For release on delivery
8:30 a.m. EDT
May 10, 2019
Is the Middle Class within Reach for Middle-Income Families?
Remarks by
Lael Brainard
Member
Board of Governors of the Federal Reserve System
at
"Renewing the Promise of the Middle Class"
2019 Federal Reserve System Community Development Research Conference
Washington, D.C.
May 10, 2019
It is good to be here at the Federal Reserve System's Community Development
Research Conference. This year, our conference is focusing on renewing the promise of
the middle class, a topic that goes to the heart of the American dream and underpins the
vibrancy of our democracy and society.1
What Does It Mean to Be Part of the Middle Class?
Before I dig into the data, I want to touch on what it means to be a part of the
middle class, recognizing aspirations differ from person to person. From a purely
economic perspective, being middle class commonly means having financial security and
the ability to invest for our futures and for our children. In turn, having a strong middle
class implies that families with average incomes have the purchasing power to consume
and the savings to invest. So a strong middle class is often seen as a cornerstone of a
vibrant economy and, beyond that, a resilient democracy.2
In recent years, households at the middle of the income distribution have faced a
number of challenges. That raises the question of whether middle-class living standards
are within reach for middle-income Americans in today's economy.
1
I am grateful to Claudia Sahm of the Federal Reserve Board for her assistance in preparing this text,
along with Barbara Lipman, Kevin Moore, Karen Pence, Paul Smith, and Mike Zabek. The views
expressed are my own and do not necessarily represent those of the Federal Reserve Board or the Federal
Open Market Committee.
2
Take, for example, this statement attributed to Aristotle: "The best political community is formed by
citizens of the middle class, and that those states are likely to be well-administered in which the middle
class is large, and stronger if possible than both the other classes." See Constitutional Rights Foundation
Bill of Rights in Action,
(2010), "Plato and Aristotle on Tyranny and the Rule of Law," vol. 26 (Fall),
http://www.crf-usa.org/bill-of-rights-in-action/bria-26-1-plato-and-aristotle-on-tyranny-and-the-rule-oflaw.html (quoted text under the heading "Aristotle's Politics").
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There are a number of ways to define middle income. I will primarily focus on
households between the 40th and 70th percentiles of the income distribution. In 2018,
these households had incomes between $40,000 and $85,000.3
To explore the issues associated with financial resilience and intergenerational
financial well-being, it is necessary to go beyond measures of income and better
understand household assets and liabilities.
Today I will share with you findings from a promising new data resource
developed by Federal Reserve staff, the Distributional Financial Accounts (DFAs).
These accounts combine household-level data on balance sheets, incomes, and
demographic characteristics of families in the United States from the triennial Survey of
Consumer Finances (SCF) with aggregate data from the Financial Accounts of the United
States to track the distribution of these household assets and liabilities on a quarterly
basis.4 The timeliness of the data, which are currently available through the fourth
quarter of 2018, can provide valuable insights into how different types of households are
faring over the business cycle.
I will also share some new results from the 2018 Survey of Household Economics
and Decisionmaking (SHED), which deliver further insights on the financial resilience of
3
This definition errs slightly on the higher side of what might be considered middle income, but the results
are qualitatively robust to taking the middle third of the income distribution.
4
For more details on the construction of the DFAs, see Michael Batty, Jesse Bricker, Joseph Briggs,
Elizabeth Holmquist, Susan McIntosh, Kevin Moore, Eric Nielsen, Sarah Reber, Molly Shatto, Kamila
Sommer, Tom Sweeney, and Alice Henriques Volz (2019), "Introducing the Distributional Financial
Accounts of the United States," Finance and Economics Discussion Series 2019-017 (Washington: Board
of Governors of the Federal Reserve System, March), https://doi.org/10.17016/FEDS.2019.017. The
publicly available DFAs data can be found on the Board's website at
https://www.federalreserve.gov/releases/efa/efa-distributional-financial-accounts.htm. Visualization tools
for the data are forthcoming.
