Americans Hold Over $4.1T in Consumer Debt
60secondstatistics.com
60secondstatistics.com
Thus, $4.1 trillion in consumer debt works out to $12,638 per person.
The Gross Domestic Product (GDP) in the United States was worth 18036.65 billion (about $18 trillion) US dollars in 2015. That is about $55,424 per person.
Note that the "consumer debt" is divided into several categories.
Student loans represent a long term investment and may be reasonably paid off over decades.
Auto loans are typically paid off in 3-5 years.
Ideally, credit card debt should be paid off immediately. It is difficult to evaluate credit card debt because credit cards have increasingly become the substitute for cash in the United States. How much of the debt is extremely short term and essentially represents what used to be cash transactions?
What is "other" consumer debt -- payday loans? IOU's?
The point is that $4.1 trillion in consumer debt in a nation with over 300 million people and a GDP over $18 trillion per year is neither unreasonable nor a crisis, particularly when that debt includes longer term items such as auto loans and student loans.
I'm sure there were people making similar arguments about the health of the US economy before 2008.
http://inflation.us/wp-content/uploads/2015/04/niareport84.j...
At this time, the cost to the nation of servicing the debt is around what, 6 percent of income? I bet a lot of consumers (more than half) would find that to be very affordable.
Eventually people will stop lending countries money. If they don't - that's even scarier. (A lack of viable investment alternatives)
Credit cards are always priced at prime+margin, based on 30-60 day average balance. That can change every 30 days.
The comment upthread is pretty valuable (as is 'cylinder's rebuttal).
Take a look at the extreme household debt to income ratios in Denmark, Sweden, Canada, etc.
Look at the completely collapsed savings rate in Japan (stacked against their catastrophic budget / public debt situation that demands ever greater funding, while the economy has near zero spare taxing capacity). Japan has seen their real standard of living drop by at least 1/3 in 25 years and it's continuing to erode. That's the world's #3 economy and formerly an economic juggernaut.
Or look at the financial situation across most of the EU or Eurozone - most of Europe is hooked on between zero and negative real interest rates. Italy is in a ten year rolling depression. Spain, Portugal and Greece still haven't recovered. Russia's commodity based economic miracle is long over, as the price of oil isn't going back to $100 any time soon. France is averaging wage growth about 1/5th that of the US. Germany's economy has barely net expanded since 2008. Or take a look at the long-term unemployment figures for most European nations, contrasting 2006 vs 2016, it's clearly dire.
The US is in better shape than all but a few developed nations. That includes unemployment rate, income levels, wage growth, GDP growth, household income to debt ratio, cost of living, housing affordability.
Other countries don't have exactly the same policies but they follow the same trend. Income taxes rather than consumption taxes that encourage spending/borrowing and discourage savings, sold as "the rich wouldn't pay consumption taxes" even though they don't pay income taxes either, examples abound.
If make up to ~200% (varies state to state) of the federal poverty level you qualify for Medicaid which has almost no out of pocket expense for the patient.
In New York, it's 138%, or $16k/year for a single person for $33k for a family of 4.
Student loans would be an investment if like other investments, it could be removed from someone's 'portfolio'. IMO the fact that student loans are not dischargable means they are not an investment.
Not sure what we should call student loans, but 'investment' seems like the wrong word.
You take out a car loan because you expect to extract more value from the car than its price plus interest. You take out a student loan for the same reason.
If student loans were buying a some percentage of your monetary worth or income then I could see investment angle but that's basically owning a person which I couldn't support.
Shelter is an expense. Like many things, you can own it or you can rent it. Owning it means you're holding an asset that (hopefully) won't depreciate but it is also unlikely to meaningfully appreciate (outside of certain local market conditions that are the exception rather than the rule).
Back to the original point: in order for an education to be an investment, the degree - the asset - must have a reasonable expectation of going up in value over time. The value of your degree goes down over time as you gain work experience; its peak value is right after you graduate. An argument could be made that the return on investment is a rise in earning potential but that too is a one time boost. A degree also shares all the bad qualities of housing as an investment: high leverage, even worse - zero! - liquidity, and low diversification.
