America’s economic turmoil is changing consumers’ lifestyles.
According to a Federal Reserve report released Thursday, American household debt declined $30 billion, or at an annual 0.8 percent rate, in the third quarter to $13.91 trillion.
It was the first quarterly decline in household debt since recordkeeping began in 1952.
Much of the decline is due to the credit crisis, which has prevented many Americans from taking out loans to finance big expenses like houses and cars.
Given the hassles consumers have to go through today with purchasing quality goods – many they cannot afford anyway – consumers have resorted to saving more and spending less.
Lyle Gramley, former Fed Governor, told CNN, “Consumers are going through a major change in their spending and savings habits. Throughout the housing bubble, consumers had a savings rate of zero, relying on the rising price of their homes. Now they’re saving money for the future instead of spending it."
The main driver of lower household debt was a 2.4 percent slide in mortgage debt in the quarter, the largest decline ever.
The report also showed that household net worth decreased 4.7 percent in the third quarter to $56.5 trillion, which marked the fourth consecutive quarterly decline since total family net worth hit a high of $63.6 trillion in 3Q07. The third quarter’s decline in net worth was the largest on record.
Home values also declined by $347 billion to $13.1 trillion.