Consumer Debt and the Measurement of Poverty and Inequality in the US∗

This paper argues that interest on consumer debt must be taken into account when measuring poverty and inequality. These interest payments cannot be used to support household living standards. This makes middle- and low-income households worse off. Recent increases in consumer debt means that this deterioration in living standards is not captured by conventional government statistics. Using the Survey of Consumer Finances, we make estimates of poverty and inequality that take into account rising interest payments on consumer debt and discuss some of the implications of these estimates.