It might make financial sense to borrow money in order to fund a degree, but that by no means makes education an investment.
Most people who own homes only own the one they live in. If they did not own that home they would have to pay rent. So to figure out the overall value of the investment, you'd need to add up not just all the money it's going to cost the owner, but also subtract all the money the the owner did not have to pay in rent.
Now, it is possible that you would not rent a place similar to the one that you buy. In this case, your savings are equal to (rent expense otherwise incurred) - (unrealized rental income). I think that the latter will tend to be higher than the former. This will result in a net loss for owning. This loss is simply the price the owner pays for occupying a nicer place and does not really have much to do with owning vs renting.
Selection of choice to rent vs buy typically isn't driven by net wealth change considerations; rather, it's an investment in an area, because the transaction costs of house purchases are much higher than changing rental leases, and thus you need to stay in a bought house longer to spread the costs. In particular, houses bought for living (rather than rental) are more often selected for life-changing events, like starting a family, or downsizing when children have left the family home.
Further, your bald assertion that unrealized rental income will be greater than rent expense otherwise incurred - if I read this right, it means you think people will buy a more expensive property than they would rent - I think is wholly unjustified. I think you've got it exactly backward, and that's certainly the case in my rental vs purchasing history: I've always rented places that I couldn't afford to buy.
When I was younger, I valued being closer to the heart of the city (London in my case). That meant denser living, apartments, etc. When I chose to buy, I couldn't afford to buy the places I'd been renting, but also my values had changed: I wanted somewhere with more space, not least because I had more stuff (like motorcycles, which meant a garage; and an office distinct from the living room; etc.)
I'm countering this assertion that you need to subtract all the money that the owner did not have to pay in rent because this is going to be equal to the amount that the owner did not earn in rent by renting out their house.
People who buy a house for living (rather than rental) do not often make a rational economic investment decision which is kind of my point.
Sorry, I did not make it clear that I was assuming a comparison between renting and owning in the same neighbourhood. People (Americans in particular) generally rent apartments and buy houses, as you rightly pointed out. Within the same neighbourhood, a house is going to cost more to rent than an apartment.
In a first approximation, if rent is much less than owning + expenses, the property owner will have to sell or go bankrupt, which will reduce property values. If rent is much greater, then property owners have an incentive to increase the rental market, lowering rents and raising property values. At a theoretical level, owning carries more uncertainty than renting.
Of course, weird circumstances can upset things: a decrease in acceptable uncertainty can cause rents to go up faster than the market can otherwise adjust, for example.
My past experience says that renting costs more than owning, but bit by much.
But I don't know what you think an inordinate down payment is.
The value of an investment has nothing to do with how much use you get out of it. You're conflating investments with assets.
The value of an investment is how much you can sell it for and how much money it bring you (dividends, etc). The value of an asset is how much value you're currently getting out of it.
The fact that you'll have to pay money for rent is immaterial. You can count that as paying rent to yourself by owning a house.
The equation is simply costs should be less than outlay. If rent <= property taxes + interest on down payment + property taxes + amortized closing costs + opportunity cost for not being able to easily move + repair costs - tax benefits, you win. Otherwise, you're losing.
A house can be both.
A house allows you to hedge rent growth. The big challenge with houses is that they are leveraged. That makes the situation complex in that the equity investment you make can become way more or way less valuable with smaller underlying price moves in the house.
Investments can go up or down in value. There are no sure thing investments. Just choices with various lnevels of risk and tradeoffs.
Imo, student loans are not constructed in a way that makes them an investment since the optionality is removed from the borrower.
For most people this is a lot less than the total value of the property. Which means that even if the property only appreciates at the rate of inflation, your investment will grow faster than inflation. Voila: the power of leverage.
> The value of your degree goes down over time as you gain work experience; its peak value is right after you graduate.
