Fresh data from the Federal Reserve shows that millions of the poorest families are still very deep in the hole -- and might be getting deeper.
The triennial Survey of Consumer Finances, released by the Fed last
week, confirms an overall improvement in the state of U.S. household
finances. The average debt burden for all families stood at about 105
percent of pretax income in 2013, down from about 125 percent in 2010
and the lowest level since the 2001 survey.
A closer look at the Fed data, however, suggests that the financial
improvement is far from evenly distributed. The least wealthy families
have made the least progress, and by some measures are in worse shape
than ever.
As of 2013, the debts of the quarter of families with
the lowest net worth stood at about 156 percent of pretax income,
according to the Fed data. That's more than in 2007, before the
financial crisis hit. It's also more than any of the wealthier groups --
something that hadn't happened before 2010.
The poorest quartile of families is the only group that owes
more than it owns. Thanks to declines in the value of assets, the
group's average leverage ratio -- debt as a percent of assets --
increased to 137.5 percent in 2013, the highest on record since the
survey started in 1989.
More ominous is a steady increase in installment debt, a category
that includes both student and auto loans -- areas that have recently
seen a lot of questionable lending to lower-income borrowers.
Whatever the drivers, the data suggest that the 2008 crisis
and subsequent economic malaise have left a troubling legacy: A group of
the poorest families, numbering roughly 14 million, whose precarious
finances make them vulnerable to shocks and limit their ability to
contribute to future growth. That's hardly a strong foundation for a
healthy recovery.
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