Hit on the Middle Class: Debt Provides Mixed Message

This continues our series on financial stress affecting the middle class

The Federal Reserve Bulleting, June 2012 released the Fed’s report on Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances. It summarized “Total payments relative to total income increased only slightly, and the median of payments relative to income among families with debt fell after having risen between 2004 and 2007. The share of families with high payments relative to their incomes also fell after rising substantially between 2001 and 2007.”

Debt Ratio Increases While Actual Debt Decreases

The following points indicate a small improvement on our hunger for debt, but also indicate an increase in debt ratio:

• “Share of outstanding credit card balances decreased 0.6% over the 3-year period.”
• “Offsetting these relative declines in mortgage and credit card debt were increases in the share of liabilities accounted for by nonmortgage lines of credit and other installment loans.”
• “The overall value of families’ liabilities decreased between 2007 and 2010,
• “But the rate of decline was less than the corresponding decrease of assets.”
• “Accordingly, the ratio of the sum of the debt of all families to the sum of their assets—the leverage ratio—rose from 14.8% in 2007 to 16.4% percent in 2010.”
• The leverage ratio for the subset of families that had any debt rose at a faster pace, from 19.4 percent in 2007 to 22.0 percent in 2010.

Demographic Allocation of Debt Looking Better

“With few exceptions, the fraction of families with any debt fell broadly across demographic
groups.”

• Debt ownership
• Fell for those in the less than 35, 45-to-54, and 55-to-64 age groups
• Rose for the 75-or-older group.
• Families headed by a self-employed person saw a decrease of 4.8%, but more modestly or increased among complementary work-status categories.
• Median debt tends to rise with income, education, and wealth;
• Debt fell 17.8 percent among families headed by a person who worked in a technical, sales, or service job

Wednesday we remember our right to life, liberty, and the pursuit of happiness