not struggle with debt service. Although both groups are pessimistic about the outlook for house prices, those with an unchanged attitude are less negative. Both groups have similar experiences about capital losses on their homes, with at least 40% of each group saying their house is worth more than when they bought it. But those who are rethinking their attitude toward debt are much more likely to be underwater on their mortgage: 31% of those changing their attitude toward debt owe more on their mortgage than their house is worth, compared to only 16% of the group that has not changed their attitude. Chart 3: Attitude Toward Debt No Trouble Servicing Debt Rising House Prices Mangeable Debt 80% 60% 40% 20% 0% -20% -40% -60% -80% Better Than 1Y Ago Better in 1Y From Now Saving Enough For Retirement Spending Less Than Earning US Average Unchanged Attitude Changed Attitude Toward Debt 18

19 U.S. Average Middle Class, last survey (Jan 11) Middle Class High Net Worth Underwater or Capital Loss No Housing Problem Yes (Total) Deleveraging No further debt Attitude Not Changed ASR Consumer Survey 9 th September 2011 A. Financial Security: Key Questions by Groups For the following Tables A-F, the data shown are abstracts of key findings from the full survey results. Not all questions are shown. Figures may total less than 100% where only partial data are shown. Household Income Groups Housing Difficulty Changed Attitudes Toward Debt Middle class and those with housing problems are most likely to feel worse off now than they were a year ago Table 34: Do you worry about your financial situation? Worry a lot or a little 88% 92% 89% 85% 90% 86% 91% 91% 91% 83% Not at all 12% 8% 11% 15% 9% 15% 9% 8% 9% 17% Net % Worry 76% 84% 78% 70% 81% 71% 83% 83% 82% 65% Table 35: At this time, how secure do you feel your job is? Very/fairly secure 87% 80% 84% 91% 89% 87% 84% 84% 85% 96% Very/fairly insecure 12% 17% 14% 8% 11% 12% 15% 16% 15% 4% Net % Feel Secure in Job 75% 63% 70% 83% 79% 75% 69% 68% 70% 92% Table 36: Would you say that you are better or worse off financially than a year ago? Better off 20% 20% 19% 25% 15% 23% 21% 26% 17% 27% Worse off 35% 31% 39% 23% 41% 29% 38% 36% 40% 21% About the same 44% 49% 41% 52% 44% 48% 41% 38% 43% 51% Net % Think Better Off Than One Year Ago -15% -10% -20% 2% -27% -6% -17% -11% -24% 6% Table 37: Do you think you will be better or worse off financially in a year's time? Better off 25% 27% 24% 29% 23% 23% 26% 33% 19% 30% Worse off 20% 14% 23% 13% 27% 17% 20% 17% 24% 11% About the same 43% 47% 40% 50% 41% 49% 42% 40% 44% 51% Net % Think Will Be Better Off One Year From Now 5% 13% 2% 16% -4% 6% 5% 16% -5% 19% 19

20 U.S. Average Middle Class, last survey (Jan 11) Middle Class High Net Worth Underwater or Capital Loss No Housing Problem Yes (Total) Deleveraging No further debt Attitude Not Changed ASR Consumer Survey 9 th September2011 B. Attitudes Toward Savings and Wealth Household Income Groups Housing Difficulty Changed Attitudes Toward Debt Only 14% of the middle class think now is a good time to buy stocks, the lowest percentage of any group. Table 38: Which one of the following statements best describes your current financial situation? I am spending more than I am earning 13% 13% 15% 6% 15% 9% 13% 11% 14% 11% I am managing to make ends meet 51% 56% 60% 39% 56% 45% 59% 67% 52% 33% I am spending less than I am earning 33% 28% 23% 54% 28% 44% 27% 21% 33% 54% Net % Spend Less Than Earn 20% 15% 8% 48% 13% 35% 15% 10% 19% 44% Table 39: Generally speaking, do you think you are saving enough? Saving more than I need to 3% 2% 2% 3% 2% 3% 2% 2% 2% 3% I am saving too little 72% 75% 75% 61% 80% 63% 80% 82% 78% 61% I am saving enough 18% 15% 15% 32% 14% 27% 12% 11% 13% 32% Table 40: Which of these best describes your view about your savings? Not prepared to take risks 50% 48% 56% 45% 55% 50% 55% 54% 55% 42% Prepared to accept losses or take substantial risks 28% 33% 23% 41% 25% 32% 24% 24% 25% 41% Net % Prepared to Take Risks With Savings -23% -16% -33% -5% -29% -18% -31% -30% -31% -1% Table 41: Do you think now is a good time to buy or sell stocks? This is a good time to buy 19% 14% 30% 25% 20% 20% 22% 19% 28% This is a good time to sell 6% 7% 5% 6% 6% 6% 4% 8% 3% Neither 42% 44% 37% 39% 41% 44% 46% 43% 37% Don t know 33% 35% 29% 30% 34% 30% 29% 30% 33% Net % Say Now is a Good Time To Buy Stocks 13% 7% 25% 19% 14% 14% 18% 10% 25% 20

