Household debt

It is generally understood that the larger the household debt (measured by the fraction of personal income taken up by service payments on outstanding debts), the more sensitive consumer spending will be to an increase in interest rates. According to results of the Survey of Consumer Finances, it appears that households have been willing to take on more debt in recent years, yet aggregate measures may mask the important changes in the behavior of different demographic groups over time. Perhaps contrary to evidence based on macro data, the household debt burden has not changed very much between 1989 and 1995, the period covered by the survey, and does not represent a substantial increase in macroeconomic sensitivity to interest rate changes. In addition, it has been found that households have tended to use more secured debt between 1989 and 1995 and that increases in credit card debt service of lower-income households have been offset to a large extent by reductions in the servicing of installment debt.