In reaction to Neal Gabler’s cover story, Vicki Bogan, an associate professor at Cornell and the director of the Institute for Behavioral and Household Finance, points to a big problem for American families: financing their daily lives with debt. She goes into great detail:
The Great Recession had an enormous impact on U.S. household finances. The financial crisis caused large drops in income [see the figure above] and substantial erosion of household wealth due to the larges simultaneous declines in the values of housing and equities. However, the financial insecurity epidemic that is becoming increasingly highlighted in the media is a problem that has been brewing for decades.
While there are multiple factors that contributed to the widespread problem, one of the biggest issues is the too frequent household behavior of financing day-to-day and other consumption with debt. For two decades prior to the Great Recession, U.S. households were steadily amassing significant amounts of debt. Around 1986, households started accumulating debt and eroding their liquid asset holdings. By 2007, households were increasing debt at a rate equivalent to 6 percent of aggregate consumption every year.
This detrimental trend continues and contributes to the tenuous financial position of households.