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Gibbons, D. Unsustainable Household Debt: Problems of Measurement. Vierteljahrshefte zur Wirtschaftsforschung, 89(1), 101-114.
Gibbons, Damon "Unsustainable Household Debt: Problems of Measurement" Vierteljahrshefte zur Wirtschaftsforschung 89.1, , 101-114.
Gibbons, Damon: Unsustainable Household Debt: Problems of Measurement, in: Vierteljahrshefte zur Wirtschaftsforschung, vol. 89, iss. 1, 101-114, [online]


Unsustainable Household Debt: Problems of Measurement

Gibbons, Damon

Vierteljahrshefte zur Wirtschaftsforschung, Vol. 89 (2020), Iss. 1 : pp. 101–114

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Damon Gibbons, Director, Centre for Responsible Credit, UK

  • Damon Gibbons is the Director of the Centre for Responsible Credit in the UK. Damon has nearly thirty years’ experience of designing, providing, and evaluating services to meet the needs of disadvantaged groups and communities and he has been involved in consumer campaigns both nationally and internationally on issues of credit, debt, and financial exclusion for most of that time. Damon was the driving force behind the UK’s decision to cap the costs of payday loans in 2015. His book ‘Britain’s Personal Debt Crisis: how we got here and what to do about it’, was published by Searching Finance in 2014. Damon holds a BA in Economics and Politics from the University of Warwick and an MA in Public Policy with distinction from the University of Nottingham.
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Summary: In the wake of the Global Financial Crisis, a significant research effort has been made to better understand the links between household debt levels, financial stability risks, and the ongoing implications of the ‘debt overhang’ for economic growth. However, accurately measuring the household debt burden remains problematic. Aggregate measures of household indebtedness (e. g. household liabilities relative to income) fail to fully capture the debt servicing burdens of households, particularly in periods when real incomes are declining (as has been the case in the UK in recent years). They also provide no insight into the distribution of debt burdens, which may be important for both future financial stability and economic growth.

We attempt to address this problem by combining a new analysis of aggregate data with insights gleaned from household debt surveys. We first construct a new measure of debt interest payments as a percentage of the overall household surplus from the aggregate data. This indicates a significant increase in household debt burdens between 2016 and 2018. We test the validity of this measure by analysing household debt surveys over the period, and report on the most affected households. The findings support a case for a lowering of the thresholds used in official measures of financial vulnerability and over-indebtedness and for greater impetus in policymaking to relieve the financial pressures of households in debt.