Were Consumer Mistakes Related to Changes in Financial Obligations Burdens?

The purpose of this paper is to examine whether the increase in the proportion of U.S. households with financial obligations greater than 40% of income was due to mistakes or over-optimism. The proportion of households paying more than 40% of income for debt, rent, vehicle leases, property taxes, and homeowners insurance, which we refer to as having a heavy burden, increased from 17% in 1992 to 26% in 2007. Multivariate analyses performed for renters and for homeowners indicate that even controlling for other factors, the proportions with high burdens for renters and for homeowners were much higher in 2007 than in 1992. Education was positively related to having a heavy burden, suggesting that having a heavy burden is not simply a cognitive error. The general optimism by both households and lenders during most of the period from 1992 to 2007, possibly combined with relaxed regulations, may have led to the substantial increases in the proportions of households having high burdens