I'm not aware of any evidence that this is true. What we know is that on average, folks with college education earn more over their lifetimes than those without. I've never seen any sort of reporting that degrees depreciate "right off the lot" like cars.
Anecdotally I'll point out that most people list their college education on their resumes for their entire careers. And my employer calls the university to verify a degree on a resume before extending an offer--no matter how long ago it was received.
And that's just the paper; it doesn't even account for the value of the actual education itself to a career.
Incorrect. You're also paying interest on the loan, which is usually pretty close to inflation. No matter how you slice it, you're pretty close to breaking even.
Also, you're not getting paid interest on the cash outlay you make the acquire the property, which is another loss.
> Voila: the power of leverage.
Leverage is just a tool you have, that can come back and bite you. If you leverage your investment by 10X, the real increases and decreases in value (adjusted for inflation) are 10X what they would be if you had not leveraged your assets. If you lose 10K of value on a 100k house that you put 20k down on, voila, the power of leverage. You just lost 50% of your investment.
> I'm not aware of any evidence that this is true.
The longer you go in your career, the less people care which school you went to because you have a work history that people can use to more accurately judge your productivity. If you're right out of college, your degree works as a proxy to that.
For most jobs, if you've already worked in the industry for 10 years, the salary you'll receive is roughly the same with and without a college degree, and the difference is even less between "good" and "bad" colleges. The earnings over career is a red herring, where right out of college, you get an initial salary boost.
Yes leverage is just a tool. The point is, a mortgage creates leverage and it's silly to ignore that when thinking about return.
> The longer you go in your career, the less people care which school you went to because you have a work history that people can use to more accurately judge your productivity.
This is speculation by you. Again: note how many resumes keep college on them.
> For most jobs, if you've already worked in the industry for 10 years, the salary you'll receive is roughly the same with and without a college degree, and the difference is even less between "good" and "bad" colleges. The earnings over career is a red herring, where right out of college, you get an initial salary boost.
This is self-contradictory unless you think that salaries for people with degrees grow more slowly than for people without degrees.
Actually, you're paying somebody who also might be paying interest on a loan. What happens to money after you pay it is immaterial. You're not paying interest on a rent debt you've accumulated.
> The point is, a mortgage creates leverage and it's silly to ignore that when thinking about return.
You're spinning it in terms of pure rewards. When you leverage your money on an investment which can have value go both up and down, you're just magnifying your exposure. Of course, if you can find an investment that's guaranteed to go up, of course you should leverage yourself to the hilt. If that's the case, go buy up some tulip bulb.
> This is speculation by you. Again: note how many resumes keep college on them.
And also by you - if we did an A/B test based on years of experience vs college, we can see whether that matters or not. Everything else is speculation.
> you think that salaries for people with degrees grow more slowly than for people without degrees.
Of course they do. If you start off earning 30k as a high school dropout doing the same job as somebody earning 60k who has a degree, your wage will rise more quickly if you perform at the same level.
It's worth pointing out that the post I'm replying to stated that housing prices generally track inflation, which is upward. My point is simply that leverage permits a return higher than inflation under those circumstances. I wouldn't claim that housing prices are some sort of "sure thing," and I don't think I did.
> And also by you
Yes, but the difference is I know I'm speculating.
Unless you've got some actual data to bring, I'm not interested in a guessing contest.
Well, my point is that if you leverage yourself in an investment that just tracks inflation, you're running in place. Leverage doesn't do anything in real terms here. The number value in your bank account might go up, but your real purchasing power doesn't.
That was my point, that in this situation leverage doesn't help you, and that fundamentally if you're trying to use leverage in this situation, you're hoping that housing prices rise faster than inflation does.
If the interest rate on the mortgage is equal to inflation, then you will realize the same gains on the house as if you put the downpayment in an interest bearing account at that same interest rate. This is before accounting for transaction costs, property taxes, upkeep, etc. If the mortgage rate is lower than inflation then you will have a larger gain and if the mortgage rate is higher than inflation then you will lose money.
