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St. Louis Fed Releases Research on Household Debt “Tipping Point”


ST. LOUIS ― How big an effect does consumer debt have on families and the U.S. economy? Are there “tipping points” where that debt changes from helpful to harmful? The Center for Household Financial Stability at the St. Louis Federal Reserve set out to answer these questions at a June research roundtable in New York.

The papers from that roundtable, along with an executive summary of the findings, now have been released on the Center’s website

“The roundtable revealed a number of original, fascinating and, sometimes, counterintuitive research findings that we hope will inform future research and public policy,” said Center Director Ray Boshara.  The roundtable was hosted by The Century Foundation and organized in partnership with the Private Debt Project of the Governor’s Woods Foundation. 

“Our view is that the debt side of the balance sheet has been relatively understudied but increasingly recognized as critical to the well-being of families and performance of the U.S. economy,” said Boshara. 

The findings, papers and authors include:

  • Loan delinquency is more likely to be reached among younger, less-educated, non-white families, raising an interesting question: is that because they make riskier financial choices, or because structural, systemic forces shape financial behavior? (The Demographics of Loan Delinquency: Tipping Points or Tip of the Iceberg? by William R. Emmons and Lowell Ricketts.)
  • Compounded by weak accumulation on the asset side of family balance sheets, economic growth precariously relies upon ongoing growth in household debt—a reliance that led to bubbles, busts, and subsequent debt-deflation. (The Debt Goes On: A Post-Crisis Progress Report, by Daniel Alpert and Robert Hockett.)
  • The large increase in mortgage debt before the financial crisis was not sparked by higher rates of borrowing among lower-income families. Also, the tipping point of excessive mortgage borrowing was fueled not by a financial indicator—the income needed for a mortgage—but by a psychological one: the expectation of rising home prices. (Cross-Sectional Patterns of Mortgage Debt during the Housing Boom: Stocks and Flow, by Chris Foote, Lara Loewenstein, and Paul Willen.)
  • Those who extracted home equity toward the end of the housing boom in 2006 were more than twice as likely to become severely delinquent on their mortgage debts over the subsequent four years—and they were also almost 40 percent more likely to become delinquent on non-mortgage debt as well. (Interest Rates and Equity Extraction During the Housing Boom, by Neil Bhutta and Benjamin J. Keys.)

“It’s not just individual behavior that may determine a family debt tipping point,” said Boshara. “Systemic, demographic and sociological mechanisms may propel disadvantaged families to a negative tipping point while other institutional mechanisms may drive an advantaged family to a positive one.” 

To read the executive summary and full papers, visit the Center for Household Financial Stability online.  For media inquiries, please contact Laura Taylor at the St. Louis Fed at 314-444-8783 or