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 The latest statistics from the Federal Reserve indicate that the total amount of consumer debt outstanding remained fairly steady in 2007. In case you're wondering the total amount of consumer debt in the United States stands at nearly $2.5 trillion dollars - and based on the latest Census statistics, that works out to be nearly $8,200 in debt for every man, woman and child that lives here in the US.
And if you're saying to yourself - that that statistic doesn't seem quite so bad - just keep this in mind: We're talking about consumer credit - which does not include debt secured by real estate. So if you're thinking that number has mortgage values in it, it doesn't.
Consumer Credit Breakdown
So just how does that debt breakdown in terms of credit cards and /or the purchase of a new automobile? Well, roughly 37% of all consumer debt - as of August 2007 - of this type is what is termed revolving credit - which is defined as credit which is repeatedly available as periodic repayments are made. The most common type of revolving credit would be credit card debt.
The other 63% of that debt is derived from loans that are not revolving in nature. This type of debt would include automobile loans, student loans, and loans on boats, trailers or even vacations. In fact, these statistics also tell us that the average new car loan is nearly $29,000 and the loan to value ratio is 94%. That means new car buyers are using down payments of around 6% of the car's purchase price.
Federal Reserve and Consumer Debt
So just how does those establishing monetary policy at the Federal Reserve feel about consumer credit? Here are some conclusions that Alan Greenspan came to back in April of 2005.
"As we reflect on the evolution of consumer credit in the United States, we must conclude that innovation and structural change in the financial services industry have been critical in providing expanded access to credit for the vast majority of consumers, including those of limited means. Without these forces, it would have been impossible for lower-income consumers to have the degree of access to credit markets that they now have.
This fact underscores the importance of our roles as policymakers, researchers, bankers, and consumer advocates in fostering constructive innovation that is both responsive to market demand and beneficial to consumers."
At that point in time he did not appear to be concerned about the growth in consumer credit. In fact, he is heralding the financial services industry for making changes that allow even those of limited means to have access to credit.
Consumer Debt in the US
The Federal Reserve also reports what is called the household debt service ratio or DSR. This measure tells us the ratio of all debt payments to disposable income. Current statistics (July 2007) indicate this ratio at 14.3% - meaning that consumers spend roughly 14% of their disposable, after tax income, to pay off mortgage obligations and consumer debt such as auto and personal loans.
A more broad measure of consumer debt is what's called the financial obligations ratio or FOR. This measurement of consumer debt adds other financial obligations such as car lease payments, rental properties, property taxes and homeowner's insurance. The FOR is arguably a better overall measure of how much disposable income goes towards paying off all "mandatory" financial obligations.
As of July 2007, this financial obligations ratio stood at 18.00% for homeowners and 25.90% for renters. Nationally, including all groups, this number stands at 19.29%. What this data tells us is that the typical homeowner spends around 18% of their disposable income just to own their homes and cars. Renters outpace homeowners by over 7% and spend over 25% of their income on these same types of debts.
Credit Card Debt
According to information gathered by the US Census bureau, there were approximately 164 million credit card holders in the United States in 2003 and that number is projected to grow to 176 million Americans by 2008. These same Americans own approximately 1.5 billion cards - an average of nearly nine credit cards issued per credit card holder.
In addition, Americans charged approximately $1,735 billion dollars to their credit cards in 2003 - that's just over $10,500 in charges. This information includes all credit card types including bank cards, phone cars, as well as credit cards issued by oil companies and retail store.
This data also tells us that Americans carried approximately $786 billion in credit card debt and that number is expected to grow to a projected $965 billion by the year 2008. This works out to nearly $4,800 in credit card debt per cardholder (not household) and that number is expected to increase to nearly $5,500 by 2008.
You can find more information on this topic in our article on credit card debt statistics.
Bankruptcy and Consumer Debt
In January 2006, the American Bankers Associated reported the percentage of credit card accounts that were 30 or more days past due dipped slightly to 4.74% in the third quarter of 2005. That's good news because it means more consumers are paying their bills on time.
But even with this decline in late payments, credit card delinquencies were at the third highest level on record. To James Chessen, ABA's chief economist, that can signal financial distress and he attributes this distress to the rise in gasoline prices as well as rising interest rates.
Bankruptcy Filings in 2005 / 2006
Despite the Fed's feelings about consumer credit, the bankruptcy law changes that were instituted last fall resulted in a rush of indebted consumers to file for bankruptcy in 2005. That rush pushed personal bankruptcy filings to their highest levels on record - with estimates in excess of 2 million filings.
In fact, according to Lundquist Consulting, a research company based in California, there were 2,043,535 bankruptcy filings in 2005. That's an increase of over 31% from the 1,522,967 filings recorded in 2004. Again, using Census statistics on the number of households that mean nearly one in every 50 households in the United States filed for bankruptcy in 2005. In 2006 the number of filings decreased to just over 500,000.
So that leaves it up to you to think about this question - Is the growth of consumer debt really a concern in America?
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