Friday, October 26, 2012

At Start Of Financial Crisis/Recession, Renters Had More Debt Than Homeowners, College Educated Had More Debt Than Those Without A Degree, And Renters Had Bigger Increase In Debts From 1992 To 2007 Than Homeowners: The Financial Crisis Was Not About Housing And Excessive Mortgage Debt Alone

From TIME, "Highly Educated Have Biggest Debt Problems" by Dan Kadlec:
The study draws a line at the point where monthly payment on household debt equals 40% of income. That’s where default or bankruptcy becomes most likely should the household experience a decline in income, say researchers led by Sherman Hanna, professor of consumer sciences at Ohio State University.

Overall, the percentage of Americans exceeding this 40% threshold jumped to 27% in 2008, from 17% in 1992. College graduates were more likely to be in this group than those without a degree, according to the study. Those describing themselves as optimistic about the future also were among the most likely to have unmanageable debts, the study found. Says Hanna:

"People who piled on debt may have been too optimistic about their economic future, but you can’t blame that on a lack of education. People with college educations may have thought they were immune to any economic problems."

Meanwhile, folly in the mortgage markets was only part of the problem. One in three renters had unmanageable debts, versus just one in five homeowners, the study found. The percentage of homeowners who had heavy debt burdens increased to 22% in 2007 from 15% in 1992. But the increase was even more dramatic for renters, going to 35% from 20%. Says Hanna:

"The percentage of renters who piled on debt really surprised me. It shows that the financial crisis wasn’t all about housing speculation. There was too much debt in all parts of the economy."

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