The Debt Divide

Discussions of wealth inequality almost always focus on assets — who owns the stocks, the houses, the businesses. But the liability side of the balance sheet is equally important, and in many ways more revealing. Debt is the mechanism through which modest income families attempt to participate in the wealth-building economy — buying homes, financing cars, paying for education — and it’s also the mechanism that can destroy everything they’ve built when markets turn against them.

In Q3 2025, total household liabilities across all four wealth groups amount to roughly $19.7 trillion. The distribution of that debt tells a remarkable story. The next 40% (the broad middle class, 50th to 90th percentile) carries the largest absolute debt load: $8.7 trillion. These are homeowners with mortgages, families with car loans, parents with student debt. The bottom 50% carries $6.0 trillion. The next 9% carries $4.0 trillion. And the top 1% carries just $1.0 trillion.

But absolute numbers don’t capture the real burden. What matters is leverage — how much you owe relative to what you own. The top 1% owes $1.0 trillion against $55.8 trillion in assets: a leverage ratio of 1.8%. Their debts are a rounding error on their balance sheets. The next 9% owes $4.0 trillion against roughly $67 trillion in assets: about 6%. Manageable. The next 40% owes $8.7 trillion against roughly $59.5 trillion in assets: about 15%. Getting heavier. And the bottom 50% owes $6.0 trillion against $10.2 trillion in assets: 59%. For every dollar they own, they owe 59 cents. This group is, in aggregate, barely solvent — and millions of individual households within it have negative net worth.

The bottom 50%’s $6.0 trillion in debt breaks down into two dominant categories: $3.07 trillion in home mortgages and $2.60 trillion in consumer credit. Together they account for 94% of all bottom-50% liabilities. Everything else — student loans, other installment debt, miscellaneous — is a rounding error. The story of the bottom half’s debt is the story of houses and credit cards.

The mortgage trajectory is a tale of two booms. In 1990, the bottom 50% owed $640 billion in home mortgages. By 2007, that had surged to $3.15 trillion — a five-fold increase in 17 years, driven by expanding homeownership, rising prices, and the subprime lending explosion. After the crash, the bottom half painfully deleveraged: mortgages fell from $3.56 trillion (the peak in 2009, as crisis-era loans worked through the system) to $2.29 trillion by 2017. Millions of families lost their homes to foreclosure. Millions more sold at a loss. It was the most brutal deleveraging in modern American history.

Then mortgages started climbing again. The COVID-era housing boom, powered by record-low interest rates and stimulus savings, pushed bottom-50% mortgages back to $3.07 trillion by Q3 2025 — nearly matching the pre-crisis peak. The bottom half of America is once again mortgaged to the ceiling of its earning capacity. The difference is that home prices in 2025 are 2.7 times their 2012 trough, so the equity cushion is somewhat larger — $4.8 trillion in real estate against $3.07 trillion in mortgages — but the absolute debt burden is as heavy as ever.

Consumer credit tells a different story: relentless, unbroken growth. From $360 billion in 1990 to $2.60 trillion in Q3 2025 — a seven-fold increase with barely a dip, even during the worst financial crisis since the Depression. When the bottom half couldn’t pay their mortgages, they kept borrowing on credit cards, auto loans, and buy-now-pay-later services. Consumer credit didn’t even pause during the 2008 crisis; it dipped from $1.41 trillion to $1.40 trillion and immediately resumed climbing. By 2019, it had passed $2.3 trillion. Today it stands at $2.60 trillion — and growing.

The distribution of household debt has shifted dramatically over 36 years, and not in the direction most people would expect. In 1990, the next 40% (middle class) carried the largest share of all household debt: $1.6 trillion, or roughly half of the $3.2 trillion total. The bottom 50% owed $1.0 trillion — about a third. The top 10% owed the remaining $0.6 trillion.

By Q3 2025, the picture has transformed. Total household liabilities are $19.7 trillion, and the next 40% still carries the most at $8.7 trillion (44%). But the bottom 50%’s share has surged to $6.0 trillion (30%), up from $1.0 trillion. Meanwhile, the next 9% went from $0.5 trillion to $4.0 trillion, and the top 1% from $0.1 trillion to $1.0 trillion.

Here is the perverse dynamic: the groups that gained the least wealth took on proportionally the most debt. The bottom 50%’s net worth grew 6.1x (from $0.7T to $4.3T) while their debt grew 5.8x (from $1.0T to $6.0T). They borrowed almost as aggressively as they accumulated. The top 1%’s net worth grew 11.7x (from $4.7T to $54.8T) while their debt grew only 10x (from $0.1T to $1.0T) — and that debt is a trivial fraction of their assets. Wealth creation for the rich is organic: asset appreciation compounds without borrowing. Wealth creation for the poor requires leverage, and leverage has a cost.