There are a number of ways in which households might respond to the financial crisis: reduce spending and with that increase saving, work longer, and/or bequeath less. Using longitudinal data from the Health and Retirement Study and its supplemental surveys, we find that all of these adjustments have been important:
- Average spending declined during 2007-2009 by eight percentage points more than during 2001-2007 for people aged 50-64.
- The population age 65 and older made smaller downward adjustments to spending, suggesting it was on average less affected by the crisis.
- Workers in their fifties expect to work longer: in May 2009, workers estimated the chances of working past age 62 to be 62%, which is 4 percentage points higher than in 2008.
- However, those who stopped working since 2008 revised their chances of working past age 62 downward from 45% to 40%, expressing pessimism about future job opportunities.
- On average, people expect to reduce their future bequests by 20%, but the reductions are concentrated among the well-to-do.
- Negative home equity rose substantially among older homeowners with a mortgage from about 1.6% to 7%.
- Respondents are pessimistic about economic recovery in the near future.