Consumer Balance Sheets: Flow of Funds Shows Debt Reduction at a Snail's Pace

It should be so easy--just live within your means. But once you're behind the ol' eight ball of debt, it sure is hard to dig out. That's what the Federal Reserve's Flow of Funds demonstrated today.

Why should you care about this geeky statistical report? Because if American consumers don't figure out how to mend their balance sheets, we are going to be in this pickle for a while.

At the end of 2008, households owed $13.8 trillion in debt. Even with an increased savings rate of 5.7%, whittling that sucker down is tough. The much-talked about and highly-anticipated deleveraging is occurring, but at a snail's pace.

The reason is clear: with jobs vanishing (total claims hit their 19th-straight record high at 6.82 million last week), wages stagnating and net worth shrinking, it's hard to make headway. Still, I have some hope that the era of tighter credit will help cure consumers of their past evil deeds.

Image by Flickr user Randy Son of Robert, CC 2.0

Jill Schlesinger

Jill Schlesinger, CFP® is the Emmy-nominated business analyst for CBS News. She covers the economy, markets, investing and anything else with a dollar sign on TV, radio (including her nationally syndicated radio show), the web and her blog, "Jill on Money." Prior to her second career at CBS, Jill spent 14 years as the co-owner and chief investment officer for an independent investment advisory firm. She began her career as a self-employed options trader on the Commodities Exchange of New York, following her graduation from Brown University.

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