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households, particularly those with low and moderate income, on an annual basis.5 These
results are slated for release soon.
Wealth across Households
Let us start by taking a look at how the wealth of middle-income households has
evolved over recent years.6 Over the past three decades, the wealth of middle-income
households increased an average of about 1 percent per year, adjusted for inflation (figure
1).7 That compares with average annual growth of 2.6 percent in real gross domestic
income over this period. By comparison, the average wealth of the households in the top
decile of the income distribution has increased three times faster per year, on average,
than the wealth of middle-income households, more than doubling over the period as a
whole.
The past decade is even more sobering. Middle-income families still have not
fully recovered the wealth they lost in the Great Recession. On average, households at all
levels of income lost wealth as a result of the declines in asset prices and rise in
unemployment during the crisis (figure 2). But the recovery in wealth since the Great
Recession has been much less for middle- and lower-income households than for higher-
income households. The wealth of the top 10 percent of households is 19 percent higher
5
The SHED is available on the Board's website at
https://www.federalreserve.gov/consumerscommunities/shed.htm.
6
The published data set includes data on the distribution of nominal wealth by wealth percentiles. For this
speech, Board staff analyzed the data, with the wealth distribution by income percentiles and other
demographic categories. Wealth and all of its subcomponents are reported here in 2018 dollars using the
personal consumption expenditures price index from the Bureau of Economic Analysis (see table 1.1.4,
which is available at https://www.bea.gov). Wealth is defined as the sum of assets, including financial and
nonfinancial assets, net of liabilities, including mortgages, consumer debt, and other liabilities.
7
Income groups at each point in time are defined here using current household income. Specific
households may move across income groups over time. Since households in the high-income group during
their working years may, in retirement, move to low- or middle-income groups, some of the wealth
assigned to low- or middle-income groups in this analysis comes from households with high lifetime
income.
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than before the recession, even after factoring in the decline in stock prices at the end of
last year. In contrast, the wealth of middle-income families still has not returned to its
pre-crisis level, and lower-income families have a wealth shortfall of 16 percent.8
The gap is also large in absolute terms. At the end of 2018, the average middle-
income household had wealth of about $340,000, while the average households in the top
10 percent of the income distribution had wealth of about $4.5 million (figure 3). The
average wealth of the top income decile is now 13 times higher than that of the middle-
income group, while it was 7 times higher in 1989.
Given these developments, it is no surprise that the share of wealth held by
middle-income households has declined over the past three decades. However, the extent
of the decline is nonetheless striking: Today the 30 percent of households between the
40th and 70th percentiles of the income distribution hold 13 percent of all wealth, down
from 19 percent over the past three decades (figure 4). The top 10 percent of households
by income now own 57 percent of all wealth-up from 47 percent 30 years ago. The 10
percent of households with the highest income hold more of the national wealth than the
remaining 90 percent of households combined.
Do Middle-Income Households Have Middle-Class Economic Security?
Having sketched out the contours of the overall level and growth of wealth owned
by middle-income households, let us now turn to economic security. Basic financial
security is one important marker of the middle class. Wealth is an important source of
economic resilience for households, allowing them to handle unexpected expenses as
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well as providing them with the financial security to manage the usual changes in income
over a lifetime. When we dig into the various liquid savings, assets, and liabilities that
underlie the overall wealth numbers for middle-income households, the picture suggests
limited room to absorb volatility in cash flows. Many middle-income families have
relatively little in easily accessible, or liquid, savings, carry a significant amount of debt,
and are concerned about the adequacy of their retirement savings.
Liquid savings
By drawing from several household surveys conducted by the Federal Reserve,
we can gain important insights into how assets and liabilities of middle-income
households affect their economic security. Research based on the 2016 SCF shows that
only about one-fourth of middle-income households have enough liquid savings to cover
six months of expenses-the amount often recommended by financial advisers-and only
4 in 10 could cover three months of expenses.9 The majority of middle-income
households thus do not have sufficient liquid savings to weather a typical material
financial disruption-for instance, one associated with a temporary job loss or illness.
