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Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.
Updated July 28, 2021
The financial obligations ratio is the ratio of household debt payments to total disposable income in the United States, and is produced as a national statistic by the Federal Reserve. It measures how much household income is being spent on repaying debts and other financial obligations.
This measure, which is intended to capture the share of household after-tax income obligated to debt repayment (such as mortgages, HELOCs, auto loan payments, and credit card interest), is calculated as the ratio of aggregate required debt payments (interest and principal) to aggregate after-tax income. It is the only national economic measure of the burden of household debt and other obligations on household budgets.
This data is produced quarterly. However, it is not released by the Fed on a published schedule and is subject to unpredictable revisions and lags. Because the data is derived from a range of other sources, its series are revised quarterly to reflect more complete information. Revisions can be large or small in any given quarter without a pattern that is known in advance.
The financial obligation ratio is a broader measure than the household debt service ratio (DSR). In addition to the required mortgage payments and scheduled consumer debt payments that comprise the DSR, the FOR includes rent payments on tenant-occupied property, auto lease payments, homeowners' insurance, and property tax payments.
The household debt service ratio (DSR) is the ratio of total required household debt payments to total disposable income. DSR is divided into two parts. The mortgage DSR and the consumer DSR sum to the DSR. The mortgage DSR is total quarterly required mortgage payments divided by total quarterly disposable personal income.
The consumer DSR is total quarterly scheduled consumer debt payments divided by total quarterly disposable personal income. The financial obligations ratio is a broader measure than the debt service ratios. It includes rent payments on tenant-occupied property, auto lease payments, homeowners' insurance, revolving credit, and property tax payments.
Including items such as rental payments on primary residences as well as other housing-related expenses reflects the household sector’s increasing homeownership. Including automobile lease payments reflects the growth of the automobile leasing market.
Over time, the burden of financial obligations faced by American households will vary depending on changes in debt, interest rates, and income. The higher the FOR, the higher the risk that households will be unable to meet their financial obligations.
Like most other single measures of economic activity, the FOR has some weaknesses and limitations. Any macro-economic analysis using this measure should be combined with other data. The most often cited weaknesses include:
