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Household Debt and Saving During the 2007 Recession

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

Abstract

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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16999.

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Date of creation: Apr 2011
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Handle: RePEc:nbr:nberwo:16999

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Cited by:
  1. Angus Deaton, 2012. "The financial crisis and the well-being of Americans," Oxford Economic Papers, Oxford University Press, vol. 64(1), pages 1-26, January.
  2. Grant Graziani & Wilbert van der Klaauw & Basit Zafar, 2013. "A boost in the paycheck: survey evidence on workers’ response to the 2011 payroll tax cuts," Staff Reports 592, Federal Reserve Bank of New York.
  3. Alan, S. & Crossley, T. & Low, H., 2012. "Saving on a Rainy Day, Borrowing for a Rainy Day," Cambridge Working Papers in Economics 1222, Faculty of Economics, University of Cambridge.
  4. Meta Brown & Andrew Haughwout & Donghoon Lee & Wilbert van der Klaauw, 2010. "The financial crisis at the kitchen table: trends in household debt and credit," Staff Reports 480, Federal Reserve Bank of New York.
  5. Andrew Haughwout & Donghoon Lee & Joseph Tracy & Wilbert van der Klaauw, 2011. "Real estate investors, the leverage cycle, and the housing market crisis," Staff Reports 514, Federal Reserve Bank of New York.
  6. Viral V. Acharya & Nada Mora, 2011. "Are banks passive liquidity backstops? deposit rates and flows during the 2007-2009 crisis," Research Working Paper RWP 11-06, Federal Reserve Bank of Kansas City.
  7. Jaanika Meriküll, 2012. "Households borrowing during a creditless recovery," Bank of Estonia Working Papers wp2012-2, Bank of Estonia, revised 22 Feb 2012.

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