Financial Obligation Ratio - FOR

If we’re paying attention, we probably have at least some vague idea of how much of our paycheck goes to debt: mortgage, rent, car payment, student loan payment, taxes, credit cards, etc. And while we might not have an exact dollar amount nailed down, we probably know enough to say, “Okay, we can spend two hundred bucks per pay period on "me time," but if we spend more than that, we won’t be able to afford our other obligations.” In other words, we have a pretty good sense of our own personal financial obligation ratio: the ratio of our debt to our disposable income.

When we get fancy and capitalize Financial Obligation Ratio, it means we’re looking far beyond one earner or one household. We’re looking at the entire country to determine how much we, as a society, owe...versus how much we, as a society, can spend discretionarily on fun stuff like pedicures or NFL Red Zone. The higher our FOR, the less likely we are to be able to meet all of our debt obligations.

Makes sense, right? If we’re making $1,000 a month after taxes, but our rent is $1,500 and our car payment is $250 and we owe a minimum of $300 per month on our credit card debt, we’re gonna run into some problems. We just don’t make enough to cover our expenses. Our personal financial obligation ratio is all out of whack. The same principle can be applied to society as a whole.

So who compiles all this data? The Federal Reserve does, and even though they sit down once a quarter to hash everything out, they may not publish FOR statistics right away. And if they do publish it and then decide they were wrong about something, they can go back and revise it. So while we wouldn’t use the FOR as our only indicator of financial stability among American households, it can provide a useful, big-picture view of how much we as a country owe, and how that’s changed over time.