February 4, 2013
Why do household balance sheets matter, both for families and the economy as a whole? The St. Louis Fed's Ray Boshara and William Emmons, respectively the director and chief economist of the Household Financial Stability (HFS) initiative, explained why during a Feb. 4 broadcast of "St. Louis on the Air" on St. Louis Public Radio. The interview aired the day before the start of the Feb. 5-7 research symposium, "Restoring Household Financial Stability after the Great Recession: Why Household Balance Sheets Matter."
Joining Boshara, Emmons and host Don Marsh for the discussion was Michal Grinstein-Weiss, associate professor of social work and associate director of the Center for Social Development at Washington University's Brown School of Social Work.
In addition to previewing the symposium and the HFS initiative, they explored many issues surrounding the importance of stronger household balance sheets in national economic growth as well as understanding how weak household balance sheets contributed to loss of wealth during the financial crisis. For example, Boshara identified four key household financial failures over the past several years:
"It's the convergence of these four failures that, along with some other factors, we believe led to crisis," Boshara said. The difficulties among young families (those led by someone under 40) help illustrate those failures.
"Not only had homeownership rates increased most rapidly among young families during the boom, young people also borrowed more heavily than ever before," Emmons said. "When house prices plunged and the economy went into a deep recession, many young people lost their jobs and, in some cases, lost their homes to foreclosure." Today, almost half of under-40 homeowners are underwater on their mortgages, far more than older age groups.
Such lessons learned during the financial crisis and recession underscore that changes need to happen to keep families—particularly younger ones—from being caught in such an economically vulnerable position in the future.