In Debt
In the 1980s, Americans began borrowing to maintain a middle-class life. Overall individual debt increased faster than income. Deregulation in the financial sector opened new opportunities for many, but by the early 2000s some lenders and borrowers became greedy and ignored risk. Government regulators also became lax. The debt took many forms: credit cards, student loans, and mortgages with variable rates and low introductory teasers. While some managed, others were overwhelmed.
Personal Debt
Traditionally, consumers used personal debt sparingly. In the Global Era, everyone from banks to Barbie encouraged them to “charge it.” From 1983 to 2008 credit card volume went up twenty-fold. Many used credit cards to maintain their lifestyles as salaries stagnated. Sudden disruptions, such as a medical emergency, could cause bankruptcy.
Home Mortgage Debt
Americans saw home ownership as a way to support community stability and increase family wealth. The federal government helped with tax incentives on mortgage interest. In the Global Era, the pattern changed. Deregulation, banks’ risky financial products, unrealistic buyer expectations, and government programs fueled a housing bubble. When the bubble burst, chaos spread.
Foreclosure sign, Fort Lauderdale, Florida, about 2010
During the cyclical downturn of 2008, home foreclosures skyrocketed as people lost jobs, low teaser rate adjustable rate mortgages re-set, and the housing bubble burst.
Education Debt
Since World War II, middle-class Americans believed higher education was a good investment. In the 1980s government support began to wane, and educational costs rose three times faster than inflation. By 2010, paying off educational debt kept many graduates from starting a family or buying a home.