Even modest unexpected expenses could be disruptive for many middle-income
families. According to the forthcoming results from the 2018 SHED, one-third of
middle-income adults said that they would borrow money, sell something, or not be able
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to pay an unexpected $400 expense (figure 5).10 Drilling down further indicates that
while 6 percent of middle-income adults said they would not be able to pay the expense
using any means, 27 percent would borrow or sell something to pay the expense.
The reliance on credit to meet unexpected expenses is pronounced among those
already carrying a balance on their credit cards. Nearly 3 in 10 middle-income adults
carry a balance on their credit card most or all of the time, and the same households are
five times as likely to borrow if faced with a $400 expense as those who never carry a
balance.
Borrowing money is not the only way that middle-income households cope with
unexpected expenses. In 2018, one-fourth of middle-income adults said they skipped
some kind of medical care because of its cost, suggesting insufficient savings can have
implications for physical health as well as financial health. Thus, low levels of savings
can create a challenging cycle when material disruptions in income, or even smaller
unexpected expenses, spiral into a broader financial setback.
Financial security in retirement
A key component of middle-class financial security is the cushion of savings to
cover retirement. Here, the DFAs suggest some progress. One of the innovations of the
DFAs is that they include defined benefit plans from the Financial Accounts in addition
to defined contribution plans, whereas measures of household pension wealth in the SCF
are confined to the latter. The balances in defined contribution plans, such as 401(k)s, in
which retirement savings accumulate in an account, are typically simpler to measure. By
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contrast, the value of defined benefit plans requires estimating how much the future fixed
payments each year in retirement are worth today. These future payments are a sizable
asset for households, currently estimated at about $15 trillion, or about 70 percent of total
pension assets.11
The DFAs indicate that the average pension wealth for middle-income
households-including both types of plans-has increased 2.5 percent per year over the
past three decades (figure 6). Pension assets are now the largest asset held by middle-
income households, representing 40 percent of their wealth, substantially exceeding the
22 percent share of home equity in their wealth.
In part, the growth in pension balances reflects the sustained decrease in long-
term interest rates over this period, which has boosted the value of the future fixed
payments associated with defined benefit pensions. It reflects the aging of the
population, since households near or in retirement age have the largest accumulated
levels of pension savings and are also likely hold a relatively greater share of defined
benefit plans (figure 7).
How do we square the growth in pension assets with survey evidence indicating
that many households in the middle of the income distribution are concerned that they
will not have enough to live on in retirement? Only 35 percent of middle-income adults,
who are not retired, say that their retirement saving is on track, and 16 percent of middle-
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income adults do not have any money saved for retirement.12 In part, this may reflect the
long-term shift by employers to defined contribution plans and away from defined benefit
plans, especially in the private sector. While in 1989 more middle-income households
had a defined benefit pension than a defined contribution plan, the reverse has been true
since 1989.13 With defined contribution plans, employees have to decide how much they
will save and how they will invest, and they face uncertainty regarding how much
savings will be available in retirement. Those who save and invest effectively can help
secure their retirement. But those who opt out, save too little, or make investment
choices that turn out to yield low returns may find themselves unprepared as retirement
approaches, despite years of hard work. Two-thirds of middle-income adults who hold
self-directed accounts, including defined contribution plans and individual retirement
accounts, say that they have little or no comfort in managing the investments.14
Assets and liabilities
Stepping back, it is instructive to look at the evolution of the underlying assets
and liabilities of middle-class households more broadly. The liabilities of the average
middle-income household have nearly doubled over the past three decades, while assets
have increased only 50 percent (figure 8). The gap between the relative growth of
liabilities and assets peaked during the financial crisis and has narrowed somewhat for
middle-income households more recently. While mortgages rose and fell sharply around
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the Great Recession, the rise in consumer debt, such as credit cards, auto loans, and
student loans, has been relatively steady.
