Opinion

Expenses put households on the run

The typical household has just $100 left each month after paying for basic expenses and debt payments. So says findings from the Center for Responsible Lending's newest report, The State of Lending in America and Its Impact on US Households (State of Lending).

After controlling for inflation, the typical household had less annual income at the end of 2010 than it did at the beginning of the decade, 2000. As worker productivity increased, the workplace has seldom rewarded them with higher pay.

Even in households with two wage-earners, the amount of disposable or discretionary income after paying monthly expenses was less in 2010 than it was in 2000.  The combined effect of stagnant wages along with unemployment and under-employment is forcing families to curb spending and use any available assets to keep financial pace. For families with no savings or assets, new debt was incurred.

"The recession and slow recovery have led to declining net worth for the average U.S. household and a disproportionate decline for African-American and Hispanic households," states the report.

In communities of color, income declines are higher in part due to declines in over-representation in two types of employment that historically provided stable and secure jobs: manufacturing and construction. These two industries respectively suffered job losses of 10 and 20 percent. African-Americans who formerly worked manufacturing and construction jobs lost more than twice the number of jobs between 2007 and 2011 than they previously gained in the pre-recession decade.

These losses in income also caused losses of wealth that are even more severe. In fact, the decline in wealth from 2005-09 between communities of color and white households is the largest documented wealth gaps since the Census Bureau began publishing wealth estimates in 1984. The net worth for African-Americans dropped 53 percent and among Latino families, 66 percent. By comparison, white household wealth declined only 16 percent in the same years.

Households headed by persons aged 55-65 saw the largest losses in wealth. People at or nearing retirement lost an average of $90,000 from 2007-10. As wealth and retirement resources declined, many older workers remained in the labor force longer than retirees in previous decades.

As an increasing number of older workers delay retirements, some younger workers experience higher unemployment and declining labor participation. A consequence of their delayed entry in the workplace increases the number of households doubling-up, living with friends or non-family members due to economic hardship. From, 2005-10, the number of these households grew 50 percent.

CRL further notes that consumer spending accounts for approximately 70 percent of total U.S. economic activity. As large numbers of consumers continue to tighten their fiscal belts, sustainable economic recovery will likely be delayed.

"In order for the U.S. economy to grow again," according to the report, "individual households must find themselves in a position to increase their spending. This will be difficult as long as households continue to face stagnant incomes, increasing expenses, increasing levels of debt, and declining net worth."

(For more information, visit: http://www.responsiblelending.org/state-of-lending.)

(Charlene Crowell, communications manager with the Center for Responsible Lending, can be reached at: Charlene.crowell@ ­responsiblelending.org.)