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Mustard Seed Money

Mustard Seed Money

Consumer Debt Is At A Record High. Should We Be Concerned?

February 23, 2018

THIS POST MAY CONTAIN AFFILIATE LINKS. PLEASE READ MY DISCLOSURE FOR MORE INFO.

 

Less than a month ago, the stock market seemed to be breaking all-time highs every day single day.  Bitcoin had been on a tear through December, although it has fallen back to earth recently.  But, it is still up 900% from a year ago.

 

Even though the market has recently tanked and risen again, the economy had been doing fairly well over the last couple months.  Unemployment is low at 4.1%, according to the Bureau of Labor Statistics.  Meanwhile, market wages are starting to rise.  The average raise for 2017 was 3%, and appears that that figure may rise at a similar rate for 2018.  

 

With the low unemployment and rising market wages, consumers are clearly feeling confident as credit card debt has reached a record high of $1.023 trillion.  As most of you know, when people feel good about the future of the economy they are more than happy to spend money they don’t have.  Conversely, when the market is uncertain, consumers tend to pull back.  

 

Credit Card Usage

What do you think people were using their credit cards for?  According to Google search trends, many people were looking to buy Bitcoin with their credit card, which peaked in mid-December.  Don’t believe me?  Check out the chart below.

 

Consumer debt is at a record high. Should We be Concerned?

 

Debt

Interestingly, the last time debt levels were this high was in 2008, when the U.S. economy was in the Great Recession.  So, should we be worried that we’re headed back into a recession?

 

Not necessarily.

 

At the end of 2009, consumers were delinquent on 11.9% of their total debt.  In contrast, today’s consumers are delinquent on 4.8% of their debt.

 

While consumer debt has risen, the delinquent rate isn’t nearly as high it was previously.  However, that doesn’t mean that everything is okay.

 

According to the latest data as of December 2017, the average American household with credit card debt, had a balance of just under $16,000.  On top of that, 35% of Americans only have a couple of hundred dollars in their savings account.  34% of Americans have no savings at all.  It’s clear that if there is a hiccup at all in the economy, we could all be in for some bad news.

 

Consumer debt is at a record high. Should We be Concerned?

 

Heather Boushey, the executive director and chief economist at the Washington Center for Equitable Growth, says, “This is not a marker we should be super excited to get back to…in the abstract, more debt signals optimism. But in reality, families are using debt as a mechanism to pay for things their incomes don’t support.”

 

Unexpected Expenses

One of the tragic aspects of this is that nearly 1/3 of households in the U.S. report that they had a major unexpected expense within the last year.  Of those that had a major expense, nearly 50% had an expense that was $2,500 or more.  Nearly 30% had an expense that was $5,000 or more.

 

The biggest cause of these unexpected expenses were medical bills.  In fact, medical bills are now the number one cause of personal bankruptcies in the U.S. today.

 

How can we avoid some of these hardships?

 

According to Greg McBride, chief financial analyst at Bankrate, “Everyone should strive to have at least six months’ expenses socked away for the unexpected.”

 

While the Great Recession is now close to 10 years behind us, I fear that we may be making some of the same mistakes by foregoing our emergency funds and borrowing money to invest in things like Bitcoin (versus borrowing money to invest in real estate in the 2000s).  You may not be concerned that consumer debt is at a record high, but things can unravel really quickly.

 

So readers, are you worried about the consumer debt reaching record highs?  Are you prepared for the next financial downturn?  Share your thoughts below.

Related

26 Comments

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Comments

  1. Ms ZiYou says

    February 23, 2018 at 5:44 am

    I does worry me as well that it’s always growing to a record high; scary how many adults cannot cover a simple emergency. Money really does seem to burn a hole in people’s pockets,
    Ms ZiYou recently posted…What does a personality profile tell you?My Profile

    Reply
    • Mustard Seed Money says

      February 24, 2018 at 2:04 pm

      You are absolutely right. I’ve found that’s it’s too easy to spend money if you don’t have a financial plan in place 🙂

      Reply
  2. Mr. Freaky Frugal says

    February 23, 2018 at 7:34 am

    I am worried. It just seems like the same cycle repeats itself over and over – economy improves, people add more debt, economy declines, people face hardship from all the debt they added because over 2/3 of the people are saving little or no money for emergencies.

    It’s like an old, sad song. 🙁
    Mr. Freaky Frugal recently posted…Do you have Unclaimed Property?My Profile

    Reply
    • Mustard Seed Money says

      February 24, 2018 at 2:06 pm

      Hahaha..it does seem like the same old song and dance after awhile. Hopefully we’re wrong but I have a feeling that things are going to get bad pretty soon.

