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

Tyler Durden's picture

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. 

What the Fed found is that 15.1% of the households in the U.S. population have net wealth less than or equal to zero, while 14.0 percent have strictly negative wealth.  Looking back, the Fed says that the share of households with non-positive wealth was estimated to be 18.1 percent in the 2011 panel of the Survey of Income and Program Participation, 12.9 percent in the 2013 Survey of Consumer Finances, and 19.4 percent in the 2013 Panel Study of Income Dynamics. Our 2015 SCE estimate of the share of households with negative wealth falls within the range observed.

Amusingly, the Fed researchers say that "consistent with intuition", households with negative wealth have much lower average annual incomes than households with non-negative wealth, $39,077 versus $86,309, respectively. Negative-wealth households are also much less likely to be homeowners, 19 percent, compared with 75 percent for those with non-negative wealth; or self-employed, 2 percent versus 8 percent. Heads of household with negative wealth are also more likely to be female, 69 percent versus 45 percent for households with non-negative wealth; single, 57 percent versus 33 percent; or from a minority group—defined here as African American or Hispanic—24 percent versus 17 percent. In addition, single parenthood, 20 percent versus 8 percent, and especially single motherhood, 24 percent versus 6 percent, are strongly associated with negative household wealth—a finding that is consistent with a known higher poverty rate for such households. Finally, negative-wealth households are more likely to include a household member who experienced a deterioration in health over the past twelve months, 18 percent versus 11 percent for non-negative wealth households. All of these differences are statistically significant and most remain so when we use a multivariate regression analysis relating negative-wealth holdings to all demographic variables simultaneously.

What do balance sheets of negative wealth households look like compared to others?

Having examined the characteristics of households with negative wealth, we now compare the average and median levels of assets and debt across four groups of households. The chart below displays, in the leftmost column, the average and median asset and debt levels for households with non-negative wealth. The next three columns display the same statistics separately for each tercile of negative-wealth households, for example, the second column illustrates the data for those with the least negative wealth and the final column reflects households with the most negative wealth. The very low median levels of assets for all negative-wealth households are readily apparent, as are the large average and median debt amounts among households with larger negative wealth.

Next, the Fed focuses on debt composition for each of the four household wealth groups: it considers seven categories of debt: housing loans (mortgages), credit card debt, auto loans, student loans, medical bills, legal bills, and other personal loans.

What the Fed finds here is also largely "consistent with intuition" - the more student debt a household has, the greater its negative net worth.

The chart above reveals a substantial amount of heterogeneity between negative-wealth respondents. Among those households with a negative wealth of less than $12,400 in magnitude, their debt is dominated by credit cards, which on average account for more than 30 percent of their total debt. This relative exposure to credit card debt is 60 percent larger than that of households with non-negative wealth. What distinguishes households in the middle third of the distribution of households with negative wealth, -$12,500 to -$46,300, is mostly student loans, which constitute 40 percent of their total debt, compared with less than 10 percent for households with non-negative wealth. Finally, households with the most negative wealth are characterized by their relatively large shares of student debt, 47 percent, and mortgage debt, 22 percent. The latter is approximately twice as large as the share of mortgage debt of the other negative-wealth terciles. Yet, notably, non-negative wealth households have more debt in home loans on average than any of the negative-wealth groups. The large share of mortgage debt among the bottom tercile of negative-wealth households can be attributed to a substantial proportion of households with negative home equity. Overall some 7 percent of home-owning households in our survey report being underwater on their mortgage, with the rate being 4 percent for home-owning households with non-negative wealth and 36 percent for homeowners with negative wealth.

The irony: getting into student debt, and being "smarter" just to load up on mortgage debt to buy a depreciating housing asset at its peak...

The Fed then looks at the asset side, and finds "stark differences between those who have negative wealth and non-negative wealth."

Most noticeable is the relatively small share of housing assets among those with negative wealth. Housing assets constitute only around 13 percent of total assets on average for households with negative wealth, while they account for more than 40 percent of the assets of households with non-negative wealth. In place of this, it seems the primary asset held by households with negative wealth is their vehicle(s), 40-55 percent of their total assets, while vehicles account for less than 15 percent of the assets of households with non-negative wealth. 

This result is due in part to the relative lack of home ownership among negative-wealth households: only 20 percent of negative-wealth households own their residence, while 75 percent of non-negative wealth households own their home.

So what do the negative wealth household supposed to do for a roof over the head? Why rent of course, and end up spending the bulk of their disposable income to fund an asset they have no ultimate ownership over.

* * *

Next follow some interesting observations from the NY Fed:

The overall patterns we see in our data are broadly consistent with a life-cycle model of saving in the presence of multiple sources of uncertainty, where people generally borrow when young and repay and save when older. Those with negative wealth include students, who use debt to finance their human capital investment and for whom negative wealth is expected to be a temporary, rather than permanent status. Negative-wealth households also include households hit by negative shocks, such as in home value and health, as well as female-headed single-parent households.