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The increase in earnings will be largest when you have 0 years of work experience and smallest when you have 40 years of work experience. In this sense, the value of the degree diminishes over time as the value of your work experience increases.
Alternatively, you can do a discounted cash flow analysis on this increase in lifetime earnings to get the present value of the degree - you could do this while still in school, at graduation or partway through your career. Arguably, if you do this analysis partway through your career, you should include the increases in earnings already realized in which case the value of the degree will likely remain static or drop slightly over time. Regardless, the value of the degree will not go up over time.
The value of the actual education itself to a career is usually lower than the value of a random (as in random access) sample of 4 years of work experience. However, the value of the education & degree to getting the first, second, and perhaps even third job is non-negligible.
Mortgage interest doesn't go on the balance sheet because it is an expense, not a liability. Other property expenses include property tax, insurance, upkeep and maintenance, repairs, etc.
These expenses do not magically disappear just because a property is a rental. If you are paying rent, you are paying all these expenses, unless your landlord is purposefully losing money on you.
I'm not here to claim that buying a home with a mortgage is the best investment for everyone. That depends on the particulars of each situation. I'm just challenging the notion that buying a home is not an investment.
People buy homes because they expect to get a return, and most do. Same with education. If your analyses comes to the conclusion that that is not possible, then you need to check against the data actually coming out of the economy.
The problem is they don't. Especially in urban areas, housing prices have historically risen faster than inflation, leading to the absurd prices and rents we now see in many cities.
This has created a bit of a crisis now, because many people have bought housing expecting it to continue to beat inflation, but the prices are already absurdly high and further significant increases are unsustainable.
The result is that housing was an investment, and might continue to be for a few more years as long as the vested interests can continue to inflate the bubble, but at some point there is a pop coming.
An investment isn't defined away because it is likely to fail. It can be a bad investment if that is the probability.
An investment isn't in general defined by wisdom.
Stocks have been invested in when inflation was high enough to make them bad investments in the short term, but in some such cases they worked out in the long term.
Similarly, if my education increases my lifetime earnings by more than it cost me then it is a good investment, regardless of where in my career I make that return. The idea that my education must increase in value over my career in order to be considered an investment is very, very strange.
You can argue that these investments are frequently bad, but it doesn't make sense to argue they are not investments.
What matters, and what lenders look at, is debt serviceability. Lenders don't want principal paid back, ideally you just keep paying interest for life.
Let's say median household:
Income: $4000/mo
Rent: $1500/mo
Other necessities: $2000/mo
Let's say $500/mo "disposable." It's from this that the interest needs to be paid to service the debt on that $12,600 (actually, that's per person; there are 2.53 people in the median household, so $32k debt). What's the average interest rate? Maybe 10%? That's $266/month just for interest.
Now, economy goes into recession, consumer loses income and will first stop paying unsecured debt (credit cards, student loans), then auto loan until repo, then finally mortgage. And keep in mind median American doesn't have a lot of liquid savings to cushion. If there's anything, it's in 401k or home equity - and now is not a good time to sell. But many are forced to, further increasing supply when buyers are scared off, so prices keep declining.
Everything starts to be sold and assets get repriced. More seized cars at auction. More foreclosed houses. Banks restrict credit. Everything spirals down, quickly. Cashed up HNW investors willing to take the risk buy up firesale assets with cash and hold them. Maybe prices recover eventually, but now more assets are held by fewer people, and you've moved further into inequality.
The US is very much a credit driven economy. That's why the credit crunch of 2007 had such a severe impact.
This just happened a decade ago, and it seems people have already forgotten what it's like.
from buying too much house or car to over buying an education that cannot be used where the person is or in a field that cannot withstand the costs. all of these are marketed products. all three have vary optional levels of how much they cost.
then add in all the monthly bills and this is where many people miscalculate and it snow balls. from cell to internet to even television. you can quickly end up paying a significant amount of your income that has no tangible return.
