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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

#81

Post by wtvanhest »

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…

I think your idea of an investment is different than mine. I dont own a home, but one reason i am tempted to buy one is to match liabilities (future rent) with assets.

A house allows you to hedge rent growth. The big challenge with houses is that they are leveraged. That makes the situation complex in that the equity investment you make can become way more or way less valuable with smaller underlying price moves in the house.

Investments can go up or down in value. There are no sure thing investments. Just choices with various lnevels of risk and tradeoffs.

Imo, student loans are not constructed in a way that makes them an investment since the optionality is removed from the borrower.

Re: Americans Hold Over $4.1T in Consumer Debt

#83

Post by thechao »

Shivetya wrote: post #78
cylinder wrote: post #60

Earlier quoted context omitted.

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 t…

My lesson in financial responsibility was to have to live on 8000--10000$/year for three years. Coming from a solidly middle class income, it was a real shock. I am very credit averse, now, since even a modest level of credit sunk as fixed cost with no benefit.

Re: Americans Hold Over $4.1T in Consumer Debt

#84

Post by thechao »

adventured wrote: post #79
dpweb wrote: post #52

Earlier quoted context omitted.

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 livi…

But why? Is there anyplace to read about this?

Re: Americans Hold Over $4.1T in Consumer Debt

#85

Post by bdcravens »

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…

> What is "other" consumer debt -- payday loans? IOU's?

Other types of consumer loans, like furniture or other lines of credit. Additionally, many new phones are leased.

Re: Americans Hold Over $4.1T in Consumer Debt

#86

Post by bdcravens »

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.

It's entirely possible to take on student debt without ever getting a degree. Some of the numbers I've seen suggest about 30% dropout rates with student loan debt.

Re: Americans Hold Over $4.1T in Consumer Debt

#87

Post by provost »

runeks wrote: post #58
dpweb wrote: post #52

Earlier quoted context omitted.

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.

Also, the more indebted the consumer, the higher the impact of rising interest rates on consumer spending. Every time the Fed raises rates by 0.25 percentage points, consumers need to pay an additional $10B in interest per year. Consequently, the rate of interest increasing by 1 percentage point today is not the same as it increasing by 1 percentage point pre-2008 (when total consumer debt was lower).

This is interesting.. source?

Re: Americans Hold Over $4.1T in Consumer Debt

#88

Post by bdcravens »

idiot_stick wrote: post #16
to3m wrote: post #7

Secured on wasting assets, the promise of future earnings, or nothing at all. What could possibly go wrong? (On the bright side this is far from the majority of debt.)

> What could possibly go wrong? Americans are the wealthiest people in the history of mankind. Fortunes ebb and flow, but there isn't much to worry about.

Depends on your definition of wealth. Defined as "amount of time you could survive with no income", most Americans (including many in the HN crowd) aren't very wealthy at all.

Re: Americans Hold Over $4.1T in Consumer Debt

#89

Post by bdcravens »

aaronblohowiak wrote: post #53
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.

You are comparing pre-tax income (USA) and post-tax (UK)! You also mixed your units. TO use net-adjusted disposable income, USA has 41k USD and UK 28k USD. Also, you'd need to adjust for the benefits you get from your government/employer (Health insurance) for a fair comparison. While American workers earn more than UK workers, that does not necessarily imply that the total cost of employment for UK employers is lowe…

> you'd need to adjust for the benefits you get from your government/employer (Health insurance) for a fair comparison

Indeed. My out of pocket for medical care this year is $19k (and that's with one of the "gold" plans)

Re: Americans Hold Over $4.1T in Consumer Debt

#90

Post by brandmeyer »

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…

> What matters, and what lenders look at, is debt serviceability.

Quite true. But it also implies something else: Because the disparity of income levels in the US is so broad, just talking about the problem in terms of national totals and averages is useless. Show me the problem divided up by quantiles of the population, maybe even log-scaled as you get closer to the top, and then I might believe that there's a problem.

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