Recent evidence suggests that American families are drowning in debt. Several major publications, including U.S. News and World Report and The New York Times, have run features over the past few months documenting the dramatic rise in personal debt, and the severe consequences it has for American families. Cable television has even hopped on the bandwagon with a new show on the Style channel called “Maxed Out,” highlighting out-of-control personal debt.
The reason for this heightened attention? For the first time on record, the total debt Americans owe exceeds the total income they earn. Christian Weller of the Center for American Progress reports that in 2004, the typical family spent more than 18 percent of its income on debt payments—the largest share since the Federal Reserve started collecting this data.
The New York Times finds that low income families spend a significantly higher percentage of their incomes—as much as 40 percent—on debt related items. This increased economic burden threatens families’ ability to build assets and move up the economic ladder.
To address this burgeoning issue, the Center for American Progress’ Economic Mobility Program launched an initiative to identify the primary reasons for the rise in household debt and outline policy options to help families deal with these mounting burdens.
As the next phase of this initiative, the Economic Mobility Program today takes its work outside the beltway by co-sponsoring a Community Town Hall on the impact of debt with local partners in Tacoma, Washington.
Families in Washington State, like much of the rest of the country, are saddled by debt. According to data compiled by credit-reporting agency Experian from approximately 3 million consumers, Washington State has one of the highest levels of average overall household debt in the nation. The state ranks ninth among all states, and the average households carries $12, 832 in debt. Given the high debt burden of Washington families, it is perhaps not surprising that the state also ranks 16th among all U.S. states for the highest number of per capita household bankruptcies.
In Tacoma, Washington, the debt-related problems that affect families throughout the state are exacerbated by the presence of three military bases: Fort Lewis, McChord Air Force Base, and the large naval complex in Bremerton. Personnel on military bases are key targets of the largely unregulated abuses of the payday lending industry. National evidence indicates that payday lenders target military personnel, extracting high interest rates from financially inexperienced service members and risking many soldiers’ security clearance. Payday lenders, by the same token, target other economically vulnerable communities throughout Tacoma, particularly low-income families.
The Washington legislature, despite concerted efforts by state and local advocates, has rebuffed efforts to impose tighter regulations on payday lenders and the debt industry at large. Lawmakers in Washington killed 15 bills aimed at regulating payday lenders and the debt industry this spring before the end of the legislative session.
The Center for American Progress Community Town Hall will spotlight the struggles that families face with rising debt, and create dialogue about regulatory solutions for curbing lenders’ abusive practices. The town hall also strives to generate support for innovative and progressive policy solutions that will provide families with alternative and fair access to much needed credit, and provide them with opportunities to save and build assets.
The town hall seeks to contribute to the important work of building bridges between local and national efforts in order to work together to create a fair, transparent system in which consumers can make fully-informed, responsible decisions.
Derek Douglas is the Director of the Economic Mobility Program and Almas Sayeed is an Economic Policy Analyst.