This is a myth that economics will not let go of. Almost all human decisions are influenced by emotions. Here's two examples:
[A] Would you rather receive $49 or have a 50% of receiving $100? - The rational decision would be to choose the 50% chance since your expected value would be $50. Most people go for the $49, humans are irrationally risk-averse in terms of gains.
[B] 1)You have $1,000 and you must pick one of the following choices: Choice A: You have a 50% chance of gaining $1,000, and a 50% chance of gaining $0. Choice B: You have a 100% chance of gaining $500.
2)You have $2,000 and you must pick one of the following choices: Choice A: You have a 50% chance of losing $1,000, and 50% of losing $0. Choice B: You have a 100% chance of losing $500.
Time after time, when presented with this problem, people chose B for question 1 and A for question 2. A rational person would choose either A or B for both questions. The expected value is the same for both questions, but it shows that people are risk averse in gains and risk seeking in mitigating losses.
Couple this with the number of people who actually understand the concept of compounded interest rates and yikes.
Just nitpicking, but people are not otherwise rational. Study after study has shown that emotions are involved in nearly every,if not all, decisions that we make.
University economics is a religion, not a science, it offers up myths instead of testable predictions on observable reality. High finance is a different deal, but they surely don't build their models on university textbooks.
That's a bit harsh. Is every field that employs simplified approximations of complex systems a religion as well? With that definition even physics is out and that's one of the more concrete sciences.
What I find most off-putting are those who advocate for wholesale changes in our society on little more than hypothesis and faith instead of running experiments starting at the smallest reasonable scale and then successively working your way up from that.
It should at least pretend to try to applying basic scientific methodologies to its practice.Psychology has evolved to being a rigorous, evidence based social science. That psychology is not one of the foundations of studying economics is also problematic too.
Economics has a weird tendency to invoke "outside shocks" to explain why their models fail, and seems to have difficulty identifying those shocks.
I don't want to be a jerk, but you are wrong to a phenomenal degree.
Cumulative Prospect Theory takes this into account and states that people tend to overweight extreme, but unlikely events, but underweight "average" events, but I digress
I was just trying to show the base irrationality of the human mind. Here's another example. Consider you have two offers for the New York Times:
[A] $59 – Internet Only Subscription $125 – Internet and Print Subscription
[B] $59 – Internet Only Subscription $125 – Print Only Subscription $125 – Internet and Print Subscription
Both offers are the same, with the exception of including the “print only” subscription in Offer A. Despite the fact that not a single person chose that unattractive offer, its impact was dramatic – In a study, 62% more subjects chose the combined print and Internet offer, and predicted revenue jumped 43%. The print-only offer was the decoy, and served to make the combined offer look like a better value. This is called decoy marketing and is only one of an arsenal of tools that is used to take advantage of the irrational mind. You'll see this everywhere so it pays to identify it.
I should've put rational in quotes to show sarcasm or followed rational with "defined by economists at that time"
I have a degree in economics and both my parents are professors of economics, so I have some perspective on this. Economics as a discipline has never really been confused about risk in the way you describe.
I have a degree in economics too and my main complaint is that I wish those in the field treated it with more rigor, more like a scientific or engineering field... explicitly state the simplified assumptions and limits on the models. And don't proclaim that your model is correct without experimenting. It's not as much a problem as it was in the past, but people like Hayek advocated for whole changes in society based upon ideology and philosophy without any experimental evidence. I understand it is difficult to conduct experiments, but if that is the case, stop being so certain and adamant in your position without evidence
And a lot isn't.
Apart from my mortgage, ALL of my debt is accrued when I'm too sick to work, and the medical bills pile up.
Some huge fraction (1/3?, 1/2?) of bankruptcies are caused by medical related expenses.
My burn rate is very low.
When I'm not working, it's because I'm sick, meaning no income. I'm too stubborn or principled or stupid to take unemployment (unless I'm actually looking for work). And I'm not sick enough for disability.
