Seeing Red: Households Awash in Debt
Sunday, Jan. 5, 2020 8:00 AM - 10:00 AM (PST)
- Chair: Steven M. Fazzari, Washington University-St. Louis
Household Sustainability, Debt, and Secular Stagnation
AbstractThe financial sustainability of U.S. households is usually proxied by intuitive measures, like the debt-to-income ratio, that are only loosely linked with a more rigorous definition of sustainability. We develop an original measure of household financial sustainability that compares households’ projected financial resources with the their consumption path over the life course. We employ balance sheet and income date from the PSID to assess the evolution of household financial sustainability from 1984 to 2013 with micro data stratified by various criteria.
Approximately 50 percent of American households pass the sustainability test. There has been a secular decline in the surplus of consumption relative to sustainable consumption since the mid 1980s. Sustainability declines sharply as households age from their mid 20s into late middle age. But sustainability does not seem to differ significantly across education groups (a proxy for income). Debt ratios rise for all education groups prior to the Great Recession, which likely facilitated faster growth in actual consumption compared with sustainable consumption.
These results have potentially important implications for understanding the sources of household financial fragility, the likely path of future consumption growth, and the ability of households to maintain living standards into their retirement years.
Debt and the Well-Being of United States Households
AbstractIn this paper we study the financial and psychological well-being of American households. Income inequality is at record highs in the United States. Most Americans did not recover from the Great Recession. Credit card debt, student loan debt and automobile debt are all rising and reaching new heights; yet, incomes are stagnant while inflation continues to erode any modest gains earned by households. All these factors have led to increases in poverty and increased uncertainty about job security and social safety nets. We measure these effects financially; however, we extend this (and our earlier work) to consider the psychological toll experienced by many people. Increased financial distress is a leading cause of what is known as situational depression. We combine the Panel Study of Income Dynamics’ (PSID) Wellbeing and Daily Living 2016 supplement with the PSID family-level surveys to capture changes in family finances, family household formation and household members’ well-being. We also account for geographic differences across the United States.
Mapping Fragility – A Study on U.S. Household Finance
AbstractTo understand the rise of household indebtedness in the USA in the past three decades we build a conceptual explanatory framework that takes into account elements of the macroeconomic and the social institutions of the economy, and we investigate data from ten waves of the Survey of Consumer Finances (SCF), a triennial survey run by the Federal Reserve. These data allow us to comprehensively consider several explanations of the observed trends, which have so far been only analysed separately in disconnected strands of literature.
In contrast to a widespread interpretation of the events that led to the 2007-2008 global financial crisis (GFC), we do not find consistent evidence of speculative behavior among households, who do not appear to have largely used their “house as ATM”. Instead, we find that poverty or more in general low equivalent income, the snowball effect, and “keeping up with the Joneses” behavior are mutually compatible hypotheses whose explanatory power is strongest.
- B5 - Current Heterodox Approaches