Any single debt decision is probably insufficient to destroy a family’s financial situation. However, when families fail to manage debt from a holistic perspective and do not quantify and understand all sources of household debt, they tend to take on debt in a manner that eventually snowballs into financial insecurity. There is often a focus on credit-card debt because the interest rates are very high relative to other types of debt. Also, credit-card debt can be more salient for families since having too much of it can preclude further borrowing.

Yet, credit-card debt is not the only critical component of household debt. There are other significant sources of debt that can lead a household down a path to financial insecurity. First mortgages, in contrast to home-equity loans (2nd mortgages), have several benefits over other types of debt. First-mortgage interest payments are tax deductible. First mortgages give households the option of refinancing, if overall mortgage interest rates decline and financing conditions become more favorable. First mortgages also allow home buyers to build equity.

Despite the relative benefits of first mortgages, the decision to buy a home with debt should be considered carefully. In most cases, one should consider buying a home only when planning to stay in it for several years. As a general rule, households should not take a mortgage in which they cannot afford the monthly payment. Problems arise when the cost of the home (including taxes, maintenance, and other costs) exceeds 28 percent of monthly income.

Failing to understand the risks associated with adjustable-rate mortgages (ARMs) can also cause problems. With ARMs, there is a risk that overall interest rates will increase and correspondingly, the household’s monthly mortgage payment. Furthermore, when moving from one home to another it is not advisable for a person to put his/herself in a position in which (s)he must carry two mortgages. Most households cannot afford to have two homes (even for a short period of time).

This was one of the issues that contributed to Gabler’s financial insecurity. Home-equity loans do not have the same benefits as first mortgages. While the homeowner is still using the home as collateral for the loan, (s)he is not building equity. Furthermore, interest rates for home equity loans are generally significantly higher than for first mortgages and the interest payments on home-equity loans are not tax deductible.

One big (underemphasized) debt mistake that households often make is borrowing against a retirement account. This can be problematic because there are significant costs and risks associated with this.

Moreover, it is important to start saving early for retirement and this critically undermines that objective. In the article, Gabler mentions borrowing from a 401(k) to finance his daughter’s wedding. While the sentiment to give one’s daughter a great wedding is laudable, this is not necessarily the best financial decision. The best gift to give one’s daughter would be parents that are financially secure in old age and are not a financial burden to her or her family. Borrowing from a 401(k) account should be a last resort option for emergencies only.

In 1980, 62 percent of workers with retirement plans had only a defined benefit plan. These are the traditional pensions of our grandparents’ era: they promise a stream of income at retirement, based on a worker’s earnings and years of service with an employer. Meanwhile, only 7 percent of workers relied solely on a defined contribution plan. A defined contribution plan, such as a 401(k), pays out based on how much the worker and employer each contribute, as well as how the investment fares on the stock market. By 2011, these numbers had essentially reversed: 69 percent of workers enrolled in a defined contribution plan, and only 7 percent in a defined benefit plan.

While both plans involve risk, defined contribution plans arguably shift more risk onto employees. Defined benefit plans are insured by the federal government and are typically paid out in an annuity, guaranteeing a fixed payment over the rest of one’s life. In contrast, defined contribution plans are more susceptible to the throes of financial market swings and are more easily cashed out in a lump sum at retirement, leaving workers exposed to the risk of outliving their wealth. And while defined contribution plans provide personal control, this presents more opportunities for investors to miss out—many plans require active enrollment and active transferring of funds when changing employers. While retirement plans do not tell the whole story, they play a role in determining American’s financial security.

Note: Defined benefit and defined contribution participation rates from the Employment Benefit Research Institutes tabulations of US Department of Labor statistics.

The share of workers in the public sector is at its lowest since 1966, and unionization rates have been on a relatively continuous decline since the 1950s, with current rates at 11 percent. There is strong evidence that public-sector employment offers greater job security and that unions beget higher wages.

The decline in both helps us understand why so many people are struggling and why the prevailing explanations are so individualistic: Credit cards are about us and our debt; we have only ourselves to blame.

This kind of thinking crowds out the more empathetic and collective ethos that sustains unions and a commitment to civil-service work. And, slowly, political and economic decisions that produce jobs that barely ensure subsistence become the personal burden of “financial impotence.”

Lenders knowledgeable about behavioral economics craft loan terms that take advantage of the inveterate biases that cause nearly all of us to make financial mistakes. In addition, technological advances in the last twenty years have enabled lenders to easily screen for acceptable applicants at lightning speed and to experiment to perfect their underwriting rules. Lenders can now offer a variety of alternative financial products to their diverse customer base and are able to quickly adapt to changes in demand or the political landscape.

Regulators have failed to keep pace with these trends. For example, the Consumer Financial Protection Bureau publicly vowed to restrict payday lending practices numerous times, including this week, but has yet to enact any payday regulation. This lag has given lenders plenty of time to scale back their payday operations and turn their business focus to other (less transparent and even more expensive) loans that are not the subject of much regulation. Changes in credit card markets may have started us down the road to a shrinking middle class, but our own cognitive biases, lenders’ savvy and regulators’ slow reaction time are big parts of the story, too.  

But over the last 40 years, private market forces have stagnated wages, concentrated wealth, made a norm of what was formerly banned as predatory lending rates, and radically increased the cost of child care, health care and more.  Yet, for most households of color—who will soon comprise the majority—this inability to realize the American Dream is no secret.

For people of color—whose median wealth is usually not even a tenth of that of white households and whose unemployment rates can be double those of white Americans—the economic insecurity causing populist anger among white Americans has been the accepted norm. To tackle this challenge, America, as it has done in the past, must invest in greater economic opportunity for its citizens and develop regulatory structures and tax policies that reward all. Amidst this ongoing financial insecurity crisis, there is an opportunity to create the first American middle class to be truly racially and ethnically inclusive.

That means that even families who earn enough over the course of the year to cover their expenses often find themselves short this month or this week. The rent may be due Tuesday, groceries need to be bought now, but the paycheck isn’t coming until next Friday. It costs time, money, and energy to bridge those gaps. Better ways to plan, save, borrow, and insure can help even out the spikes and dips, but the financial advice and products of the past often assumed a baseline of cash flow stability. We will need to revise that assumption if we want to build supports for the future of financial health.

As a result, over the last 20 years families have been forced to borrow in order to maintain their usual consumption. This process was aided by a generous expansion of credit, particularly through the home mortgage market. Largely abetted by a huge Chinese trade surplus and their consequent purchase of U.S. Treasury bonds, U.S. banks and other financial institutions were awash in cash. Enabled by lax mortgage regulation and rising home prices, financial institutions allowed generous re-financing of existing mortgages, expanded home equity credit lines, and issued a host of new types of mortgages including sub-prime, no or little down payment, and even no documentation loans. The result was a huge leap in household debt, particularly among the middle class (the debt-income ratio more than doubled between 1983 and 2007).

The result has been a catastrophic collapse of the wealth of middle-income and lower-income households. Median net worth plummeted by 44 percent between 2007 and 2013 for middle income families, 61 percent for lower middle income families by, and by 70 percent for low income families. The collapse of wealth is one of the principal factors leading to rising economic insecurity.