During those times I chew down my savings. This last round, I dipped into my 401k. (I had 6 months savings, expected to be out of work for 2 months, stretched to 10, had some major expenses come up.)
Then I get somewhat healthy, pay off my new medical bills, save what I can. Until next time.
Rinse, lather, repeat.
Quite true. But it also implies something else: Because the disparity of income levels in the US is so broad, just talking about the problem in terms of national totals and averages is useless. Show me the problem divided up by quantiles of the population, maybe even log-scaled as you get closer to the top, and then I might believe that there's a problem.
There are a number of indication that calls this into question.
- Size of loans vs. prospective or actual salaries after study.
- Age of debtors (some surprisingly old)
- Number of loans becoming delinquent
- Student loans taking off while other forms of consumer credit are stagnant or declining indicating that student loans are filling gaps elsewhere
- Unprecedented volume of student loans
>Consumers are stretching out auto loans farther than ever to a new record of 68 months. The longer the term, the lower the monthly payment. In the first quarter, almost a third of all auto loans came with repayment terms of 73-84 months, which was the most popular term among new vehicle buyers.
http://www.cnbc.com/2016/06/02/us-borrowers-are-paying-more-...
Indeed, I've often wondered this. If someone has an average $3000 credit card balance that they pay off in full when due, are they listed as having $3000 in consumer debt on account of that?
Card issuer knows whether you are a transactor (pay the entire balance each month) or revolver (carry over some of the balance and therefore pay interest on it). This is a strong risk predictor.
https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nomi...
Other types of consumer loans, like furniture or other lines of credit. Additionally, many new phones are leased.
> The Gross Domestic Product (GDP) in the United States was worth 18036.65 billion (about $18 trillion) US dollars in 2015. That is about $55,424 per person.
Another important number: Wealth in the U.S. is ~$90 trillion, or ~$270,000 per person. That makes $13,000 in debt seem easier to support.
Of course it depends highly on the distributions of wealth and debt. $80 billion of that wealth are in one person's hands, for example; he doesn't have debt problems.
$12k is a fuck ton of debt! A metric fuck ton, ~20% of avg yearly income. Not even counting mortgages.
That feedback loop does not exist with unsecured debt. If your neighbors to both your right and left can't pay their student loan, the value of your education will not go down.
Surely the lower valuation on your home is incorrectly low, though? Or is there some actual reason why buyers would want it less?
> Foreclosed homes naturally have
> a lower value than non-foreclosed
> homes
- Buying a foreclosed home is much more arduous due to bank processes, decreasing demand.
- Foreclosed homes tend to be in worse shape. The owners may not have had the means or desire to maintain after realizing they would eventually lose the home.
>I don't think the statement you're quoting is correct, however, they do tend to have a lower value.
I am curious why you say that quoted section was incorrect when you seem to agree that the value of foreclosed homes is lower.
It does not work quite like that. If there are a lot of foreclosures in a neighbor the prices will come down because of the additional inventory. Appraisals though are supposed to look at comparable homes, and take into account if the homes were sold under duress. A house or two in the neighborhood that either was foreclosed on, or sold much lower because the owner needed out should not impact an appraisal very much. Those are one off deals and do not reflect the market as a whole.
Edit: I'm not trying to suggest some kind of Fight Club-esque reorganization of society's financing structures. I'm just talking about the way that debt tends to get fractionally charged off when it goes to collections.
Another story, I recently changed rental apartments. My "credit report" was a page I printed out from a consumer credit reporting site, where I could've changed any data.
My point being, all this loose validation seems very remiscnet of the easy money that was so common pre-Great Recession.
Home loans right now are still very tight. I had to provide more documentation for a simple refi with the same bank, than I had to provide in 2011 when I purchased the home. When I asked why, they responded that regulations have continued to tighten since them.
When dogs can get a 500k home loan and then sell the house a month later for 600k I might start believing we are back in 2008.
also Student Debt cannot be forgiven in bankruptcy so you essentially have an entire generation of indentured servants who will never actually own property outright.
