The Federal Reserve System and Individual Financial Planning, Governor Elizabeth A. Duke At the 2011 Virginia Beach Financial Planning Day, Virginia Beach, Virginia, October 22, 2011
Beginning in 2008, in the face of rising unemployment and falling home values, households reduced spending and increased saving. Although many households have suffered tremendous financial hardship, in the aggregate, U.S. consumers have moved from a near-zero savings rate in 2005 to a savings rate that is currently running around 5 percent. In addition, household debt levels have contracted notably: Mortgage debt and consumer debt have declined 7 percent and 5 percent, respectively, since mid-2008. This decline partly reflects the weakness in the economy: Tight underwriting standards have damped new loan originations, and a sizeable amount of debt has been discharged through bankruptcies or foreclosures. But households also appear to have a greater aversion to debt than in the past, and a renewed interest in paying down debt more aggressively. Because of smaller debt balances and lower interest rates, the share of aggregate household income devoted to debt payments is at its lowest level since 1994. Going forward, as income and asset values recover, these improvements in the aggregate household position should be felt by more and more U.S. households.”
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