Hit on the Middle Class: Liabilities to Family Finances

This continues our series on situations challenging the middle class and others

Changes in U.S. Family Finances from 2007-2010: Evidence from the Survey of Consumer Finances reported “The overall value of families’ liabilities decreased between 2007 and 2010, but the rate of decline was less than the corresponding rate for families’ 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% in 2010. The leverage ratio for the subset of families that had any debt rose at a faster pace, from 19.4% in 2007 to 22.0% in 2010.”

Liabilities

Several factors increase the liabilities family finances incur today (We reviewed some of them in blogs over the last two weeks):

• Holdings of Debt
• Mortgages and Other Borrowing on the Primary Residence
• Borrowing on Other Residential Real Estate
• Installment Borrowing
• Credit Card Balances and Other Lines of Credit
• Other Debt
• Reasons for Borrowing
• Credit Market Experiences
• Debt Burden

Liability of Debt (a reprise)

• Proportion of debtors with payments exceeding 40% of their previous-year income fell 1.0% to 13.8%
• In the preceding three years, the proportion had increased 2.5%
• Families in the bottom net worth group the share rose 4.2%
• Families with income between the 60th and 80th percentiles saw a 1.9% decline in the fraction exceeding the 40 percent mark
• Those between the 80th and 90th income percentiles saw a 2.9% point decline
• Home-secured debt fell slightly as a share of total family debt, but remained the largest component of family debt.
• Borrowing for residential real estate other than the primary residence fell slightly, but in 2010 it stayed high by historical standards.
• Percentage of families using credit cards for borrowing dropped over the period
• Median balance on their accounts fell 16.1%, and the mean fell 7.8%
• Families with education-related debt rose from 15.2% to 19.2%
• Mean balance among those with such debt rose 14.0%, the median balance increased 3.4%

Friday we will review the summary of findings that challenged the middle class