The ability of American households to keep repaying their debt has worsened over the past three years, reaching levels not seen since the aftermath of the global financial crisis, the Federal Reserve reported Friday.
In the central bank’s study on consumer finance, researchers found that although wealth inequality has narrowed slightly, the ability to service debt has deteriorated significantly.
“Families were more likely to be behind on their financial obligations than at any time since the 2010 survey,” the study said, in a data-rich document released by the Federal Reserve every three years to track the nation’s fiscal health.
In 2010, the country had just emerged from the so-called Great Recession, which lasted from December 2007 to June 2009. The collapse of the subprime mortgage market affected the largest financial institutions in the United States and the world, and the unemployment rate reached 10% at one point.
According to the new survey results, the percentage of households that are in arrears on their loan payments by the end of 2025 has jumped from about 12% in the previous survey to about 20%, an increase of about 67%. Companies that were lagging by more than two months also accelerated significantly, rising from 5% to more than 8% in 2022.
Although the report covers the period up to 2025, Americans’ concerns about finances remain. A New York Fed survey released earlier this week showed that households report their financial situation is worse than it was a year ago and is likely to get worse in the year ahead.
Friday’s Fed report also showed that the debt-to-income ratio also recorded a significant increase. The number of households with a payment-to-income ratio of over 40% jumped from 6.5% to 8.6% in 2022, the highest level since 2013.
At the same time, the net worth of high-income earners skyrocketed, with the median net worth of the highest earners increasing by 31%.
The report covers a period when the economy continued to grow, but with inflation rates not seen since the early 1980s.
In this context, the Fed found that real median household income, or midpoint, increased by 7%, but average income fell by 6%.
“Households at the bottom of the income and net worth distribution saw small increases in median and average income, while households at the top saw declines,” the report said. “These patterns indicate a slight decline in income inequality across surveys.”
The report found that the increase in income was particularly strong for households aged 75 and older, but the decline was 25% for households aged 35 to 44, which the Fed blamed on lower capital gains income for that group.
“Exceptions to the general pattern of rising median incomes were non-Hispanic black families, Asian families, and families near the upper end of the typical income and net worth distribution,” the report said. “Both median and mean incomes decreased for these families.”
Overall, net assets generally increased.
After adjusting for inflation, the average net worth rose 7% to $1.24 million, but the median net worth increased only 2% to $215,900, reflecting the gains of the wealthy. The report noted that growth in net assets was “significantly slower” than in the previous report, which covered the period 2019-2022.
There were significant disparities between educational groups. Those with a college degree had 1.9 times the median income level and nearly three times the median net worth of those who had graduated from “any university.” Lower-income households saw “some decline” in assets, while higher-income households saw an increase in wealth. Median net worth of households in the bottom income quartile decreased by 6%, and average net worth decreased by 4%.
