Even as the economy has been growing over the couple of decades, people have
been feeling increasingly insecure, perhaps because they have less and less
to fall back on. Lane
Kenworthy puts it well:
Households now appear to be more sensitive to serious short-run financial
strains — job loss, a medical problem that results in significant cost
(due to lack of health insurance or inadequate coverage), a hike in rent,
a rise in mortgage payments (as a low-interest-rate adjustable mortgage rolls
over). A generation ago a household could adjust to this type of event by
having the second adult take a temporary job to provide extra income. During
the economic boom of the late 1990s they might have been able to switch jobs
in order to get a pay increase. In the past ten years they could run up credit
card debt or take out a home equity loan.
For many households with moderate or low incomes, these strategies are now
I actually think that credit-card debt might be the last stop on this particular
track – and one which we haven’t quite reached yet. Americans seem to
have been quite assiduous about paying off their credit-card debt with home
equity – not something I’d recommend, necessarily, but it does mean that
credit card debt hasn’t been rising nearly as fast as it has in, say, the UK.
Given how entrenched US consumer behavior seems to be, my feeling is that credit-card
debt is going to rise sharply next year, as home equity becomes increasingly
difficult to tap. But Kenworthy’s bigger point is absolutely spot-on.