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Americans Hold Over $4.1T in Consumer Debt

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Re: Americans Hold Over $4.1T in Consumer Debt

#71

Post by graeme »

NumberSix wrote: post #30

The United States has a total resident population (as of January 23, 2017) of 324,420,000 people (about 324 million). Source: https://en.wikipedia.org/wiki/Demographics_of_the_United_Sta... Thus, $4.1 trillion in consumer debt works out to $12,638 per person. The Gross Domestic Product (GDP) in the United States was worth 18036.65 billion (about $18 trillion) US dollars in 2015. That is about $55,424 per person. Note…

>It is difficult to evaluate credit card debt because credit cards have increasingly become the substitute for cash in the United States. How much of the debt is extremely short term and essentially represents what used to be cash transactions?

Indeed, I've often wondered this. If someone has an average $3000 credit card balance that they pay off in full when due, are they listed as having $3000 in consumer debt on account of that?

Re: Americans Hold Over $4.1T in Consumer Debt

#72

Post by uiri »

cylinder wrote: post #63
tptacek wrote: post #61

Earlier quoted context omitted.

"Not dischargable" means you can't rid yourself of them easily through bankruptcy. It's the nature of most loans that you can't remove them from your portfolio; you have to pay them off.

The loan is a liability, the degree is the asset. If the degree is unable to land the person a job, or the earnings of the job over the career do not stack up to the price of the degree, then it is an "upside down investment" just like a house with negative equity.

A house isn't an investment either though. An investment is an asset which is expected to go up in value faster than inflation. Housing prices track inflation. This is, on average, generally true; I'm not talking about a specific local market here. In order for something to be an investment, it must generate a return. After transaction costs, property taxes and other upkeep expense, the RoI of real estate is not great. Real estate has low liquidity, low diversification and high leverage requirements.

Shelter is an expense. Like many things, you can own it or you can rent it. Owning it means you're holding an asset that (hopefully) won't depreciate but it is also unlikely to meaningfully appreciate (outside of certain local market conditions that are the exception rather than the rule).

Back to the original point: in order for an education to be an investment, the degree - the asset - must have a reasonable expectation of going up in value over time. The value of your degree goes down over time as you gain work experience; its peak value is right after you graduate. An argument could be made that the return on investment is a rise in earning potential but that too is a one time boost. A degree also shares all the bad qualities of housing as an investment: high leverage, even worse - zero! - liquidity, and low diversification.

It might make financial sense to borrow money in order to fund a degree, but that by no means makes education an investment.

Re: Americans Hold Over $4.1T in Consumer Debt

#73

Post by rtx »

wtvanhest wrote: post #62
tptacek wrote: post #61

Earlier quoted context omitted.

"Not dischargable" means you can't rid yourself of them easily through bankruptcy. It's the nature of most loans that you can't remove them from your portfolio; you have to pay them off.

I agree, but no one looks at the other forms of consumer debt as investments. If we are going to call student loans investments, we might as well call autoloans investments. The same logic could be applied. A car helps you get to a job and gives you a return.

It's an investment if it used to improve your economic condition, otherwise an expense.

Re: Americans Hold Over $4.1T in Consumer Debt

#74

Post by curtis »

uiri wrote: post #72
cylinder wrote: post #63

Earlier quoted context omitted.

The loan is a liability, the degree is the asset. If the degree is unable to land the person a job, or the earnings of the job over the career do not stack up to the price of the degree, then it is an "upside down investment" just like a house with negative equity.

A house isn't an investment either though. An investment is an asset which is expected to go up in value faster than inflation. Housing prices track inflation. This is, on average, generally true; I'm not talking about a specific local market here. In order for something to be an investment, it must generate a return. After transaction costs, property taxes and other upkeep expense, the RoI of real estate is not grea…

> A house isn't an investment either though. An investment is an asset which is expected to go up in value faster than inflation.

Most people who own homes only own the one they live in. If they did not own that home they would have to pay rent. So to figure out the overall value of the investment, you'd need to add up not just all the money it's going to cost the owner, but also subtract all the money the the owner did not have to pay in rent.

Re: Americans Hold Over $4.1T in Consumer Debt

#75

Post by adventured »

maxxxxx wrote: post #38
IshKebab wrote: post #24

Earlier quoted context omitted.

Does America really have low wages? Granted, the lack of a minimum wage is crazy, but the median household income is $56k. Compare that to £23k in the UK.

A lot of people don't have guaranteed retirement benefits, education is expensive and sickness can cost you a lot of money any time. When things go well you can live well in the US but things can go bad quickly.

That's also true in many other developed nations in regards to education, such as Canada, Japan and Britain, which have between moderately and very expensive education systems. Britain for example now has arguably the most expensive university costs:

https://www.theguardian.com/education/2015/nov/24/uk-has-hig...

"Britain has the world’s most expensive public university tuition fees, surpassing the average in US equivalent institutions. While student fees can be higher at many ivy league and other top colleges, the £9,000 annual charge for attending an English institution pushed the British average above the US’s public colleges for the first time, the Organisation for Economic Cooperation and Development said."

http://www.ft.com/intl/cms/s/0/62a1d4e0-9213-11e5-bd82-c1fb8...

Re: Americans Hold Over $4.1T in Consumer Debt

#76

Post by adventured »

omilu wrote: post #2

Combine low wages, increasing loan delinquency, and the probable start of trade wars with mexico and china and I can't see how this doesn't turn out to be like 2008 on steroids.

Low wages? The US has among the highest wages on the planet. To go with nearly the highest GDP per capita and nearly the highest disposable income levels.

