Most people have some debt — payments to make, loans to pay back. But for some Americans, their debt has gotten to an extreme and dire level — all their debts, added up, cost more than all their assets combined.
It’s called “negative wealth,” and a new analysis from the Federal Reserve Bank of New York shows that 14% of Americans are dealing with it, along with another 1.1% who are just breaking even. Which means that for 15.1% of Americans, everything they own isn’t enough to pay off their debt.
The analysis was done by four economists using data from the Survey of Consumer Expectations (SCE) from 2015 (the 2014 data was just released on the SCE website). The economists were interested in the composition of households with negative and non-negative wealth. In other words, who are these 15.1% of Americans? How much money are they making, and what kind of debts do they owe?
Some of their findings are intuitive. The heads of households with negative wealth are younger, on average, than heads of non-negative households, and are slightly less likely to have a college degree. They have lower annual incomes ($39,077 versus $86,309), and they’re also four times more likely to be single parents, three times less likely to own their home, and more likely to be black or Hispanic.
In terms of what they actually own, the discrepancies are clear: Households with non-negative wealth have more retirement wealth and have more money in housing assets. Only 20% of negative-wealth households own their home, compared to 75% of those with non-negative wealth. Conversely, for households with negative wealth, 40-55% of their total assets are in their vehicles.
But one of the starkest contrasts is in the debt composition for each wealth group. The chart below shows how much debt households have, on average, in seven categories: mortgages, credit card debt, auto loans, student loans, medical bills, legal bills, and other personal loans.
For households with negative wealth less than $12,400, debt is dominated by credit cards, which account for over 30% of their total debt, according to the Federal Reserve Bank of New York analysis — which is 60% larger than households with non-negative wealth.
And for households that have even less wealth (or, more negative wealth), student loan debt is the biggest cause for concern. For households in the middle third, student loan debt is 40%, and for the bottom third it’s almost 50%. Which means that for the people who most affected by debt, almost half of that is due to their college education.
Academics have argued that student debt is partly to blame for America’s increasing inequality — that college is only worth the cost for wealthier students, but for poor and middle-class students, it’s actually preventing them from building wealth because they’re crippled by their student loans. And indeed, wealthier students are less likely to take on loans to attend school and tend to graduate with a lower amount of debt as a portion of their income.
That’s even clearer after looking at households’ debt composition. The people who have the least ability to pay their debts — for whom everything they own is nowhere near close enough to pay back what they owe — the biggest chunk of that is going to repaying student loans.
The authors agree it’s a problem.
“Given the importance of student debt in explaining negative household wealth,” they write, “it is likely that the steady growth in student debt and borrowing… has materially contributed and will continue to contribute to negative household wealth and wealth inequality.”
The hope, they say, lies in housing. For the lowest third, 22% of their debt is mortgage debt, and for the slightly-better-off two thirds, mortgage loans make up slightly less. “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,” the authors wrote.