Times are good. Unemployment is at record lows, the job market is hot, the stock market has been cranking, and inflation is in check. Give kudos where kudos are due. I’ve heard folks crediting everyone from Trump on down to JFK, but when times are good and the economic engine is pumping strong, what does the average American do? BORROW MONEY!!!
Household debt has been increasing steadily over the last 4 years. US households have raked up a record $15.51 trillion worth of total debt balances. It’s costly debt too, with users paying banks over $100 billion in interest last year. With interest rates creeping up that number is expected to grow 11% this year. As a result we’re seeing debt that’s hard to manage, with delinquency rates at 7-year highs and rising.
It’s also junky debt. Total mortgage debt sits below 2008 highs. Mortgages have been replaced by auto loans, which are 30% higher, and student loan debt which has doubled over the last 10 years. As a percentage of GDP, household debt sits right at 80%. That is a lot of leverage!
As you look at the last 3 generations (the Baby Boomers, Gen Xers, and Millennials) 80% carry debt in some form. Mortgages, student loans, medical bills, auto loans, outstanding bills, credit cards, and personal loans in that order. America is truly a nation that runs on an engine fueled by debt.
Meanwhile, nearly half of Americans nearing retirement age have less than $25,000 put away. One in four don’t even have $1,000 saved. A recent Federal Reserve survey found that 40% of US adults can’t cover an unexpected expense of $400 without using a credit card.
This is not surprising considering nearly 70% of US adults have less than $1,000 in their savings account. The US household saving rate currently sits at 6.2% and it is dropping rapidly, riding well below its 8.8% average over the last 60 years.
Make It Stop…
I refuse the concept of consumerism, which is very much fueled by credit as illustrated above. These figures are mind-boggling to me. People have no money saved, they have a record amount of money borrowed, and they are spending it at a record pace. Simply put, a vast majority of folks exist on borrowed money, and therefore borrowed time.
When you’re fresh out of college and sitting on a 5-figure student loan, here comes the credit pimp with offers of a house, a car, and all of the clothing & furnishings you “need”. His magic plastic card will also make your vacation dreams a reality, elevate your standing in terms of dining & entertainment, and act as a safety net for unexpected expenses. But hey, your Facebook page looks great!
If you’re lucky you get a raise, and things might get easier. But instead of paying off some debt, most folks increase their lifestyle instead. You’ll get offers for more cards, at least 2 or 3 per day in the mail and all day long online. Like hamsters on a wheel, a higher salary doesn’t lead to less debt. No, it leads to the idea you can take on even more debt as you continue to compete in the cage match of consumerism.
Bigger, better, newer, more is the constant loop*. I need a bigger house, I need a better car, I need newer clothes, I need more stuff. Uh oh, more stuff? Now I need a bigger house… and around we go again. We borrow money we don’t have to buy stuff we don’t need to impress people we don’t know**. Missing in this equation – contentment. Where is it?
Come take a tour of Williamson County, my place of residence. The credit pimp runs wild with private school tuition (the social hierarchy of private school status is hilarious), Christmas in Cabo (Instagram is a thing of beauty), a condo on 30A (this is where the peacocks gather to show off their borrowed feathers), and a leased car never less than 3 years old (anything older is deemed unsafe to be driven at any speed).
Me? I’m sitting over here without a payment in the world sipping DIY espresso and wondering where things got off track. Contentment? For me it’s the fact I am not a slave. Websters defines contentment as “a state of peaceful happiness”, so that means I am free of the noise produced by due dates, late fees, penalties, and interest rates. It’s also defined as “a state of satisfaction”, meaning I am satisfied with what I have and what I can afford, and not consumed by the quest for bigger, better, newer, and more.
Clearly, and without question, the debtor is a slave to the lender. When you’re levered up at 5 times your annual salary, you really have no choice but to get up, put your expensive pants on (one leg at a time, of course) and go to work. This is, however, a choice and not a mandate. I owe, I owe, it’s off to work I go… I choose to work by my choice and not by the mandate of a master who has my signature on a credit contract.
I am writing this across Black Friday weekend. The viral video this year are people fighting over cheetah-print bath robes at Victoria’s Secret. Surveys show 1/3 of holiday shoppers are still in debt from last year’s Christmas shopping spree, but of course people need something bigger, better, and newer this year – and they need more of it. Evidently bath robes have been in short supply.
It has me thinking, if people will fight over a cheap bath robe made in Vietnam, what happens during a food crisis? What happens when the power goes out and the credit card swipers stop working? What will happen when the credit pimp comes to collect? He’s not one to stand idly by but it’s going to make for some awesome YouTube videos.
I am hoping the revolution is televised..
* h/t Michael Easley ** h/t Walter Slezak, by way of Tyler Durden in “Fight Club”