The observation above also explains why the US savings rate continues to grow, much to the chagrin of the same Fed which is hoping to force consumers to spend their hard-earned income. The driver: an untenable debt load which contrary to expectations, can not be repaid in short notice due to the lack of well-paying jobs for everyone, including college graduates.

Finally, the Ny Fed's conclusion is particularly notable:

There has been much discussion about the growth in wealth inequality over the past three decades. Given the importance of student debt in explaining negative household wealth, as seen above, it is likely that the steady growth in student debt and borrowing, combined with the very slow rate of student loan repayment we have documented elsewhere, has materially contributed and will continue to contribute to negative household wealth and wealth inequality.

The silver lining: "On the other hand, the continued recovery in the housing market observed over the past few years may help households with negative home equity come out of their negative wealth position."

There is just one problem with that: the recovery in the housing market is mostly benefiting those who are already well-off, while an increasingly greater portion of the population remains locked out and unable to build equity, or wealth, in this conventional manner. Finally, there is the latent issue of QE, which has pushed the value of financial assets far higher than that of real assets. In fact, as we noted yesterday, real assets, among which real estate is now at all-time lows relative to financial assets (stocks & bonds).

So to summarize this latest Fed research report: it gets one thing right, namely that student debt is indeed a key factor in crushing household balance sheets, leaving over 15% of Americans with negative net worth, and very well is a contributor to wealth inequalty. What it completely ignores is the Fed's own role in propping up this inequality as explained yesterday, when we shared commentary explaining "The Real Reason Behind The Surge In Populist Anger: Central Banks."

As for the White House's conclusion that "he growing stack of $1.3 trillion in student debt is helping, not hurting, the U.S. economy"... we would hate to see what Obama thinks is "hurting" the US economy.

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onewayticket2's picture

...Here we go....


F$A expansion plan ready for takeoff.




TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) onewayticket2 Aug 1, 2016 12:37 PM

"Why don't they just do speeches?" - HRC

WTFRLY's picture


knukles's picture

Is that seasonally adjusted, properly?
I didn't think so either.

Hitlery_4_Dictator's picture

Mericans are tarded.  Nothing unexpected here. Millennials are so dumb, they just love that debt. 

Kurpak's picture

Getting an education in this world is not a right, racking up debt you can't pay back doesn't make you a victim of inequality.. it just makes you stupid.




JRobby's picture

All per plan. $1.350 trillion in student debt is not enough.

"You can't get a job with a bachelor's, it's like a HS diploma. You need to finance a masters degree!!!"

"You can't get a good job with just a masters degree now, it's like a bachelor's. You need to finance a PhD!!!"

"You can't find a job with a PhD (unless it's chemistry, you can work for BIG Pharma making "happy pills")because you have no teaching experience.

"You can't get a job because your credit score is shit from $120k in student debt! Oh! And your WHITE!"


Quinvarius's picture

15%  LOL.  It is way higher than that.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Quinvarius Aug 1, 2016 12:37 PM

I was going to say, they must have stopped the poll early.  Keep counting

Muddy1's picture

I thought it was white people who were responsible for wealth inequality.  Now I find out the government is responsible.  Thanks Obama.

More Ammo's picture

15% is a really low number.  Most of the people I know are underwater in their house and car and have a ton of CC and student loan debt.

Cognitive Dissonance's picture

Clearly you don't know the 'right' people. /sarc

More Ammo's picture

Cog, no need for the /sarc tag, you speak the truth as usual.  There are very few of the "right" people out there and once you exit dealing with people you meet even fewer.  A sad loop but...

JRobby's picture

More Ammo, most of the people you know are dead and in Hell but they don't know it.

The terrible thing about hell
Is that when you're there you can't even tell
As you move throught this life you love so
You could be there and not even know

But you say so what I'm doing just fine
The irony is that is't all in your mind
And that is why hell is so vicious and cruel
But you'll just go on an oblivious fool

© Who Is She? Music, BMI

SMC's picture

Agreed. Way low. Perhaps due to alleged "self-reporting" or rosy pension / retirement account numbers. Also, have to wonder how many respondents submitted their answers from the grave...

Perhaps just more BS from an organization with zero credibility.

Hitlary and the DNC for Prison 2016.

Delving Eye's picture


Exactly, @More Ammo.


ONLY 15 PERCENT?? Better triple that ... just like the phony unemployment numbers.

Harry Paranockus's picture

Which is why we will be Japan for at least another decade or two.

Racer's picture

In the UK they proudly announce borrowing as 'excluding' mortgages.

Since when is a mortgage not a debt?!


venturen's picture

since governments rescued the bankers for giving away bad mortgage....they were rescued...so it isn't really debt....just a snake eatings its tail

Aubiekong's picture

Easy its called rent, They even have interest only loans...

Manic by Proxy's picture

A mortgage is a real property asset augmentation instrument. It is not debt. Do I have to do all the thinking around here? 


venturen's picture

so the group that pays Zero Interest on people's savings....cares about people's savings...WHAT?

agstacks's picture

85% of Americans have a positive net worth?  Wow, this can last a lot longer than I thought, then.  Still plenty left to steal. 





TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) agstacks Aug 1, 2016 12:42 PM

Its all propped up by housing.  Look at the "Wealth" for non-negative people.  

nc551's picture

The perfect amount of debt they will eventually expect you to take on is exactly what you can pay back if you toil your whole life.

Aubiekong's picture

noboby forced anybody to take out a student loan.  So who is the moron?

Steeley's picture

>"..what you can pay back..." 

...or transfer back to the creditors during bankruptcy.

Freedom is another word for no assets left to seize.

directaction's picture

... and the official unemployment rate is 4%. 

And Obama is for world peace. 

Aubiekong's picture

Sorry but for the most part college is a wast of time, money, and effort.  Very little is gained in the knowledge department as most who begin college are poorly prepared from graduating public high school with a dumbed down high school diploma.  This means a dumbed down college curriculum since the colleges don't want all of the incoming freshmen to fail out and not pay for five years of college.  The end result is a know nothing college graduate with tons of student debt and little to show for it...

all-priced-in's picture

To get to 85% having positive net worth --


 they must be adding the value of your heart, lungs and any other transplantable organs to your net worth as if you sold them for cash on the black market.




markitect's picture

When the current housing bubble pops watch a lot of those non-negative wealthy slip right over to the debtor side.

GunnerySgtHartman's picture

Has anyone ever noticed that in all of the hem-haw about student loan debt and the ever-rising cost of college, virtually NOBODY is talking about the other side of the equation, i.e. driving down the PRICE of college?  We constantly hear about finding ways to afford it and never hear about reducing the price.  Anyone want to take a guess as to why that is? (I have some ideas ...)

Manic by Proxy's picture

Eliminate government-backed student loans. Simple, obvious and not gonna happen. Everyone deserves a college education as this prepares our younger citizens for lucrative careers  in auto detailing , landscape maintenance, housepainting and housecleaning. It's for the children.

Harry Paranockus's picture

The "Field of Dreams" syndrome. IF THE GOVERNMENT FUNDS IT, THEY WILL COME.

Madcow's picture

Gov-co's apparent plan is brutally simple.   Put 100MM new people in jail (those that refuse to commit securities fraud).  And then, SHAZAM!   There are 100MM new jobs - prison guards, snipers, rape counselors .... 

Its the only way to save the economy. 


conraddobler's picture
"NY Fed Finds 15% Of Americans Have Negative Net Worth"



Mr. Burns

Hohum's picture

The irony is that if the debt collapsed quickly, just about everyone would be negative net worth.

venturen's picture

does a SNAP card and some crack mean positive networth?

cognitive dissident's picture

it's gonna be hard for those snowflakes to earn any $ after they've all melted...

aliens is here's picture

Under Obama everything bad is good for us.

The Real Tony's picture

The dying middle and up in Canada the figure must be at least twice that 15 percent.

Savvy's picture

Not really, education is nowhere near as expensive and health care debt non-existant.

silverer's picture

Oh, bullshit! Student loans contribute to the economy. Obama said so. Case closed. Third term, and we'll all be out of the woods. Anybody got a spare empty barrel?

Steeley's picture

"Assets" include credit card limits you haven't reached yet, and debt you can still make the payments on.. 

ISawThatToo's picture
ISawThatToo (not verified) Aug 1, 2016 3:20 PM

Banbait #500

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

Even more challenging than Pokemon Go is the game of Khazarian Poor. The object is to search out and find an impoverished Khazarian within the US. Happy searching and good luck.

Protocols 3:11-12 "11 This hatred will be still further magnified by the effects of an economic crises, which will stop dealing on the exchanges and bring industry to a standstill. We shall create by all the secret subterranean methods open to us and with the aid of gold, which is all in our hands, a universal economic crises whereby we shall throw upon the streets whole mobs of workers simultaneously in all the countries of europe [the West]. These mobs will rush delightedly to shed the blood of those whom, in the simplicity of their ignorance, they have envied from their cradles, and whose property they will then be able to loot. 12 "Ours" they will not touch, because the moment of attack will be known to us and we shall take measures to protect our own."

ISawThatToo's picture
ISawThatToo (not verified) Aug 1, 2016 3:38 PM

Banbait #501

I rob your home of cash, using it to buy supplies to print up fraudulent IOUs that I then loan to you to buy a car. In effect, I have fenced through you what I stole from you, and from your neighbors via price-inflation. Once you, and your neighbors, figure that out, the reality of the situation becomes clear. It is then that you, and your neighbors, now rightfully demand that I repay you, and them, what I have swindled.

Ditto the Khazarian grifter banksters. They steal your deposits, print up price-inflation inducing fiat, and then fence it a loan to you.

You do not owe them. It is they that owe you.

robnume's picture

Blame the millennials! (sarc)

VyseLegendaire's picture

Land of the fat, home of the slave.