21 U.S. Average Middle Class, last survey (Jan 11) Middle Class High Net Worth Underwater or Capital Loss No Housing Problem Yes (Total) Deleveraging No further debt Attitude Not Changed ASR Consumer Survey 9 th September2011 C. Borrowing and Access To Credit Household Income Groups Housing Difficulty Changed Attitudes Toward Debt 49% of those in the middle class have a mortgage, down from 58% at the start of this year. Table 42: Debt Summary Have a Mortgage 54% 58% 49% 74% 83% 68% 72% 71% 74% 75% Have only a mortgage (no other debt) 17% 17% 15% 22% 23% 22% 18% 10% 26% 33% Have Other Loans 58% 60% 60% 65% 66% 58% 82% 90% 74% 67% Have only other loans (not a mortgage) 20% 20% 26% 13% 6% 13% 28% 29% 26% 25% Have any form of debt 76% 78% 77% 87% 89% 82% 100% 100% 100% 100% Have no debt at all 24% 22% 23% 13% 11% 18% Table 43: At this time do you think it is easy or hard to get a mortgage, or loan? Very / fairly hard 58% 59% 60% 52% 69% 49% 67% 65% 69% 43% Very / fairly easy 24% 23% 22% 34% 22% 31% 21% 22% 21% 39% Net % Think Hard 33% 36% 38% 18% 48% 18% 46% 44% 48% 4% Table 44: Do you feel that your total debt is too high relative to your income? * Yes 45% 48% 51% 33% 51% 35% 51% 58% 45% 26% No 48% 43% 40% 60% 40% 59% 42% 35% 49% 67% Net % Think Debt Too High -3% 5% 11% -27% 11% -24% 9% 23% -3% -42% Table 45: Do you have difficulty meeting the monthly payments on your mortgage or your loans? * Yes 23% 20% 29% 14% 31% 15% 27% 27% 28% 10% No 74% 76% 68% 84% 65% 83% 71% 72% 70% 87% Net % Have Trouble -51% -56% -40% -71% -34% -68% -43% -45% -42% -77% Table 46: Has the financial crisis fundamentally changed your attitude toward debt? * Yes actively deleveraging 33% 40% 29% 35% 33% 49% 100% Yes not taking on more debt 34% 35% 34% 37% 32% 51% 100% No unchanged attitude 27% 19% 35% 22% 31% 100% Net % Say Yes 41% 56% 29% 50% 33% * Base = 732, all who have some form of debt. 21

