The Growing Dilemma of Debt and Financial (In)Security in the United States By: Michael DiCenso

Personal financial stress in the United States continues to create concern and awareness of economic instability. 

  • Household debt-to-income ratios and financial statistics show 40% of Americans’ net worth at only $10,000 (GOBankingRates; March 12, 2018)
  • Retirement plans are not offered to more than 55 million employees, according to a 2014 study from Employee Benefits Research Institute
  • Bankrate found that in 2018 a whopping 65% of Americans are not prepared for retirement, with no savings or arrangement with a plan
  • A 2017 report on automation by the McKinsey Institute estimated that  25% of potential jobs today will be outsourced to technology and/or robotics over the next few years
  • Individuals budgeting paycheck to paycheck in the US reached 78% in 2017 according to CareerBuilder.

The growing concerns in economic stress trends may not have yet been fully recognized. This issue of the escalating household debt in the United States is detrimental. As of December 31, 2018, U.S. Household debt climbed to a staggering and record setting $13.1 trillion dollars according to the Federal Reserve. This is almost $1 trillion more than the total US household debt in 2007, prior to the financial crisis, according to the Federal Reserve Bank of New York.

Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period. The average American household carries $137,063 in debt, according to the Federal Reserve’s 2017 numbers. 

What makes up the debt and how does it differ from the past? According to the Federal Reserve:

  • Student loans: $1.56 trillion
  • Auto notes: $1trillion  
  • Mortgages $9.14 trillion 
  • Revolving accounts or credit cards: $1 trillion

    • Revolving debt default, account application rejections, and involuntary account closures have inclined creating negative financial credibility and overall unaffordability. 
    • The government states these developments are “potentially concerning” given the strength of the economy and comparatively low interest rates. Americans receive margin in excess of income, creating overwhelming debt liabilities.  What created these issues of concern with revolving debt accounts? The Federal government concluded alarming trends per results in “Credit Access Survey,” possibly creating credit lenders’ caution with risk management. Credit rejection rates for revolving credit-card applicants came in at 20.8% in the October 2018 survey, up from 14.4% a year ago, while the rejection rate for credit-limit increases ticked up to 31.7%, compared with 24.9% a year ago.

As of February 2019 the unemployment rate sits at 3.7% according to the Bureau of Labor Statistics - its lowest mark in nearly half a century, economic growth, and relatively low interest rates along with low oil cost typically impact financial stability. What will happen when we see a rise in interest rates and oil prices?

Student Loans $1.56 trillion

Student loan debt continues to rise. It’s costing more to attend college, and taking longer for students to earn their degree. In addition, the cost of living goes up each year.

And that plays a role, too. Student loans are not just for college anymore. These funds are sometimes used towards lifestyle expenses, allowing job freedom, intended to provide for educational time and focus, and more. Priority and choices for these students can mean that welfare funds are often abused, creating overwhelming student debt and damaged financial creditability. Damaged financial creditability affects personal interest rates, therefore costing more to finance and limiting opportunity for asset and financial growth.

The average college debt among student loan borrowers in America was $32,731 in a 2016/2017 report by the Federal Reserve:

  • This is an increase of approximately 20% over four years
  • 44.7 million Americans hold student loan debt 
  • Most borrowers have between $25,000 and $50,000 outstanding student loan debt
  • More than 600,000 borrowers in the country are over $200,000 in student debt
  • 100 borrowers in the country have more than $1 million in student loan debt
  • 5.1 million borrower’s student loans are in default equating to $101.4 billion
  • 11.5% of student loans are 90 days or more delinquent or are in default
  • Average monthly student loan payment (among those not in deferment): $393

Student loan issues create questions around educational worth and affordability. Many employers are assisting repayment by offering plans that provide up to half payment matching.  In fact, one company has received a private letter ruling from the IRS allowing a matching program like a 401(k) to help individuals pay their student loans.

Auto Loans: $1.65 trillion

Personal vehicles are depreciating luxuries. Owning a personal vehicle is a privilege yet considered a necessity due to life obligations and entertainment. Americans tend to exceed their vehicle budget with unpractical purposes. Defaulted auto loans often cannot be recovered by the vehicles market value. As reported by the Federal Reserve Bank of New York in February 2019, delinquent auto loans hit an all-time high where 7 million Americans are at least 90 days past due. This supersedes default statistics over any historical economic crisis. 

Mortgages: $9.14 trillion

According to CoreLogic in its 2018 Loan Performance Insights report, mortgage delinquencies stand at 4.4% which is the lowest rate in 10 years. September 2018 saw a rise in delinquencies bringing awareness to the possible trend. Market developments and patterns will be evident in future statistics.

Where Advisors Can Help

Financial advising could lead employees to a future of financial security and freedom of debt. Developing and executing financial plans and budget, credit counseling, wealth management, investments and retirement strategy are areas where advising and assistance can help financial organizations. Financial security and freedom of debt can help provide reduced stress and better quality of life. Employers will experience greater work productivity and job appreciation with an overall positive environment. 

Michael DiCenso is an Executive Vice President of Newport Group, Inc. responsible for leading the sales organization in the further development of business strategies and goals. 

The views expressed herein are those of the author and may not necessarily reflect the views of Newport Group, Inc. or its affiliates.

This material is for informational purposes only and all opinions are subject to change without notice. The comments and opinions contained herein are based on or derived from publicly available information from sources that we believe to be reliable. We do not guarantee their accuracy. 

Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Newport Group does not guarantee favorable outcomes.

Michael DiCenso

Michael DiCenso leads Newport Group’s combined sales organization in the further development of business strategies and goals.

A nationally recognized speaker and knowledge expert, Michael has nearly 30 years of experience in the industry with a proven history of success in sales, marketing and product...

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