The rapid growth in liabilities reflects both short-term cash flow management and
longer-term investments. Taking on debt is an important way for middle-income families
to help buffer unexpected expenses or a temporary loss of income, as indicated by the 8
in 10 middle-income adults who are at least somewhat confident that they could obtain an
additional credit card if they applied for it.15 Debt is also a critical mechanism for
making key middle-class investments, which I turn to next.
Investing in the Future
There is a palpable sense that the opportunity to reach the middle class and remain
in it is receding for many middle-income households. Many households find it
challenging to make key middle-class investments because incomes at the middle are not
keeping up with the rising costs of education and homeownership, and it is difficult to
save enough. Often, making these investments requires having some savings in the first
place-for instance, to make a down payment on a home, forgo income for a few years
while paying tuition, or secure credit for a small business.
Disparities by race and ethnicity
This challenge is compounded for some racial and ethnic minority groups that
have experienced large and persistent racial gaps in wealth. In 2016, the average wealth
of white households ($933,700) was seven times the average wealth of black households
($138,200) and five times that of Hispanic households ($191,200). Even among
households at the middle of the income distribution, the average wealth in 2016 of white
households ($277,200) was roughly one and a half times that of black households
($179,700) and nearly three times that of Hispanic households ($95,400).16 Differences
in educational attainment cannot fully account for these disparities: The average wealth
of black households in which the head had a bachelor's degree ($271,200) was 26 percent
less than that of white households in which the head did not attend college ($367,800).17
This matters not least because disparities in wealth often are inherited.18 The
prospects that a young person will reach the middle class often depend on attributes he or
she inherits-such as the income, wealth, education, age, race, and ethnicity of his or her
parents.19 Beyond financial wealth, children inherit intangible assets that affect their
ability to access information and social networks that help in obtaining jobs and taking
advantage of educational and other wealth-building opportunities.
Homeownership
Owning a home has been a key marker of middle-class status for many
Americans. The accumulation of equity in a home is the primary form of wealth building
and economic security for many middle-class families. Homeownership is valued for
16
The source is the 2016 Survey of Consumer Finances, which is available on the Board's website at
https://www.federalreserve.gov/econres/scfindex.htm.
17
See Lisa J. Dettling, Joanne W. Hsu, Lindsay Jacobs, Kevin B. Moore, and Jeffrey P. Thompson (2017),
"Recent Trends in Wealth-Holding by Race and Ethnicity: Evidence from the Survey of Consumer
Finances," FEDS Notes (Washington: Board of Governors of the Federal Reserve System, September 27),
https://doi.org/10.17016/2380-7172.2083. See also, using the Panel Study of Income Dynamics, William
Darity, Jr., Darrick Hamilton, Mark Paul, Alan Aja, Anne Price, Antonio Moore, and Caterina Chiopris
(2018), What We Get Wrong about Closing the Racial Wealth Gap (Durham, N.C.: Samuel DuBois Cook
Center on Social Equity and Insight Center for Community Economic Development, Duke University,
April),
https://socialequity.duke.edu/sites/socialequity.duke.edu/files/siteimages/FINAL%20COMPLETE%20REPORT_.pdf.
18
See Laura Feiveson and John Sabelhaus (2018), "How Does Intergenerational Wealth Transmission
Affect Wealth Concentration?" FEDS Notes (Washington: Board of Governors of the Federal Reserve
System, June 1), https://doi.org/10.17016/2380-7172.2209. See also Maury Gittleman and Edward N.
Journal of Human Resources,
Wolff (2004), "Racial Differences in Patterns of Wealth Accumulation,"
vol. 39, (Winter), pp. 193-227.
