Friday, May 12, 2006

Households Going Into Debt For The 'Basics'

The Washington Post looks at what is causing debt levels. "Why are Americans so deeply in debt? It's not because they are using credit cards to buy plasma TVs and premium coffee drinks at Starbucks. The real culprits, according to a new analysis, are the rising costs of housing, health care and education."

"The debt of the typical American family earning about $45,000 a year rose 33.1 percent from 2001 to 2004, after adjusting for inflation, according to a study based on data compiled from the Federal Reserve Board."

"Real wages, after adjusting for inflation, have been flat since 2001, according to the study, while the cost of big-ticket items for which families pay the most rose. In the past five years, the costs of medical care, housing, food, cars and household operations rose 11.2 percent, the study said. Many families are trying to make up the difference by borrowing, according to (economist) Christian E. Weller, author of the report."

"Housing debt has climbed notably because home prices have risen and people have borrowed against the equity in their homes. From 1989 to 2004, for example, the median mortgage debt more than doubled, from $46,900 to $96,000."

"Education debt, meanwhile, rose 127 percent between 1992 and 2004, from $3,427 to $7,800. Health-care costs rose, too, because insurance has become more costly and employers are shifting more of the expense to workers."

"Many families, particularly middle-income households, aren't acknowledging that declining incomes mean they must radically adjust their standards of living, according to Weller and Elizabeth Warren, a law professor at Harvard University. Warren suggested that families that can no longer realistically afford their single-family houses should move to condominiums, consider limiting their families to a single automobile, get second jobs to pay off debt, or move to less expensive school districts that may not have the highest test scores but where children perform acceptably well."

"'Parents need to consider whether a three-point difference in reading scores translates into a wholly different educational experience for their children,' Warren said."

"At their news conference, Weller and Warren urged Washington policymakers to consider the implications of consumer debt before families are crushed by rising costs and damaged credit. They predicted that otherwise, many families will lose their homes through foreclosure when bankruptcy law changes make it more difficult for households to escape debts."

2 Comments:

At 8:26 AM, Blogger Ben Jones said...

'Warren suggested that families that can no longer realistically afford their single-family houses should move to condominiums, consider limiting their families to a single automobile, get second jobs to pay off debt, or move to less expensive school districts that may not have the highest test scores but where children perform acceptably well.'

'At their news conference, Weller and Warren urged Washington policymakers to consider the implications of consumer debt before families are crushed by rising costs and damaged credit.'

In an age when the government wants to control so many aspects of our lives, it is reasonable to think that 'public servants' might try to look out for the little guy. But our system is so screwed up that we get the opposite; doesn't tax law benefit those who borrow heavily to buy a house? Other than socialist 'affordable housing' programs, which government folk are trying to actually address over-priced housing?

My greatest hope is that after the dust settles, citizens will realize that uncle sam and the fed can't bail them out after every consumption binge and that a houses' value has limits.

 
At 12:35 PM, Blogger Cassandra said...

I'm really sorry if this sounds insensitive, but these people have no sense of priorities.

When they no longer pay for cable/sattelite TV, no longer have a cell phone, and quit buying $5.00 cups of coffee, maybe I'll start feeling sorry for them.

In my opinion, no one that can afford to pay for TV is deserving of any sympathy.

 

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