Household Finances Healthier
Published on July 8, 2013
, it has been reported that the debt-service ratio* for American households has fallen to its lowest rate since the 1980s. This means that American households are spending less of their disposable income on mortgages, consumer loans, and other types of credit. People have been taking out fewer and smaller loans as well as paying off old debt.
The Great Recession showed Americans, rather starkly, the dangers of overspending. In a way, it brought us back to fiscal reality. The Great Recession shocked Americans and made us collectively wake up to the fact that when we spend money that we do not have, or will not be able to pay back, we are putting our future financial stability at great risk.
So why have our finances become healthier?
A few factors are boosting the financial health of some households:
- Lending standards are much stricter than they were just a couple of years ago, so fewer people are borrowing more than they can actually afford to pay back.
- Home prices, which have dropped by 1/3 nationally since 2006 (after the housing market collapsed), remain comparatively low. Potential homeowners do not have to borrow as much money to get their dream home as they did before the housing bubble exploded and are therefore taking on less debt.
- Although still much lower than before the housing bubble burst, home prices are starting to rise again. Therefore, people are finding that their mortgages are no longer higher than what their homes are worth. This is great news because fewer people will have short sales on their homes when they sell and capital gains are on the horizon.
- Lessons have been learned and in general, Americans are no longer so willing to live beyond their means.
Unfortunately, the Great Recession left many people with seriously diminished retirement funds, so the earlier you start saving for retirement the better off you’ll be in the long run. With household finances getting healthier, people are beginning to look toward the future with hope and optimism. Now is the perfect time to take some of your hard-earned money and rather than take on debt, invest it into your future―perhaps with a self-directed retirement plan that you control.
*Debt –service ratio is the ratio of debt payments to disposable income
Back to Blog