22 U.S. Average Middle Class, last survey (Jan 11) Middle Class High Net Worth Underwater or Capital Loss No Housing Problem Yes (Total) Deleveraging No further debt Attitude Not Changed ASR Consumer Survey 9 th September2011 D. Housing Household Income Groups Housing Difficulty Changed Attitudes Toward Debt All groups, on balance, expect house prices to fall over the next year. The middle class has the fewest respondents saying now is a good time to buy a house. Table 47: Housing Tenure Own the house outright 19% 20% 21% 17% 17% 32% 12% 14% 10% 11% Buying with a mortgage 53% 57% 49% 72% 83% 68% 69% 67% 70% 73% Pay rent 23% 20% 24% 11% 17% 16% 19% 12% Table 48: Thinking about the housing market in your country, how do you think property prices will behave over the coming year? Rise significantly/ a little 20% 28% 19% 22% 18% 21% 20% 22% 19% 20% Fall significantly/ a little 30% 19% 33% 27% 34% 29% 34% 36% 32% 22% Net % Think Rise -10% 9% -14% -5% -17% -7% -13% -14% -13% -2% Table 49: Do you think now is a good time to buy property or a good time to sell property? Buy 59% 62% 58% 72% 65% 67% 65% 67% 64% 63% Sell 2% 1% 2% 2% 2% 2% 3% 3% 2% 1% Neither 25% 26% 26% 18% 22% 21% 23% 19% 27% 21% Net % Think Buy Property 57% 61% 56% 70% 63% 65% 63% 64% 61% 63% Table 50: Is your house worth more or less than when you bought it? * More than when bought 45% 43% 49% 6% 67% 41% 40% 43% 46% About the same 19% 19% 20% 4% 28% 20% 23% 16% 22% Less than when bought 33% 35% 30% 90% 0% 37% 35% 39% 28% Net % Say Worth More 12% 8% 19% -83% 67% 4% 5% 4% 19% Table 51: Would you say that the value of your house today is worth less than the amount you owe on your mortgage? ** Worth less 27% 28% 25% 65% 0% 31% 30% 32% 16% Worth more 61% 56% 67% 28% 85% 59% 58% 60% 74% Net % Say Worth More 34% 28% 42% -37% 85% 28% 28% 28% 58% * Base = 710, all who own a home or have a mortgage. ** Base = 512, those with a mortgage. 22

23 U.S. Average Middle Class, last survey (Jan 11) Middle Class High Net Worth Underwater or Capital Loss No Housing Problem Yes (Total) Deleveraging No further debt Attitude Not Changed ASR Consumer Survey 9 th September2011 E. Retirement Household Income Groups Housing Difficulty Changed Attitudes Toward Debt The majority of all groups expect to rely on their own savings or retirement plan for income after they retire. Table 52: At what age are you planning to retire? * Before I am 60 14% 10% 13% 17% 11% 17% 12% 13% 11% 19% In my 60s 42% 47% 43% 49% 43% 44% 47% 46% 48% 42% After I am 70 14% 18% 16% 12% 20% 12% 16% 16% 16% 8% Average Expected Age Table 53: Which one best describes your expected principal source of income following retirement? ** Government 13% 19% 17% 5% 13% 11% 14% 12% 16% 7% Current or prev. employer 10% 9% 10% 13% 6% 14% 11% 11% 11% 12% Private plan / own savings 38% 24% 32% 53% 44% 42% 39% 39% 39% 52% Too soon to know / DK 38% 47% 39% 28% 36% 31% 34% 37% 32% 29% Table 54: When you retire, do you think your income will be sufficient to maintain your current standard of living? ** Yes 19% 14% 15% 26% 17% 26% 18% 17% 19% 28% No 34% 40% 37% 25% 41% 28% 38% 38% 37% 27% Too soon to know 36% 37% 36% 39% 34% 36% 37% 36% 37% 31% Net % Think Sufficient -16% -26% -22% 1% -24% -2% -20% -21% -18% 1% Table 55: Do you think you are saving enough for your retirement? ** Yes 17% 13% 11% 28% 16% 25% 14% 14% 15% 29% No 69% 75% 73% 58% 74% 60% 74% 73% 75% 60% Net % Think Saving Enough -52% -62% -62% -30% -58% -35% -60% -59% -60% -31% Table 56: Do you think making long term investments in the stock market is a good way to save for your retirement?** Yes 36% 39% 26% 53% 39% 40% 37% 38% 37% 51% No 32% 33% 34% 25% 28% 33% 31% 31% 32% 21% Net % Think Yes 4% 6% -9% 29% 11% 7% 6% 7% 4% 29% Table 57: Thinking about the children of your generation, how do you think their standard of living will compare with yours when they are your age? A lot/ little better 19% 24% 19% 19% 15% 20% 18% 19% 18% 20% A lot/ little worse 46% 41% 48% 44% 48% 46% 51% 51% 50% 35% Net % Think Better -28% -16% -29% -25% -33% -26% -32% -32% -33% -15% * Base = 892, all not yet retired. ** Base = 868, all who have worked and are not yet retired. 23

