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Magazine

Politics

Credit Scarred

Americans have become skittish about borrowing, even to finance growth—and think Washington should be, too.

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Big problem: Mortgages are responsible for the most personal debt.(AP Photo/Marianne Armshaw)

The struggle of A.J. Edge to sell the house he left behind neatly encapsulates the increasingly uneasy relationship Americans have with financial debt.

Edge, a business-administration student, and his partner, a veterinarian, moved about a year ago from Lewisville, N.C., to Des Moines, Iowa. In North Carolina, the couple owned a rental property and the home that they lived in. Like nearly all homebuyers, the two men took out mortgages to acquire each property, and they saw that debt less as a burden than as a springboard to a better life. “If you want a house, if you want a car, if you want anything in the world, you have to get some sort of debt with that,” Edge says. “Everyone has a dream house, and the only way you can get it, unless you’re a millionaire, is … to go into some debt.”

 

The couple, to their surprise, sold the rental property without much trouble when they moved to Iowa, where they got married and adopted two children. But even though they lowered the price, their North Carolina residence remains unsold after 18 months on the market. Now, maintaining that mortgage is growing so difficult that they are reluctantly thinking about letting it lapse into foreclosure. “There’s just no other option,” Edge says.

The experience has made Edge question the proper role of borrowing—in his own life and that of the nation. He sees the cost to the economy of banks reluctant to lend and of families tightening their belts to spend less and reduce their debts. But he is a cat on a hot stove when it comes to accepting more financial obligations himself. “I think people need to stop being so scared,” Edge says. “On the other hand, I never want to buy a house again.”

Edge’s deeply conflicted cri de coeur captures the current rippling through the latest Allstate/National Journal Heartland Monitor poll. Edge is like many Americans (especially those in the middle class and above) who believe that debt, on balance, has been a positive force in their own lives. But he is also part of a commanding majority who believe that excessive borrowing played a central role in the grueling economic downturn—and that a commitment by all segments of society, from government to individuals, to pay down their debts is an indispensable component of recovery.

 

Infographic

Many economists worry that such simultaneous “deleveraging” would prolong the downturn by reducing purchasing power and further diminishing demand for goods and services of all sorts. The survey and follow-up interviews show that most Americans hear those arguments, recognize that there is at least some validity to them—and conclude that families and the federal government alike should focus on paying down their debts anyway. “I understand the ripple effect,” says Marlin Baker, a poll respondent who does seasonal work installing sprinklers in Muskegon, Mich. “If nobody’s buying milk, then farmers aren’t running machines and the mechanics don’t have jobs fixing machines. But I guess there’s just a point where we all have to [pay down debts] for a couple of years till we get it lined up, and at that point we can go back to living again.”

PULLING BACK

The latest Allstate/National Journal Heartland Monitor poll is the tenth in a series exploring the ways that Americans are navigating the changing economy. The poll, conducted by Ed Reilly, Brent McGoldrick, and Jeremy Ruch of FTI Strategic Communications, a communications-strategy consulting firm, surveyed 800 adults by landline telephone and 200 more by cell phone from Sept. 28 through Oct. 2. It has a margin of error of plus or minus 3.1 percentage points.

This survey focused on Americans’ perspectives toward public and private debt. It found that experiences with debt diverged substantially along lines of race, education, and income, but that attitudes toward debt converged.

 

Overall, the poll found that, for most Americans, debt remains more of a chronic than an acute concern. Asked to identify their biggest financial worry, just 8 percent identified carrying too much debt, which ranked it behind the cost of living; an inability to save enough for retirement; earning too little; finding or keeping a job; and declining home values. (An equal 8 percent worried about poorly performing investments.) About 25 percent of those polled said that their debt load had increased in the past few years—a substantial but not overwhelming number. Even more (31 percent) said they had reduced their debts, and 41 percent said that their debt levels hadn’t changed much.

Just 11 percent of those polled said they considered their current level of debt “dangerous” and harbored “serious concerns about being able to pay it off.” Slightly more than two-fifths said they considered their debts “manageable” and held “little concern about being able to pay it off.” The largest group hedged: 47 percent said that their debts were “somewhat worrisome, but as long as nothing bad happens, I should be able to pay it off.”

This article appears in the October 15, 2011 edition of National Journal Magazine.

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