This is an issue, but can vanish with the stroke of a pen.
https://www.theguardian.com/education/2015/nov/24/uk-has-hig...
"Britain has the world’s most expensive public university tuition fees, surpassing the average in US equivalent institutions. While student fees can be higher at many ivy league and other top colleges, the £9,000 annual charge for attending an English institution pushed the British average above the US’s public colleges for the first time, the Organisation for Economic Cooperation and Development said."
http://www.ft.com/intl/cms/s/0/62a1d4e0-9213-11e5-bd82-c1fb8...
Indeed. My out of pocket for medical care this year is $19k (and that's with one of the "gold" plans)
But for a typical developer, that would be in the neighborhood of 20%.
Every time you hear a politician advocating more student loans (rather than more affordable higher ed), one of the reasons they do this is because student loans are non-dischargeable.
Think about someone who is 18 and takes on lots of debt. There would be very little reason not to declare bankruptcy, and just live off of wages for 5-7 years until the bankruptcy is cleared from his/her credit report.
With the housing crisis, most debtors also owned some equity in the house, which was a massive incentive not to foreclose, yet many still did.
But with consumer debt there is no downside. You can just choose not to pay it. The collections industry uses some marginally-illegal tactics to create personal embarrassment, but that's where it ends.
With an auto loan the car can be repossessed, but you can pay your rent using a credit card or buy a new TV every few months and if you fail to pay back the debt nobody is going to force you to give up those items. As with education, once the money has been used nothing the creditor does can take away the item, which is why the debt had to be made non-dischargeable.
I think we can look forward to a new class of non-dischargeable consumer debt which will initially be sold via lower interest rates, but will become the sort of debt that college campus credit card pushers will mainly be slinging.
There is really no political opposition to this anymore, now that both parties are so strongly aligned with the finance industry.
I'd also expect to see the credit report become something somewhat more like a "trust dossier" that would routinely be viewed by employers and other entities we all work with who do not typically view the data, and would include things like TSA precheck status, IRS timely filing information, immigration status, etc.
There's a reason debtors prisons used to exist, which is that the human optimism that can get us through great hardship can also tend to lead many humans to be overly optimistic about their ability to repay debt. It takes a very firm hand to create compliant borrowers. In the US, the older generation views missing a credit card payment as a really big (and embarrassing) deal, but the younger generation does not care as much about this.
The occupy movement was a backlash against the shackles of student debt, but was shut down relatively efficiently. The next iteration has fewer principled objectors but a lot more debt cynics who view consumer debt more as something to be exploited.
What would be interesting though would be credit offerings, cards for instance, that are not dischargable, but with better terms or interest rates.
My concern though is mandating classes of debt as non dischargable by law, banks wont necessarily pass the savings along to the customer, so the laws should allow certain types of debt to be dischargeable but subject to your agreement with the bank. So you get a non dischargeable card at 2 pts less than the normal one.
True, but the ceiling on the amount that can be loaned to a person is limited by the market-driven interest rate for packages of dischargeable debt.
> not dischargable, but with better terms or interest rates
Yes, I think we'd see aggressive refinancing offers and all sorts of other semi-dark patterns... which would be irrelevant to the 98% who don't declare bankruptcy, but likely quite life-changing to those who do.
Right now, colleges provide the service (education) and credential (degree). If independent third parties could provide believable credentials, there would be more incentives to find cheaper ways of delivering the services.
The US has higher wages than: the UK, Germany, France, Sweden, the Netherlands, Finland, Austria, Belgium, Spain, Portugal, Japan, Taiwan, South Korea.
With what attitude? Having knowledge of accounting, and that the balance sheet has two sides?
If anything, ignorance of finance is how you give your money to the bankers.