The US has higher wages than: the UK, Germany, France, Sweden, the Netherlands, Finland, Austria, Belgium, Spain, Portugal, Japan, Taiwan, South Korea.

Re: Americans Hold Over $4.1T in Consumer Debt

#77

Post by adventured »

NumberSix wrote: post #30

The United States has a total resident population (as of January 23, 2017) of 324,420,000 people (about 324 million). Source: https://en.wikipedia.org/wiki/Demographics_of_the_United_Sta... Thus, $4.1 trillion in consumer debt works out to $12,638 per person. The Gross Domestic Product (GDP) in the United States was worth 18036.65 billion (about $18 trillion) US dollars in 2015. That is about $55,424 per person. Note…

Your GDP figure is missing about $600 to $700 billion (equal to half the Australian or Russian economy):

https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nomi...

Re: Americans Hold Over $4.1T in Consumer Debt

#78

Post by Shivetya »

cylinder wrote: post #60
NumberSix wrote: post #30

The United States has a total resident population (as of January 23, 2017) of 324,420,000 people (about 324 million). Source: https://en.wikipedia.org/wiki/Demographics_of_the_United_Sta... Thus, $4.1 trillion in consumer debt works out to $12,638 per person. The Gross Domestic Product (GDP) in the United States was worth 18036.65 billion (about $18 trillion) US dollars in 2015. That is about $55,424 per person. Note…

Looking at principal balances is all wrong. GDP means nothing in this instance either. What matters, and what lenders look at, is debt serviceability. Lenders don't want principal paid back, ideally you just keep paying interest for life. Let's say median household: Income: $4000/mo Rent: $1500/mo Other necessities: $2000/mo Let's say $500/mo "disposable." It's from this that the interest needs to be paid to service…

A large amount of individual debt is wholly optional. What people ignore and therefor schools do not teach to be wary is that marketing is very well developed and convince otherwise rational people to make an irrational decision which has them take on more debt.

from buying too much house or car to over buying an education that cannot be used where the person is or in a field that cannot withstand the costs. all of these are marketed products. all three have vary optional levels of how much they cost.

then add in all the monthly bills and this is where many people miscalculate and it snow balls. from cell to internet to even television. you can quickly end up paying a significant amount of your income that has no tangible return.

Re: Americans Hold Over $4.1T in Consumer Debt

#79

Post by adventured »

dpweb wrote: post #52
NumberSix wrote: post #30

The United States has a total resident population (as of January 23, 2017) of 324,420,000 people (about 324 million). Source: https://en.wikipedia.org/wiki/Demographics_of_the_United_Sta... Thus, $4.1 trillion in consumer debt works out to $12,638 per person. The Gross Domestic Product (GDP) in the United States was worth 18036.65 billion (about $18 trillion) US dollars in 2015. That is about $55,424 per person. Note…

The important thing really is the financial fragility of the American household. Millions of people know that they are one unexpected event away from insolvency. GDP doesn't mean anything to them. Consumer debt just puts them more at risk.

Where isn't that true in the developed world currently? Very few places.

Take a look at the extreme household debt to income ratios in Denmark, Sweden, Canada, etc.

Look at the completely collapsed savings rate in Japan (stacked against their catastrophic budget / public debt situation that demands ever greater funding, while the economy has near zero spare taxing capacity). Japan has seen their real standard of living drop by at least 1/3 in 25 years and it's continuing to erode. That's the world's #3 economy and formerly an economic juggernaut.

Or look at the financial situation across most of the EU or Eurozone - most of Europe is hooked on between zero and negative real interest rates. Italy is in a ten year rolling depression. Spain, Portugal and Greece still haven't recovered. Russia's commodity based economic miracle is long over, as the price of oil isn't going back to $100 any time soon. France is averaging wage growth about 1/5th that of the US. Germany's economy has barely net expanded since 2008. Or take a look at the long-term unemployment figures for most European nations, contrasting 2006 vs 2016, it's clearly dire.

The US is in better shape than all but a few developed nations. That includes unemployment rate, income levels, wage growth, GDP growth, household income to debt ratio, cost of living, housing affordability.

Re: Americans Hold Over $4.1T in Consumer Debt

#80

Post by uiri »

curtis wrote: post #74
uiri wrote: post #72

Earlier quoted context omitted.

A house isn't an investment either though. An investment is an asset which is expected to go up in value faster than inflation. Housing prices track inflation. This is, on average, generally true; I'm not talking about a specific local market here. In order for something to be an investment, it must generate a return. After transaction costs, property taxes and other upkeep expense, the RoI of real estate is not grea…

> A house isn't an investment either though. An investment is an asset which is expected to go up in value faster than inflation. Most people who own homes only own the one they live in. If they did not own that home they would have to pay rent. So to figure out the overall value of the investment, you'd need to add up not just all the money it's going to cost the owner, but also subtract all the money the the owner…

Let's say we have two individuals - Alice and Bob - who each own a house. Each house has the same price on the real estate and on the rental markets. If Alice lives in Bob's house and pays rent to Bob and Bob lives in Alice's house and pays rent to Alice, their balance sheets are the same as if Alice lived in her own house and Bob lived in his own house. Excluding the rent income and rent expense (which offset), their cash flows are also identical to the situation of each living in their own house.

Now, it is possible that you would not rent a place similar to the one that you buy. In this case, your savings are equal to (rent expense otherwise incurred) - (unrealized rental income). I think that the latter will tend to be higher than the former. This will result in a net loss for owning. This loss is simply the price the owner pays for occupying a nicer place and does not really have much to do with owning vs renting.

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