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Whew! Consumer finances are getting better

Every day on Marketplace Money we get questions from people struggling to pay down their debts and save more. It's hard to do. The movement toward consuming less and saving more (including paying down debts) is one reason why the economic recovery has been so anemic.

What's underappreciated is how much progress has been made by households, says Jim Paulsen, chief investment strategist at Wells Capital Management.

Paulsen has a knack for coming up with charts and figures that fly in the face of conventional, accepted views on the economy. It's why he's always worth listening to and this time he's really on to something: Americans are making financial progress.

Specifically, Paulsen notes that household net worth has risen during the last several quarters. Households have also managed to amass a record $8 trillion in cash assets and the U.S. personal savings rate is hovering near a 20-year high. Not bad, right.

What's more, the financial obligations ratio has declined by almost 3 percent from its all-time record high in late 2007 to about 16.3 percent--more than 1 percent below its average level since 1980 and no higher today than in 1985.

(The household debt service ratio is an estimate of the ratio of debt payments to disposable personal income and the financial obligations ratio adds in automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, and property tax payments to the debt service ratio.)

There are gains on the credit card front, too. The delinquency rate on credit cards has declined below 4 percent to one of its lower levels since 1990.

Of course, households have a lot farther to go following a record borrowing boom and bust. Still, Paulen is right on the money when he says "despite continued rumors of U.S. household financial death, they are no longer being killed by a "record-setting" debt burden. Rather, they simply continue to struggle with debt problems."

That's progress, especially considering the economy of the past 5 years.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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