FAST FIVE: Why Debt-To-Income Ratios Are Worse Than They Appear
For decades, WallStreet, advertisers, and corporate powerhouses flooded consumers with advertising to induce them into buying bigger houses, televisions, and cars. The age of 'consumerism' took hold.” The idea of “maintaining a certain standard of living” has become a foundation in society currently.
More importantly, the measure becomes skewed by the top 20% of income earners, needless to say, the top 5%. As shown in the chart below, those in the top 20% have seen substantially larger median wage growth versus the bottom 80%. (Note: all data used below is from the Census Bureau and the IRS.) Furthermore, disposable and discretionary incomes are two very different animals.
Data Skew Again, when you see data using “medians” or “averages,” such is not incorrect.
Unfortunately, those in the bottom 80% are still having a large chunk of their median disposable income eaten up by debt payments.
Such is also why interest rates CAN NOT rise by very much without triggering a debt-related crisis.