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Where We Stand: Debt

TOO MUCH DEBT HELPED TRIGGER the 2008 financial crisis. Today, the picture is much brighter. Here’s what the latest statistics tell us:

  • Every three months, the Federal Reserve Bank of New York puts out a report on household debt. Over the five years through September 2008, the amount of debt carried by U.S. families soared 68%, as we hurtled toward the financial crisis. Americans shed debt over the next five years, as they paid back the money they borrowed and also defaulted on loans. Since mid-2013, however, borrowing has picked up again. Result: As of 2018’s second quarter, Americans were carrying 4.9% more debt than in September 2008.
  • According to the New York Fed, Americans have an average $49,600 of loans outstanding, including mortgage debt, home equity loans, car loans, credit card debt and student loans. That might seem modest given the large mortgages often needed to buy homes in major East and West Coast cities. But remember, homes are substantially cheaper in many parts of the country, plus the average is influenced by retirees with little or no debt and by the third of American households that don’t own a home and hence have no mortgage.
  • While overall household debt is roughly where it stood in 2008’s third quarter, student loans have skyrocketed 130%. The money borrowed should help make the U.S. economy more productive and help the students involved earn higher lifetime incomes. Still, this burgeoning debt speaks to the financial sloppiness of the baby boomers, who are providing notably little financial help to their college-bound teenagers, thus compelling their children to borrow more.
  • Just over 77% of American families are in debt, according to the Federal Reserve’s 2016 Survey of Consumer Finances. The most common types of borrowing are mortgage debt, installment loans like car and student loans, and credit card balances.
  • As of 2016, 43.9% of families had a credit card balance, up from 38.1% three years earlier, found the Federal Reserve’s survey.
  • U.S. adults with credit cards owe an average $5,839, says CreditCards.com. Some 38% of households carry a balance and their total card debt is estimated to be more than $9,000.
  • Just 31% of U.S. workers with nonmortgage debt say they’re saving for retirement outside the workplace, vs. 69% of workers with no nonmortgage debt, according to LIMRA. Nonmortgage debt includes credit card debt and car, student and home equity loans.
  • Among U.S. adults with debt, 68% are not confident they’ll ever be able to pay it off, according to CreditCards.com. The older folks are, the less optimistic they are about becoming debt-free.
  • A fifth of Americans have more credit card debt than emergency savings, according to Bankrate. Another 12% have neither credit card debt nor savings, while 58% report having more savings than card debt.
  • Where do the most financially responsible Americans live? According to Experian, one of the three major credit bureaus, the 10 cities with the highest average credit scores are all in the Midwest, including Minnesota, Wisconsin, South Dakota and North Dakota. Meanwhile, three Louisiana cities, three Texas cities and two California cities made the list of 10 cities with the lowest credit scores.
  • A 2016 CreditCards.com analysis also found that the middle of the country was the most financially prudent. The analysis compared each state’s average credit score to its median income. The state with the highest income-adjusted credit score was Montana, followed by South Dakota, North Dakota, Maine and Vermont. Maryland was at the bottom of list, with Washington, D.C., Alaska, Virginia and Texas right behind.
  • The five major metropolitan areas with the highest credit card debt relative to median income are San Antonio, Miami/Fort Lauderdale/West Palm Beach, Houston, Los Angeles and Dallas, according to a 2018 CreditCards.com study. Meanwhile, San Francisco, Minneapolis and Boston are at the other end of the spectrum, boasting the lowest credit card burdens.
  • Margin borrowing is often viewed as an indicator of investors’ appetite for risk. As of year-end 2017, there was $642.8 billion in margin debt outstanding. That’s up 21% from year-end 2016’s $529.4 billion and up 113% from year-end 2011’s $301.6 billion.

Next: Debts, Interest and Inflation

Previous: Borrowing

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