The debt crisis we're ignoring

By Andrew L. Yarrow

While Washington has spent the last year (and much of the last quarter-century) fighting about the national debt, most of our leaders have blithely ignored America's staggering level of household debt. The subject has barely been broached by the White House or in the campaign for the Republican presidential nomination.

Despite an uptick in the savings rate following the Great Recession, U.S. households are still struggling to build wealth. Indeed, that modest increase in the personal savings rate - to a still-paltry 5 percent - stems from debt repayment, not asset growth.

Thanks largely to the housing bust, Americans' average assets fell 23 percent from 2007 to 2009. By the middle of 2011, household debt stood at 115 percent of after-tax personal income, according to the Federal Reserve. As household debt inched downward between April and June, household wealth also fell.

Worse, one in four U.S. households has a negative net worth, or more debt than assets, according to the Economic Policy Institute. One in 45 households suffered a foreclosure in 2010, and an estimated 1.5 million Americans filed for bankruptcy last year.

Most of those who aren't in the red still have scant savings. Fifty-six percent of workers and 54 percent of retirees have less than $25,000 in savings, and only 45 percent of workers participate in retirement-savings plans, according to the Employee Benefit Research Institute. Even relatively affluent Americans have frighteningly little in the way of assets.

Of course, millions of Americans can't save because they can't earn more than enough to cover their basic needs. With a quarter of American children in poverty, a sixth of workers unemployed or underemployed, and a fifth of adult workers earning $10.65 an hour or less, we need to generate more good jobs to help families build assets.

Yet most Americans can save, and we have done so before. As recently as the 1980s, the U.S. savings rate topped 10 percent. And looking ahead, younger Americans will likely have to save more for education, health care, and retirement.