The Federal Reserve Bank of New York released second quarter household debt figures. Debt rose in all major categories, except one. It’s another indication that American consumers aren’t making enough money to get by. Household debt rose by $109B, which means an average increase of $860 per household. About one-quarter of US households are debt free, so when you factor those out, household debt among those households that carry debt increased by about $1,150 per household.
About 75% of American households spend about $400 more per month than they bring home, which annualizes to about $5,000 per year. To net an extra $5,000 per year, a worker needs to earn about $7,150. That’s $3.50 per hour for a full-time employee. That’s a very achievable salary increase for most people, if they are armed with the right skills.
For WCC grads, that would mean moving the average income from $39,000 to $46,000, an increase of 18%. Also very achievable as long as the school makes a concerted effort to increase the market value of its degrees.
What is the impact of a $7,150 increase in household income? In Ypsilanti, where the median household income is $42,000, it would move the median household from the 29th percentile to the 34th percentile. It doesn’t sound like much, but keep in mind that it would allow these households to stop the bleeding when it comes to accumulating debt.
It wouldn’t allow the household to pay off accumulated debt any faster. If the New York Fed figures are correct, the average debt-carrying household owes about $12,000 in credit card debt. Credit card debt has the highest interest rate of any consumer debt. Currently, the average annual percentage rate is 21.5%.
Eliminating household debt would be life changing
Earning enough to eliminate the need to pay for monthly household expenses on credit and pay off accumulated credit card debt would be life-changing for many families. It would likely mean increasing the household net income by as much as $15,000 per year. That would involve raising a person’s hourly earnings by about $10 per hour.
The best way for WCC to contribute to this would be to focus its occupational program on high-wage, high demand jobs. But just like the household that needs to increase its income to both avoid new household debt and pay off old debt, WCC needs to avoid programs that create low-earning households.
I’m not suggesting that WCC does this intentionally right now, but the school needs to apply minimum earning standards to all of its programs. Those standards need to reflect the cost of living in Washtenaw County. When a program does not allow a graduate to generate enough income to escape poverty and/or near-poverty, it is unethical to continue to operate that program.
The difference between generating new debt each month and avoiding deficit spending is $400 for the average American household right now. Retooling degrees to enable the graduate to generate just $5,000 more per year is the start that many people need right now.
Photo Credit: Mike Bitzenhofer , via Flickr
