Total US Consumer Debt Review

October 27, 2011 — 1 Comment

What does it mean to be an in debt American?  I pulled together some statistics on total US consumer debt to give us a comprehensive view of the total debt picture for the great citizens of the United States. I’ll also compare it historically to the US and then against some other countries.

Let’s start with an individual view and then take it up to a country view. First, we like our consumer debt a lot. I can confirm as I’ve been there, done that.

What kind of consumer debt?

The folks at Money-zine have done the hard work to break down what we owe on. Believe it or not, home mortgages aren’t included in the “consumer debt” category! Our current stats:

– Average credit card debt per household with credit card debt: $15,799 (2)

– Total U.S. consumer debt: $2.43 trillion, as of May 2011 (4)

– Based on the 2010 Census statistics, that works out to be nearly $7,800 in debt for every man, woman and child that lives in the U.S. (5)

– Around 33% is revolving debt, which is mostly credit card debt ($793.1 billion) (5)

– The remaining 67% is non-revolving and includes car loans, student loans, loans on boats, trailers, etc. ($1.63 trillion total, almost $1 trillion of that is student loan debt) (5)

– “The average new car loan is over $27,600, and the loan to value ratio is 83%. That means new car buyers are using down payments that are 17% of the car’s purchase price.” (5)

How’s it looking for college students?

– 66% of students graduated with student loan debt in 2009, compared with 58% in 1996. The avg student loan debt in 2009 was $23,000 (6)

– In 2008, college seniors with at least one credit card graduated with an average of $4,138 in credit card debt (7)

– Total student loan debt will exceed $1 Trillion by the end of 2011 (8)

How much mortgage debt do we hold?

All of the consumer debt numbers doesn’t even include our mortgage debt! It turns out we owe just as much on our houses as the US total GDP (Gross Domestic Product, the market value of all products created within a country in one year). That number – $14.4 trillion (9).

“On average, total US mortgages were below 50% of the GDP until about 1977 when the ratio started to gradually increase culminating in the year 2006.” (9) In 2006, our mortgage debt surpassed our total GDP.

US GDP vs Total Mortgage Debt

How does our consumer debt look versus historical standards?

In 2007, we were in more consumer debt as a percentage of income as we’ve ever been before. According to the Federal Reserve Bank of San Francisco (FRBSF), “U.S. household leverage, increased modestly from 55% in 1960 to 65% by the mid-1980s. Then, over the next two decades, leverage proceeded to more than double, reaching an all-time high of 133% in 2007.”

An income to debt ration of 133% would mean you have $133 of debt for every $100 you make. In 2006, my ratio was around 120%, so I definitely contributed before I paid off my $50,000 of consumer debt.

Below is a chart from the FRFSB that shows how household debt, housing wealth (equity), disposable income, and stock wealth changed between 1960 and now. They did some math to set the 1960 amount for each category equal to one. Doing this allows you to see a straight comparison of what happened to each area.

For example, in 1960, the household debt equals one, which in real terms might have been a number like $2,000. Then, you can see in 2005 it equaled 12, which translates into ($2,000 X 12) $24,000. Until 1985, disposable income and household debt grew around the same pace, but after 1985 household debt skyrocketed and left disposable income in the dust. This means we were accumulating debt faster and had less cash on hand.

Household debt vs wealth

Has this recession changed us?

Americans have started to pay down their debt. This is where “deleveraging” comes into play, which basically means people try to reduce their debt as compared to their incomes. This can be done by paying it off or through bankruptcy.

Have we ever been through a “deleveraging” period before? According to the FRBSF, “History provides examples of significant deleveraging episodes, both in the household and business sectors, which offer a basis for gauging how debt reduction may affect spending. From 1929 to 1933, in the midst of the Great Depression, nominal debt held by U.S. households declined by one-third (see James and Sylla 2006).”

Our deleveraging looks pretty close to Japan’s after they went through a similar stock market and real estate boom before they busted out in 1989. They are still experiencing a stagnate economy even 20 years later.

However, the best news is that as of Q2 2011, our debt to income ratio decreased all of the way down to 115% from the peak of 133%! It took Japan six years to get down to that level versus our four years. Some of this could be due to higher bankruptcy and debt forgiveness, but it’s still a good sign.

Take a look at the chart below which compares our situation to Japan’s. It took them 10 years just to get their debt leverage ratio from a peak of around 130% to 100%. If we mimicked Japan, we would remain in this delevaraging period until 2017 just to get to the point of only holding a debt equal to our current incomes!

US_Japan debt to income leverage ratio

How does our debt look versus other countries?

It was a little refreshing to see we weren’t the first to go through something like this, even though Japan is still going through it 20 years later. I wanted to see if any countries had an income to debt ratio as high as our. Believe it or not, many European countries have had ratios similar to ours.

This isn’t something to be proud of, but you can see some of those countries below and their debt to income ratios. I can’t find the updated information, but there are a few countries that have had higher ratios than ours.

Household Debt by Country

Are we at least saving some money?

The key to deleveraging is to spend less than you make, and to begin saving money again to pay off your debt. So, how are we looking in the savings arena?

The Harris Poll recently did a survey in 2011, which showed:

– 34% of Americans have no retirement savings (1)

– 27% have no personal savings (1)

That’s not so hot! However, as indicated in the chart below, as a whole we have changed our ways in the last couple of years and began to save money again. We actually had a negative savings rate for a few quarters in 2005!

US Savings Rate

Things look pretty bad now, but they’re actually better than 2007, and we’re moving in the right direction. The economy will continue to stagnate as we try to work through our problems.

The good news is all of these numbers are averages, and they don’t dictate how you live your life!  You need to take control of your money and your life

 

Sources

(1)- Harris Poll

(2)- http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php#ixzz1bnrwaSpN

(3)- “The Survey of Consumer Payment Choice,” Federal Reserve Bank of Boston, January 2010

(4)- Federal Reserve’s G.19 report on consumer credit, released July 2011

(5) – http://www.money-zine.com/Financial-Planning/Debt-Consolidation/Consumer-Debt-Statistics/

(6)- Source: Project on Student Debt

(7)- Source: Sallie Mae (2008 data)

(8)- http://www.usatoday.com/money/perfi/college/story/2011-10-19/student-loan-debt/50818676/1

(9)- http://seekingalpha.com/instablog/562560-clemens-kownatzki/55271-us-mortgage-debt-versus-us-gdp

(10)- http://www.frbsf.org/publications/economics/letter/2009/el2009-16.html

(11)- http://www.sedlabanki.is/lisalib/getfile.aspx?itemid=4622

Sharing is good for you and me!Share on FacebookTweet about this on TwitterShare on LinkedInEmail this to someoneShare on StumbleUpon

One response to Total US Consumer Debt Review

  1. Hey Dan,

    Thanks for referencing our statistics page; we’re glad it helped you write this post! We just restructured that page recently; you can find the stat you referenced on the following page: http://www.creditcards.com/credit-card-news/credit-card-debt-statistics-1276.php

    Cheers,

    Connor, on behalf of CreditCards.com

Leave a Reply

Text formatting is available via select HTML. <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

*