Borrowing by U.S. Households

W herever one turns these days, one seems to run into comments about the financial condition of the American household. Most of these comments refer to sources of increasing stress on the American consumer, from the historically low household savings rate to the historically high rates of bankruptcy and debt delinquency. On top of all this, demographic trends are raising the prospect of having to finance the coming retirement of the baby boom generation. These conditions have led some to question the ability of consumer spending to hold up under such growing financial stress. Credit markets and consumers’ use of credit products take a central place in this picture. Stories in the popular business press have taken the view that consumer debt will represent a drag on consumption growth in 2006, as the burden of making payments on debt limits households’ abilities to make other purchases.1 by John A. Weinberg • Senior Vice President and Director of Research