Rise of Household Indebtedness

3254 Words14 Pages
The Anglo-American Rise of household indebtedness; an explanation of the causes and consequences of this debt. (2000-3000 words) In recent years there has been a substantial increase in the level of household indebtedness relative to household income in both the UK and the US. This is known as the Anglo-American rise of household indebtedness. Household debt is defined as “the amount of money that all adults in the household owe financial institutions. It includes consumer debt and mortgage loans.” (Canocchi 2014) The UK and the US have similar patterns of consumer spending and borrowing and subsequently similar patterns of household indebtedness. In the UK, the average household debt has more than “quadrupled since 1990, despite the interest rates being at historic lows”. (Canocchi 2014) In 1990, total household debt in the UK stood at £347billion, but it rocketed by 314 per cent to £1,437billion in 2013. (Canocchi 2014) The US has similar shocking statistics in relation to their much larger population. In the April-June quarter 2014 the total household indebtedness in the US (including mortgages, student loans, car loans, credit cards and home-equity lines) was estimated at $11.63 trillion dollars according to The Federal Reserve Bank of New York. However, it was noted that this was the first decline after three quarters of increases. (Wall Street Journal 2014) This essay will assess the possible causes of this rising indebtedness and it will consider the consequences this financial behaviour may be having on the economy. There are numerous reasons and causes for the rise of household indebtedness for both the US and the UK. Firstly, there has been a drastic change in the spending and borrowing behaviours of households. In the past, the financial behaviour of households was much more sensible and responsible than it is today. People had the modest notion to
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