24 U.S. Average Middle Class High Net Worth Underwater or Capital Loss No Housing Problem Yes (Total) Deleveraging No further debt Attitude Not Changed ASR Consumer Survey 9 th September2011 F. Key Demographics for Groups Household Income Groups Housing Difficulty Changed Attitudes Toward Debt Table 58: Population Totals for Each Group, and Compared to Overall Sample Number % of Total Base 40% 42% 36% 64% 69% 34% 35% 27% Base (n=) 1,004 1, Table 59: Income and Wealth Personal Income Under $40k 51% 54% 25% 45% 43% 48% 46% 50% 38% Personal Income Over$40K 48% 43% 74% 53% 56% 50% 53% 48% 61% Net % Think Income Higher Than Average -21% -39% 20% -18% -10% -20% -18% -23% 2% Total Wealth / Savings Under $40K 34% 56% 33% 52% 38% 51% 50% 53% 45% Total Wealth / Savings Over $40K 50% 26% 55% 34% 48% 35% 34% 36% 47% Net % Think Wealth Higher Than Average -32% -45% 2% -36% -9% % -2% Table 60: Savings and Investments Owned Bank Savings or CDs 42% 39% 52% 40% 51% 42% 38% 46% 56% Money Market Fund 20% 12% 33% 20% 27% 17% 15% 19% 34% Stocks or Bonds 31% 23% 48% 35% 40% 30% 30% 31% 45% 401k or IRA 51% 47% 71% 55% 61% 56% 59% 53% 67% Table 61: Asset Segmentation Asset rich, income rich 25% 16% 45% 26% 35% 24% 25% 23% 37% Asset rich, income poor 9% 10% 10% 9% 13% 11% 9% 13% 10% Asset poor, income rich 17% 20% 22% 21% 15% 20% 21% 20% 20% Asset poor, income poor 33% 36% 11% 30% 23% 31% 28% 32% 25% 24

25 U.S. Average Middle Class High Net Worth Underwater or Capital Loss No Housing Problem Yes (Total) Deleveraging No further debt Attitude Not Changed ASR Consumer Survey 9 th September2011 Demographic Information Continued Household Income Groups Housing Difficulty Changed Attitudes Toward Debt Table 62: Education Level Terminal Age of Education At % 49% 69% 54% 59% 56% 58% 54% 71% College Degree 42% 36% 59% 42% 48% 41% 43% 40% 60% Table 63: Working Status Working Status: Full Time 49% 51% 60% 51% 52% 53% 55% 52% 58% Working Status: Unemployed 8% 7% 4% 8% 5% 6% 6% 7% 7% Working Status: Retired 10% 11% 7% 11% 11% 9% 9% 8% 10% Table 64: Age % 25% 17% 20% 15% 20% 24% 17% 24% % 25% 31% 31% 24% 27% 27% 27% 31% % 23% 30% 28% 30% 28% 29% 27% 22% % 27% 22% 21% 32% 25% 21% 29% 23% Table 65: Geographic Region New England / Mideast 18% 17% 21% 15% 20% 19% 20% 18% 16% Great Lakes 16% 16% 15% 20% 15% 15% 15% 15% 18% Plains & Rocky Mountain 14% 19% 11% 14% 16% 15% 17% 13% 14% South Atlantic 20% 20% 19% 22% 17% 19% 18% 20% 18% South Central 17% 18% 16% 13% 20% 18% 19% 18% 12% Far West 15% 12% 18% 16% 12% 14% 11% 16% 21% 25