Families Go Deep in Debt to stay in the Middle Class.

[Mindful]

Wages stalled but costs haven’t, so people increasingly rent or finance what their parents might have owned outright.

A middle-class lifestyle.

Cars, college, houses and medical care have become steadily more costly, but incomes have been largely stagnant for two decades, despite a recent uptick. Filling the gap between earning and spending is an explosion of finance into nearly every corner of the consumer economy.

Consumer debt, not counting mortgages, has climbed to $4 trillion—higher than it has ever been even after adjusting for inflation. Mortgage debt slid after the financial crisis a decade ago but is rebounding.

Student debt totaled about $1.5 trillion last year, exceeding all other forms of consumer debt except mortgages.

Auto debt is up nearly 40% adjusting for inflation in the last decade to $1.3 trillion. And the average loan for new cars is up an inflation-adjusted 11% in a decade, to $32,187, according to an analysis of data from credit-reporting firm Experian.

Unsecured personal loans are back in vogue, the result of competition between technology-savvy lenders and big banks for borrowers and loan volume.

The debt surge is partly by design, a byproduct of low borrowing costs the Federal Reserve engineered after the financial crisis to get the economy moving. It has reshaped both borrowers and lenders. Consumers increasingly need it, companies increasingly can’t sell their goods without it, and the economy, which counts on consumer spending for more than two-thirds of GDP, would struggle without a plentiful supply of credit.

Changing Portfolio.


Families Go Deep in Debt to Stay in the Middle Class

 

[Mindful]

^In one sense, the growing consumer debt is a vote of confidence in the future. People borrowing money today expect to have the income tomorrow to pay it back. Consumer debt tends to rise when borrowers feel secure in their jobs.

But the debt pile is also an accumulated ledger of economic risk. It should be manageable so long as unemployment remains low. If job losses begin to rise, it would become unsustainable for some share of borrowers, raising chances of an increase in missed payments and lenders writing off unpaid balances. The Fed lowered interest rates on Wednesday because it sees rising risks of a slowdown that could boost unemployment.^

 

[Third Party]

Wages stalled but costs haven’t, so people increasingly rent or finance what their parents might have owned outright.

A middle-class lifestyle.

Cars, college, houses and medical care have become steadily more costly, but incomes have been largely stagnant for two decades, despite a recent uptick. Filling the gap between earning and spending is an explosion of finance into nearly every corner of the consumer economy.

Consumer debt, not counting mortgages, has climbed to $4 trillion—higher than it has ever been even after adjusting for inflation. Mortgage debt slid after the financial crisis a decade ago but is rebounding.

Student debt totaled about $1.5 trillion last year, exceeding all other forms of consumer debt except mortgages.

Auto debt is up nearly 40% adjusting for inflation in the last decade to $1.3 trillion. And the average loan for new cars is up an inflation-adjusted 11% in a decade, to $32,187, according to an analysis of data from credit-reporting firm Experian.

Unsecured personal loans are back in vogue, the result of competition between technology-savvy lenders and big banks for borrowers and loan volume.

The debt surge is partly by design, a byproduct of low borrowing costs the Federal Reserve engineered after the financial crisis to get the economy moving. It has reshaped both borrowers and lenders. Consumers increasingly need it, companies increasingly can’t sell their goods without it, and the economy, which counts on consumer spending for more than two-thirds of GDP, would struggle without a plentiful supply of credit.

Changing Portfolio.


Families Go Deep in Debt to Stay in the Middle Class

I had one TV, no cell phone, my wife and I each had two jobs to get the kids thru college. This was in the "high paying" eighties and nineties! We now have no debt because we did not spend our way into it. As Kevin on Shark Tank says "Its not what you make, its what you keep".

 

[Dekster]

Renting is a fool's game.

As for rising debt, it is a double edged sword. On one side people get themselves in trouble. On the other it shows more optimism in the economy.

I suspect you are seeing more unsecured debt because of underwriting requirements. Banks don't hate it because they charge more interest on those loans. It is sometimes easier to get a personal loan than it is a home equity, car loan, etc. I was going to refinance my house but I couldn't get the loan because I don't owe enough on it to make it worth their while. I could go into my credit union and get enough on a personal loan to pay it off but couldn't refinance it with a mortgage. It is quite ridiculous sometimes.