Demographics of Debt

We have all read that consumer debt is reaching alarmingly high levels in the US. Well-known bear Stephen Roach has gone  so far as to predict impending American economic implosion following a deficit driven rise in interest rates that will hammer the multitude of highly levered  folks subject to variable interest rates.

So which age demographic of Americans do you think holds all of this debt?  The illustration below is from the US Department of Justice (link from CoolGov).

Frankly, had I been asked to draw this from conjuecture alone, I would have gotten it all wrong. I would have assumed that consumer debt would be high with twenty year olds, rise into early thirties, peaking in late thirties/early forties as folks buy bigger houses and have expensive kids and schools. But, to see folks in their fifties carrying this kind of burden, as well as seniors much older than that, absolutely surprises me.

While I don't know if Roach's armageddon is on its way, I do know that numbers like these depress me  and I worry about people.  I worry about the widening gap between debtors and owners of capital. I worry about the materialism that drives us all to acquire so many things that may be beyond our reach.

Comments

[Natala Menezes]

hmm. so i think the thing to take away from this graph is the %-age of income that the debt represents. a 19 year old with $7,000 in debt -- where he/she probably earns sub-20K per year means that around 40+% of their spending is on credit...that's really really high...compare that to a person in their 60's who has savings (401k), assets (home, stock etc.) and larger incomes (more senior job status) and the 30K average probably represents something like 10% or less of their income-debt ratio...

just another way to slice the data, either way debt in these amounts seems tragic -- esp. when the average consumer is paying credit card rates in the upper teens. yikes!

[Sacca]

Natala, you are spot on. When I hit 'post' the first time around, I knew I maybe should have drawn out a few of the explanatory permutations and disssected the info more.

The first item on the list would likely have been relative earning power. That said, I do not know how to quantify that distinction. Some of the assets you mention older people having (401Ks, homes) are exactly that, assets, and wouldn't necessarily be rolled into a debt/income ratio. Though, I do agree, it is likely older folks are making more. I also agree that kids are probably paying double-digit interest rates making debt service more harrowing.

As for larger homes, though I agree home size likely increases up through your 40s or so as you are growing your family, I would think it would stabilize then or maybe decrease. During this time, I would hope that people would be paying down the principle on their mortgages. Is this not the case? Are old folks waiting for the kids to leave and then buying their dream houses? Yikes.

Plus, the growing incomes only happen until a point, no? Retirement is not really an income generating era. Instead, seniors start consuming their savings, and depleting those 401Ks. So, what about the peak in debt during those years? Have folks not saved enough? Or, are we looking at something uglier, like healthcare and presciption medicine costs piling up?

So, yes, Natala, I think you are right. But, I also think there could be a wide range of other factors at play here. All told, I wish I had an economist or two on hand to tell us some stories from this data.

[Max Brownstone]

We have a confluence of factors happening right now:

1) increase in consumer debt
2) increase in government debt
3) increase in imports

Its easy to predict an economic implosion or collapse of the dollar however

1) the market doesn't seem to be pricing a disaster in, yet
2) which other currency would people want? Yuan? Euros? None of them are as safe as dollars.

All things are cyclical- if our government eventually gets its act together and gets more conservative in terms of spending and risk, we will get deficits back under control, and life will go on.

Or it could all crash.

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