Consumer leverage ratio

The consumer leverage ratio is a way of measuring how much debt someone has compared to their income. Think of it like a scale. On one side of the scale is how much money someone earns from their job or other sources, and on the other side is how much debt they have from things like credit cards, loans, or mortgages.

Now, let's say someone earns $100 a month from their job and they owe $50 on their credit card. Their consumer leverage ratio would be 0.5, which means they owe half of what they earn. If they owe more than they earn, the ratio would be higher.

This ratio is important because it helps determine how risky someone's financial situation is. If someone has a high consumer leverage ratio, it means they may have trouble paying back their debts and could potentially be in financial trouble. On the other hand, if someone has a low consumer leverage ratio, it means they have more financial stability and can likely manage their debts more easily.

Overall, the consumer leverage ratio helps us understand how much debt someone has relative to their income, which is an important factor in determining their overall financial health.