19
See Raj Chetty, John N. Friedman, Nathaniel Hendren, Maggie R. Jones, and Sonya R. Porter (2018),
"The Opportunity Atlas: Mapping the Childhood Roots of Social Mobility," NBER Working Paper Series
25147 (Cambridge, Mass.: National Bureau of Economic Research, October).
nonfinancial reasons as well, such as protection against unwanted moves and the freedom
to make alterations and investments in the home.20
However, the financial crisis brought into focus that there are also risks associated
with homeownership. Home equity-defined as the difference between the house value
and the mortgage balance-for an average middle-income household peaked at $90,200
in late 2005, then declined by almost two-thirds through 2011 (figure 9). By the end of
2018, after several years of rising house prices, the home equity of the average middle-
income family was still below the pre-recession peak and not much above the value in
1989.
Middle-income households saw such steep declines in their average home equity
during the Great Recession because they had taken on a high level of mortgage debt
relative to their house values.21 This high leverage amplified the effect of the fall in
house prices on their wealth. Moreover, the homeownership rates of middle-income
households also declined during the recession, so they did not benefit as much from the
subsequent rebound in house prices since 2013 as did higher-income families.
The recent decline in homeownership rates does not appear to reflect a change in
attitudes toward homeownership, as recent surveys show that the desire to own a home
remains strong.22 Instead, it appears house prices are rising faster than income for many
20
See Matthew Desmond (2016), Evicted: Poverty and Profit in the American City (New York: Crown).
21
See Lisa Dettling, Joanne Hsu, and Elizabeth Llanes (2018), "A Wealthless Recovery? Asset Ownership
and the Uneven Recovery from the Great Recession," FEDS Notes (Washington: Board of Governors of
the Federal Reserve System, September 13), https://doi.org/10.17016/2380-7172.2249. Their analysis
focused on working-age households, and income classifications are based on the "usual amount" of income
the household earns.
22
As one example, in March 2019, according to Fannie Mae's National Housing Survey, 69 percent of
households say they would "buy" if they were going to move. See Fannie Mae's March 2019 Data
Release, which is available on its website at
http://www.fanniemae.com/resources/file/research/housingsurvey/pdf/nhs-monthly-data-040819.pdf.
middle-income families, putting homeownership out of reach. By 2017, the median sales
price for a single-family home was about four times median household income, up from
three times median income in 1988.23 The homeownership rate for middle-income
families was 68 percent in 2016, down from its peak in 2004 of 74 percent.24 For black
households, the declines during and after the recession erased a decade of increases in
homeownership-the homeownership rate for black households across the income
spectrum was 42 percent in 2018, the same as the rate in the mid-1990s.25 The
homeownership rate of Hispanics also declined with the recession but has recovered
somewhat, reaching 47 percent in 2018.
With homeownership lower and home prices rising faster than incomes, renting is
also taking a bigger slice of many middle-income households' earnings, leaving less
savings for a down payment, an unexpected expense, or other investments. From 2007 to
2018, the share of income spent on rent rose from 18 percent to 25 percent for middle-
income renters.26
Many middle-income families struggle to afford rent, particularly in the high-
demand areas where jobs are most available, underscoring the need for more workforce
housing. One way to increase the supply of middle-income housing is to reduce
exclusionary zoning and other land-use restrictions that limit the supply of housing and
23
See Alexander Hermann (2018), "Price-to-Income Ratios Are Nearing Historic Highs," Joint Center for
Housing Perspectives
Housing Studies of Harvard University, (blog), September 13,
https://www.jchs.harvard.edu/blog/price-to-income-ratios-are-nearing-historic-highs.
24
The data are from the Survey of Consumer Finances.
25
See U.S. Census Bureau (2019), Current Population Survey/Housing Vacancy Survey, April 4,
https://www.census.gov/housing/hvs/data/ann18ind.html.
