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Given a Shovel, Americans Dig Deeper Into Debt
July 20, 2008; The New York Times
By Gretchen Morgenson
EXCERPT
Years of spending more than they earn have left a record number of Americans...standing at the financial precipice. They have amassed a mountain of debt that grows ever bigger because of high interest rates and fees.
Just two generations ago, America was a nation of mostly thrifty people living within their means, even setting money aside for unforeseen expenses.
Today, Americans carry $2.56 trillion in consumer debt, up 22 percent since 2000 alone, according to the Federal Reserve Board. The average household’s credit card debt is $8,565, up almost 15 percent from 2000.
College debt has more than doubled since 1995. The average student emerges from college carrying $20,000 in educational debt.
Household debt, including mortgages and credit cards, represents 19 percent of household assets, according to the Fed, compared with 13 percent in 1980.
Even as this debt was mounting, incomes stagnated for many Americans. As a result, the percentage of disposable income that consumers must set aside to service their debt — a figure that includes monthly credit card payments, car loans, mortgage interest and principal — has risen to 14.5 percent from 11 percent just 15 years ago.
By contrast, the nation’s savings rate, which exceeded 8 percent of disposable income in 1968, stood at 0.4 percent at the end of the first quarter of this year, according to the Bureau of Economic Analysis.
More ominous, as Americans have dug themselves deeper into debt, the value of their assets has started to fall. Mortgage debt stood at $10.5 trillion at the end of last year, more than double the $4.8 trillion just seven years earlier, but home prices that were rising to support increasing levels of debt, like home equity lines of credit, are now dropping.
The combination of increased debt, falling asset prices and stagnant incomes does not threaten just imprudent borrowers. The entire economy has become vulnerable to the spending slowdown that results when [over-extended] consumers...hit the wall.
Copyright 2008 The New York Times Company
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