Household Debt and Saving during the 2007 Recession

Rajashri Chakrabarti, Donghoon Lee, Wilbert van der Klaauw, Basit Zafar

This chapter is a preliminary draft unless otherwise noted. It may not have been subjected to the formal review process of the NBER. This page will be updated as the chapter is revised.

Chapter in forthcoming NBER book Measuring Wealth and Financial Intermediation and Their Links to the Real Economy, Charles Hulten and Marshall Reinsdorf, editors
Conference held November 12-13, 2010
Forthcoming from University of Chicago Press
in NBER Book Series Studies in Income and Wealth

Using administrative credit report records and data collected through several special household surveys we analyze changes in household debt and savings during the 2007 recession. We find that while different segments of the population were affected in distinct ways, depending on whether they owned a home, whether they owned stocks and whether they had secure jobs, the crisis' impact appears to have been widespread, affecting large shares of households across all age, income and education groups. In response to their deteriorated financial situation, households reduced their average spending and increased saving. The latter increase - at least in 2009 - did not materialize itself through an increase in contributions to retirement and savings accounts. If anything, such contributions actually declined on average during that year. Instead, the higher saving rate appears to reflect a considerable decline in household debt, with households paying down mortgage debt in particular. At the end of 2009 individuals expected to continue to increase saving and pay down debt, which is consistent with what we have observed so far in 2010. In contrast, consumers were pessimistic about the availability of credit, with credit expected to become harder to obtain during 2010.

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This paper was revised on April 17, 2014

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This chapter first appeared as NBER working paper w16999, Household Debt and Saving During the 2007 Recession, Rajashri Chakrabarti, Donghoon Lee, Wilbert van der Klaauw, Basit Zafar
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