Financial Planning, Retirement, Economy

Household Indebtedness Hit A Record High In Q1

5/30/19 12:00 PM

iStock-490366746.jpgThe latest update on Americans’ debt and credit developments from the Federal Reserve Bank of New York showed that total U.S. household indebtedness was $13.67 trillion at the end of the first quarter of 2019. That was a $124 billion (0.9 percent) increase from Q4 2018 and the 19th quarterly gain in a row. On the state level, California in Q1 once again had the highest total debt balance per capita. Although the “Great Recession” officially ended in 2009, most Americans have stopped deleveraging only during the past few years. Still, the recent rebound has been considerable because overall household indebtedness is now $993 billion (7.8 percent) above the 2008 peak.


Rising mortgage, automobile, and student loan debt have all been big drivers of this uptrend but encouragingly only 4.6 percent of the total debt outstanding was in some stage of delinquency at the end of March. That was down from the previous quarter and well below the level seen during the last recession. Further, 192,000 consumers had a bankruptcy notation on their credit reports in Q1, 3,000 fewer than in the prior quarter and near the low-end of the historic range. Altogether this suggests that even though total household debt in America has surpassed the 2008 high, the quality of that debt has vastly improved. Moreover, flows into both newly delinquent (at least 30 days past due) and seriously delinquent (90+ days late) status have in many areas stabilized or even improved over the past few years. Credit cards are a clear exception, which agrees with the recent slowdown in revolving credit utilization growth, but current conditions are still much better than what was seen ahead of the last recession.


Assuming the labor market continues to tighten, the resulting pickup in wage growth could help consumers pay down their debt at a faster rate, and in turn have more disposable income to put to work in a tax-advantaged retirement account. Even for those who may not be able to immediately increase their 401(k) contributions, eliminating debt would still put them on a significantly stronger financial footing in old age. Indeed, most borrowers likely anticipate that they will be able to pay off all of their financial obligations in a reasonable timeframe, but many current retirees are far from debt free. In fact, an earlier Pew Research Center study found that roughly a quarter of Americans belonging to the Silent Generation (people born from the mid-1920s to the early-1940s) still carry alarming levels of mortgage ($76,000 median), automobile ($12,000), and credit card ($2,700) debt. Younger generations fortunately have time left to learn from such examples and shore up their balance sheets well before reaching the age of retirement.



Sources: FRBNY, Pew Trusts

Post author: Charles Couch