NY Fed Finds 15% Of Americans Have Negative Net Worth; Student Loans Contibute To Record US Wealth Inequality

Two weeks ago, the White House released a report that led to loud heckles among the more pragmatic economic community. As the WSJ described its conclusion: "he growing stack of $1.3 trillion in student debt is helping, not hurting, the U.S. economy" (there was much more in the full report which to many was nothing short of propaganda seeking to spin a $1.3 trillion debt bubble into a good thing).

Today, none other than the NY Fed took the White House to task with a surprisingly accurate (to an extent) analysis, based on a Survey of Consumer Finances, according to which not only do student loans contribute substantially to an emerging problem in US society, namely rising negative household net worth, but is also a key driver behind wealth inequality.

This is how the NY Fed explains the methodology:

With respect to assets, we ask respondents how much money is in their defined contribution plan(s)—including 401(k), 403(b), 457 or thrift savings plans—and Individual Retirement Arrangement accounts, which cover the most common channels through which Americans save for retirement. We also ask the respondents about their total savings and investments, such as money in their checking accounts, stocks, and other financial instruments they may possess. Homeowners are asked to self-appraise the current value of their home. Finally, we ask for self-appraised valuations of any additional land, businesses, vehicles, or other assets the respondent’s household may own. The measure of total assets is then the sum of financial wealth, retirement wealth, home value, and other assets.

With respect to debt, we ask respondents about their home mortgages and home equity lines of credit, as well as non-housing personal debt in categories such as credit card, student loans, and auto loans, among others. The sum of all these debts constitutes our measure of total debt. We classify households as having negative wealth if their total debt exceeds their total assets, according to our measurements.

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