It’s widely accepted that unscrupulous bankers tricked unknowing consumers into loans they could not afford, leading to the financial crisis. No doubt, plenty of that occurred–underscored Wednesday with a $1 billion federal suit against Bank of America’s mortgage arm Countrywide Financial.
But it turns out the “victoms” were not, by and large, unsophisticated rubes. A new study finds that highly educated Americans were most likely to take on unmanageable debt in the pre-crisis years. What’s more, gross personal financial mismanagement occurred across the population and not just in the mortgage market and not just among the unsophisticated.
The study draws a line at the point where monthly payment on household debt equals 40% of income. That’s where default or bankruptcy becomes most likely should the household experience a decline in income, say researchers led by Sherman Hanna, professor of consumer sciences at Ohio State University.