U.S. Household Debt Levels Are Worrying No Matter How You Look at Them

For Immediate Release

U.S. Household Debt Levels Are Worrying No Matter How You Look at Them

Today Woodstock Institute released a report (Reinvestment Alert #30, May 2006) that shows a variety of debt measures agree on a disturbing phenomenon: families are racking up high levels of debt.  Raw data on debt levels are hard to interpret because their significance depends on the financial assets families possess to offset their debt.  But the debt levels described in this report are troubling even after taking into account rising asset levels in homes and the stock market. 

Gathering information from a variety of sources, the report highlights the following trends:

  • Household debt rose from 71% of disposable household income to 126% between 1979 and 2005.
  • Total household liabilities increased from 20% of total household assets to 29% between 1999 and 2004.
  • Homeowners’ equity in their homes declined from 67% of their homes’ value to 57% between 1979 and 2004 despite rising home values that would add to an owner’s equity.
  • The median value of mortgage debt for families in the bottom fifth of the income distribution increased 191% and in the second lowest fifth, 124% between 1989 and 2001.
  • Self-reported credit card debt data show that between 1989 and 2004 credit card debt, in inflation adjusted dollars, doubled.
  • Credit card industry data show that the mean household credit card debt for families with at least one credit card exceeds $9,000.  Since 40% of families pay their credit card bills in full every month, families who carry balances have average balances considerably in excess of $9,000

These aggregate figures hide more alarming numbers for particular groups of households.  Renters’ debt obligation ratios are about twice those of homeowners, and homeowners who have “alternative mortgages” such as so-called interest only mortgages are at high risk of running into negative equity situations where their mortgage debt is higher than their homes’ value.  These trends underscore the importance of Woodstock’s work to figure out how ordinary families can build, not deplete, financial assets.