Household debt relative to disposable personal income has risen steadily over the past 50 years. Some have argued that current debt levels are unsustainable and represent a significant threat to the American economy. In fact, the expansion of retail credit appears to have benefited most households, allowing them to smooth their consumption over time. New financial instruments have also helped people who have suffered temporary, one-time shocks to their income streams. Finally, the average costs of borrowing have fallen because of a combination of improved technology and increased competition, reducing the relative burden of financing debt. Instead of restricting access to credit, policymakers might consider increased emphasis on financial education to assist those households that do have legitimate debt problems.

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