Many people experience tough financial times when their expenses and debts outstrip their income. Whether it’s a temporary situation or a long-term indebted problem, having negative wealth is increasingly a reality for more American households.

In a new report, the Federal Reserve of New York estimates that 15 percent of U.S. households have net wealth that is zero or less (14 percent have negative wealth). Net wealth is the total of all your possessions such as cash, property, and retirement accounts minus your debts. Household debt stands at 12.3 trillion, up over 430 billion over the past year.

What’s more interesting are the characteristics of these households. You might think that families with negative net wealth are poor, uneducated, or unemployed. Surprisingly, working families, workers with degrees, and middle class households are living in the red. Heads of households with negative wealth compared to their counterparts from households with non-negative wealth are:

·         younger (average age of 43 compared to 51 for those with non-negative wealth)

·         lower income ($39,077 versus $86,309)

·         less likely to be homeowners (19 percent compared to 75 percent)

·         more likely to be female (69 percent versus 45 percent)

·         more likely to be single (57 percent versus 33 percent)

·         more likely to be from a minority group (24 percent)

There’s a relationship between age and education level as well. Young, educated households might have negative wealth due to education debt that over time they pay off. One in eight people with negative debts has a graduate degree and 43 percent have a college degree.

Whereas in the past mortgage debt has weighed on households, now student loan debt and credit card debt are major culprits keeping American households underwater. Households with higher negative wealth (about two out of three such households owe over $12,500 in debt) attribute it to mostly to student loans which in some cases constitute 40 percent of their total debt:

It is likely that the steady growth in student debt and borrowing, combined with the very slow rate of student loan repayment we have documented elsewhere, has materially contributed and will continue to contribute to negative household wealth and wealth inequality,” the researchers said. “On the other hand, the continued recovery in the housing market observed over the past few years may help households with negative home equity come out of their negative wealth position.”

As Bloomberg points out, while carrying negative debt doesn’t feel good, it doesn’t mean these households are doing something wrong. If their debt was incurred by paying for school, over their lifetime, they can hope to obtain employment opportunities that help them get on sure financial footing.

The challenge though is that, despite the economic recovery, wages have been relatively stagnant and unemployment among young people is stubbornly higher than the general workforce. Millennials are the most educated generation, but are also in deep student loan debt to pay for it.

We regularly report on millennials delaying milestone such as homeownership, marriage, and starting families because of this debt. This may be a trend that only continues until we figure out how to make college more affordable in the future.

We need pro-growth economic policies that put more money in the paychecks of workers to repay their debts and climb out of the red. Raising the costs to employers for hiring and retaining workers has done nothing to help American households, but those are kinds of tax-and-spend policies so popular in Washington right now.