Consumer Debt Should We Capitalize Subscriptions?
The level of consumer indebtedness is of a constant focus for economist. The theory behind such is that it can provide insights into future consumption. Mortgage debt recently hit a record level, exceeding that of the 2008 peak. Although at a peak, the consumer's ability to service their mortgage debt has improved due to rising wages. In my opinion, just focusing on the level of indebtedness of consumers and their ability to service that debt will lead to erroneous assumptions about future consumption. Take for example retail companies. FASB recognized that leases represent obligations and as a result, many companies now carry leases as debt on their balance sheet. If we think about the income statement and balance sheet of consumers, the same argument can be made. Think about the number of monthly subscriptions that the average consumer is paying for. Netflix, Data, Phone leases. All of these items represent a monthly obligation, the same as debt payments. Of course one can argue that they would represent short term debt. I agree. However, eliminating those obligations have negative economic implications. With a greater proportion of a consumer's income being directed to subscription services, I believe it is important to in essence capitalize those obligations to get a better reflection of the ability of the consumer to continue to spend.