# Consumer Leverage Ratio | DEBT | Finance & Economics

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Hello in this video i am going to cover consumer leverage ratio sans fancy not too fancy so the consume consumer leverage ratio is basically used to quantify the amount of debt the average you know consumer a lot of times the average american consumer has relative to their income not their total income but their disposable income and generally speaking the higher

The number the worse it is the lower the lower the number the better so let me write out the formula and then i’m going to explain it again in a slightly different way so it is the consumer leverage ratio is equal to is equal to the total household debt divided by the disposable personal income so another way to think of it is it tells you how long a individual

Would take to pay off all the household debt so that factors in a couple of things one assuming the household debt does not increase two it also is assuming that you are spending all your disposable personal income on this and it is not factoring in any you know increases in personal disposable personal income maybe due to the way you’re saving or maybe you’re

Earning more money or maybe you potentially have less disposable you know income maybe in six months or a year’s time so it’s not factoring any of those things in at all it’s not factoring in inflation it’s not factoring in interest so there’s a lot of you know things it’s not factoring in but it’s just a good you know quick metric to you know use and what i

Don’t like is that this is all green and that’s green well a different color for this so i’m going to put consumer leverage ratio so let’s get an example let’s get a example so imagine scroll down imagine if i’m gonna call this clr just so it’s clr and this equals and let’s say somebody the total household debt and let’s say the only debt the household has is

A mortgage and it is thousand pounds the actual currency is irrelevant in this scenario it doesn’t really matter so let’s say that’s all they have they have no other you know consumer debt but if they do we just add the altogether and let’s say the disposable personal income for that individual let’s say lives on his own as well let’s call him let’s call this

Guy let’s call him johnny boy johnny and his disposable personal income so let’s back up a moment let’s say he earns 50 000 pounds let’s say after tax minus minus tax he has left 40 000 pounds and then let’s say he has necessary expenses necessary expenses which are 10 000 pounds and now let’s say 20 just to make the numbers easier so 2500 pounds and so he

Is left with 20 000 pounds so he’s left with 20 000 pounds so you do 250 000 divided by 20 which gets you 12 and a half so drum roll the clr from drum roll the clr is 12.5 don’t like the way that five was done let’s do that twelve point five last one confirm the calculation is correct ten times by twenty thousand is two hundred thousand a quarter uh two point