I don't think it's quite that simple. It's probably some combination of a number of factors such as:
* Inability to control one's spending
* A consumer-driven culture where status is equated with material possessions
* Availability of easy credit
* Society not recognizing compulsive spending as an addictionWhen I hear about debt that big I wonder if $4.1T even a real thing. I mean is it a tangible number that actually represents something of real substance?
$4.1E12 isn't really that difficult to relate to. Just amortize it across the US population of 325 million. That's $12,612 per citizen. It's also about one year of Federal spending.
It's a negative thing. Both individual debt load the and the rate of delinquency has been increasing, with student debt being the worst of these; if you can fog a glass you can make the Federal government send money to some school against your future earnings. There is probably no form of debt easier to assume in the US and upon this river of money floats a horde of careers, bonuses, pensions, endowments and gold plated benefits for The Great and The Good of academe, which makes questioning the value of it all a political third rail.
What do economists think? They're watching the bubble grow and devising ever more contrived ways to pretend it's not a bubble.
I've actually been thinking about the implications of student debt for a while and it seems like a really terrible thing for a lot of reasons. I think it sucks people are forced into jobs they probably wouldn't otherwise do, just to pay off some debt.
The only thing I'll say about your response is that, I frequently hear about "the bubble getting ready to burst", but it never seems to happen. Similar to radical increases in housing prices, they seem to just keep rising, contrary to economists predictions about a crash. It's a totally anecdotal observation, but it's the reason I asked the question in the first place.
There is no force involved; please maintain perspective. There are no debtors prisons filled with 20-something Berkeley graduates. Every penny of every student loan was voluntarily assumed by the debtors. The terms for much of this debt allow payments to be deferred based on income. The average amount of student debt being carried is typically less than the cost of a new car. We deal here with "first world problems."
>> but it never seems to happen
2008? TARP? "Great Recession"?
It clearly registers on every measure of economic activity I've seen. Rather hard to miss, really. You can have a look and the 07-08 collapse of property values over here if you missed it:
https://en.wikipedia.org/wiki/United_States_housing_bubble#/...
https://www.newyorkfed.org/medialibrary/interactives/househo...
Page 13 shows newly delinquent balances by loan type, and the trend doesn't seem too worrying. Page 11's "total balance by delinquency status" also seems to be heading in a good direction.
You don't have $1000 in your checking account. You have an IOU from the bank for $1000. You can then 'spend' the money by transferring the IOU to someone else. But it is never guaranteed transferable for something real. It relies on everyone else believing the $1000 has value, which they do, so you are OK.
The rate of bank-related expenditures should be measured instead. Add up all the ridiculous overdraft fees, the interest payments, changes in rates due to an ARM, etc. and one person’s financial picture could look quite a bit different than another for “the same debt” amount.
(On the bright side this is far from the majority of debt.)
Americans are the wealthiest people in the history of mankind. Fortunes ebb and flow, but there isn't much to worry about.
http://www.zerohedge.com/news/2017-02-16/us-household-debt-r...
(For some more analysis)
If there is a question of why, I will explain. It is the same explanation I give to a banking specialist for my refusal to accept a savings account. Take a village of 100 people; the entire village has no money whatsoever, so they cannot trade or buy food or sell goods and services. A rich man lives on the top of a mountain and decides to lend a $100 to the entire village, which is $1/person, at an interest rate of 5%, and the entire debt is to be paid back in exactly 1 year.
For the duration of that year, villagers are beginning to buy and sell, the economy is created and is moving healthily, villagers are working, products and services are being created, sold, and consumed. At the end of the year, $105 need to be paid back, but the entire amount of money in the entire village adds up to just a $100. Where does that $5 come from?
Some villagers will have accumulated more than $1 and they will be able to pay back their debts and have some left over. But then also some villagers will have nothing. What do they lose? How do they fulfill their debts?
The entire system relies on the introduction of additional money from somewhere. If so, then that entity loses money. This system is deeply toxic and works contrary to the one who borrows. And once all is added up, the net result is all money is removed from the system. Losers lose big. Winners hit net zero eventually.