26
See Dettling, Hsu, and Llanes, "A Wealthless Recovery?" in note 23; and Jeff Larrimore and Jenny
Schuetz (2017), "Assessing the Severity of Rent Burden on Low-Income Families," FEDS Notes
(Washington: Board of Governors of the Federal Reserve System, December 22),
https://doi.org/10.17016/2380-7172.2111.
keep prices high.27 Often put in place in areas with single-family homes to block the
development of affordable, multifamily housing, these policies also have contributed to
the persistence of racially segregated neighborhoods. The challenge is to increase
accessibility to workforce and affordable housing in ways that address legacy
disparities.28
Skills, education, and student debt
Manufacturing and the skilled trades have provided an important pathway to the
middle class for many workers, enabling them to own their homes, educate their children,
and retire securely. Today, though, many face uncertainties associated with the decline in
manufacturing jobs, the erosion of employee benefits, and reduced bargaining power.
Increasingly, the onus is on individuals to ensure that their skills are marketable and up-
to-date in a highly competitive global marketplace with growing automation.
Juan Salgado, the chancellor of the City Colleges of Chicago and our closing
keynote speaker, has emphasized the role of community colleges in offering affordable,
quality education and training.29 Students can begin with a certificate program in
advanced manufacturing and continue either to a bachelor's degree in engineering at a
nearby public university or to the workplace, acquiring marketable skills likely at lower
cost than if they had started at a four-year college. Similar programs around the country
help provide accessible pathways to the middle class.
For others, college is seen as an important pathway to middle-class economic
security. The average wealth of households with a college degree significantly exceeds
the average wealth of those without a college degree (figure 10). A key reason is that
college graduates generally have higher incomes. Graduates with a bachelor's degree
have median weekly earnings that are about 65 percent higher than high school graduates
and unemployment rates that are 2 percentage points lower, and they are often better
positioned to adapt to changes in the labor market.30
However, the cost of higher education has been rising, placing an increasing
financial burden on many middle-income households. Between 2008 and 2018, tuition
and fees at four-year public colleges rose more than six times faster than real median
incomes.31 Moreover, as Federal Reserve Bank of Chicago President Evans discussed,
while there are benefits associated with attending college, there are also some financial
risks, and the returns to education vary widely. While two-thirds of individuals with a
bachelor's degree or more say that the lifetime financial benefits of their education
exceed its costs, those who do not complete their degree are half as likely to report net
benefits from their studies.32 And some groups face higher barriers in accessing college:
Children of parents who did not attend college are far less likely to attend college due to
30
See Elka Torpey (2018), "Measuring the Value of Education," Bureau of Labor Statistics, Career
Outlook
(blog), April, https://www.bls.gov/careeroutlook/2018/data-on-display/education-pays.htm.
31
Net tuition and fees at four-year public colleges increased 44 percent between 2008 and 2009 and
between 2018 and 2019 (according to data from the College Board, which are available on its website at
https://trends.collegeboard.org/college-pricing/figures-tables/tuition-fees-room-and-board-over-time),
while income increased about 7 percent in the same period (as indicated by U.S. Census Bureau data,
which can be found on the Federal Reserve Bank of St. Louis's FRED website at
Trends in
https://fred.stlouisfed.org/graph/?g=nDPn). For more information, see College Board (2018),
College Pricing 2018 (New York: CB),
https://trends.collegeboard.org/sites/default/files/2018-trends-incollege-pricing.pdf.
32
The data are from the 2018 SHED. Tabulations include all adults (regardless of income) who attended
any post-secondary program.
financial and informational barriers, and those who do start college are more likely to
drop out.33
For many middle-income families, affording post-secondary education means
taking on a sobering amount of student debt. Total student loan debt, in inflation-
adjusted terms, more than doubled from 2006 to 2018 (figure 11).34 Repayment of
student loans can be challenging. In 2018, 2 in 10 middle-income adults with education
debt were behind on their payments, and those who did not complete a degree were
nearly twice as likely to be behind.35 Repayment status also differs by the type of
institution attended. Among middle-income adults with education debt, 30 percent who
attended for-profit institutions were behind on student loan payments, compared with 17
percent of those who attended public institutions and 12 percent who attended not-for-
profit private institutions.
Investing in higher education may come at the cost of deferring or forgoing other
investments. For example, higher tuition costs-reflected in increasing student loan
debt-together with the rising costs of homeownership, have left many middle-income
households in a poor position to save for a down payment or handle a mortgage.
Researchers at the Fed have estimated that roughly 20 percent of the decline in
homeownership among young adults can be attributed to their increased student loans
since 2005. This suggests that more than 400,000 young individuals would have owned a
home in 2014 had it not been for the rise in student debt.36
Businesses and stock ownership
Another concern is that high debt may hinder people seeking to start a business.
Starting a business is a classic pathway to securing a foothold in the middle class. This
has been particularly true for members of some groups that historically have faced
challenges in the labor market, particularly minorities and first-generation Americans.37
Aspiring small business owners with student loans may lack the financial ability
to invest in starting a business while staying current on payments. One study found that
individuals with student loan debt are less likely to start a business, and those who do are
more likely to fall behind on their loan payments.38 Another study found that growth in
student loan debt resulted in a 14 percent reduction in small business formation in
counties over a 10-year period.39
36
See Alvaro Mezza, Daniel Ringo, and Kamila Sommer (2019), "Can Student Loan Debt Explain Low
Consumer
Homeownership Rates for Young Adults?" Board of Governors of the Federal Reserve System,
& Community Context, vol. 1 (January), pp. 2-6,
https://www.federalreserve.gov/publications/files/consumer-community-context-201901.pdf.
37
African American women are one of the fastest-growing groups of entrepreneurs. See National
Women's Business Council (2016), "New Report Highlights Challenges Faced by Black Women
Entrepreneurs; Offers Roadmap for Solving Toughest Issues," press release, October 5,
https://www.nwbc.gov/2016/10/05/new-report-highlights-challenges-faced-by-black-womenentrepreneurs-offers-roadmap-for-solving-toughest-issues. Immigrants compose approximately 15 percent
of the U.S. workforce and around one-fourth of U.S. entrepreneurs. See Sari Pekkala Kerr and William R.
Kerr (2016), "Immigrant Entrepreneurship," NBER Working Paper Series 22385 (Cambridge, Mass.:
National Bureau of Economic Research, July). See also the minority-owned businesses special report of
the Federal Reserve Banks' Small Business Credit Survey, which is available on the Federal Reserve Bank
of New York's website at
https://www.newyorkfed.org/smallbusiness/small-business-credit-surveyemployer-firms-2016.
38
See Karthik Krishnan and Pinshuo Wang (2018), "The Cost of Financing Education: Can Student Debt
Hinder Entrepreneurship?" Management Science, published online in Articles in Advance, May 23.
39
See Brent W. Ambrose, Larry Cordell, and Shuwei Ma (2015), "The Impact of Student Loan Debt on
Small Business Formation," Working Paper Series 15-26 (Philadelphia: Federal Reserve Bank of
Philadelphia, July),
https://www.philadelphiafed.org/-/media/research-and-data/publications/working-papers/2015/wp1526.pdf.
The personal assets of small business owners have been an important source of
capital for entrepreneurs as they seek to start and sustain a small business. As wealth for
middle-income households has stagnated, reliance on this source of capital has declined
in recent years.40 Very small firms depend heavily on personal debt for start-up and
working capital. Owners of smaller firms often struggle to qualify for bank credit, and
among those that apply and are denied, low credit scores and insufficient credit history
are the most frequently cited reasons.
More broadly, a key reason that middle-income households have not seen wealth
increases commensurate with high-income households is that they have not benefited as
much from the strong performance of stocks and privately held businesses. In inflation-
adjusted terms, total business assets (including corporate stocks,