      Reply
  3. Mike @MikedUp says

    February 23, 2018 at 7:59 am

    Is rising credit card debt concerning and the basis for many of our fellow blogs – most certainly. But, we would need to see some additional factors come into play to tip us back into a recession. Either way, I’d rather have my personal finances on a stable foundation rather than a house of cards based off of tomorrow’s money. Well done, Rob
    Mike @MikedUp recently posted…Client #1 eliminated all credit card debt – AGAIN – and finally feels free!My Profile

    Reply
    • Mustard Seed Money says

      February 24, 2018 at 6:35 pm

      I’m right there with you Mike!!! I am definitely glad that my finances are not a house of cards although it took me years to set the foundation 🙂

      Reply
  4. Chris @ Duke of Dollars says

    February 23, 2018 at 8:07 am

    It is definitely worrisome that people have the debt and no savings.

    It is hard to tell if they are spending money on “essentials” or wants causing the debt, but if a recession were to happen again, no savings is a scarey move.

    Reply
    • Mustard Seed Money says

      February 24, 2018 at 6:37 pm

      I’m right there with you. Having no savings is a big no no in my book. I definitely wouldn’t want to get caught with my pants down during the next recession.

      Reply
  5. Tom @ Dividends Diversify says

    February 23, 2018 at 8:20 am

    I find it disappointing that we are back to pre recession levels in debt. Being a finance and accounting teacher, I tell students that debt is not bad (for a company), it just increases risk. If the company suffers a downturn, they still have to pay the principle and interest whether they have the money or not. Same goes for people. Suffer a job loss and high debt becomes problematic. Tom
    Tom @ Dividends Diversify recently posted…The World Sure has Changed – Or has It?My Profile

    Reply
    • Mustard Seed Money says

      February 24, 2018 at 6:38 pm

      I realize that there are reasons to utilize debt but I try to avoid it if I can. Being debt free is definitely one of the best things I’ve done and I’ve tended to gravitate towards companies that don’t have debt 🙂

      Reply
  6. Mrs. Groovy says

    February 23, 2018 at 8:48 am

    I find it surprising and disappointing that bitcoin is click-bait for some of the recent trends toward debt. I guess Madison Ave and the pundits are doing a good job of getting people to buy something they mostly don’t understand or need. Medical, rent, light bills — those are needs.
    Mrs. Groovy recently posted…Building Groovy Ranch: Update 8My Profile

    Reply
    • Mustard Seed Money says

      February 24, 2018 at 6:48 pm

      I don’t understand why people are throwing tons of money into Bitcoin. I’ve never understood owning currency but for that matter I never understood owning gold either 😉

      Reply
  7. Ms. Frugal Asian Finance says

    February 23, 2018 at 9:19 am

    When people feel confident about the future, they tend to be more liberAl with their spending. I’m the same way.

    I’m always surprised to hear how many people take out a mortgage on their home or use credit cards to buy Bitcoin. I’m curious how it’s gonna turn out.
    Ms. Frugal Asian Finance recently posted…From Living With 5 People In A 2-bedroom To $100,000 NetworthMy Profile

    Reply
    • Mustard Seed Money says

      February 24, 2018 at 6:53 pm

      I hope for their sake that it turns out okay but honestly I feel like we’ve seen this game before with the dotcom era and the housing bubble 🙁

      Reply
  8. CJ says

    February 23, 2018 at 10:08 am

    Yes, I think we should be concerned. It smells like the next economic crash is around the corner.
    Times today is very reminiscent of when 2008 happened.
    CJ recently posted…My Financial Goals for 2018My Profile

    Reply
    • Mustard Seed Money says

      February 24, 2018 at 6:54 pm

      I really hope not…that last recession hurt a ton of people and took years to rebuild.

      Reply
  9. Erik @ The Mastermind Within says

    February 23, 2018 at 10:17 am

    I’m certainly a little worried…. when it seems everyone is happy, then there’s a lack of urgency and need to tighten up the budget and make sure you have a nice emergency fund.
    Erik @ The Mastermind Within recently posted…The Case for Digital Real Estate and Creating Cash Flow with Online AssetsMy Profile

    Reply
    • Mustard Seed Money says

      February 24, 2018 at 6:55 pm

      Great points Erik!!! Be fearful when others are greedy and greedy when others are fearful 🙂

      Reply
  10. FullTimeFinance says

    February 23, 2018 at 2:32 pm

    I can’t say I’m surprised. In general recessions seem to follow periods where everyone starts having overly positive view of their finances. Excess debt, investment bubbles, etc. we seem to be nearing that euphoria stage of not already in it.
    FullTimeFinance recently posted…How to Deal with UncertaintyMy Profile

    Reply
    • Mustard Seed Money says

      February 24, 2018 at 6:59 pm

      Yeah I agree that the great recession is becoming a memory that people are forgeting, which is good and bad. I’m glad people are moving on and starting to get jobs again but terrified of how people are spending their money 🙁

      Reply
  11. Mrs. Picky Pincher says

    February 23, 2018 at 4:02 pm

    It just looks like we never learn our lesson. The economy ebbs and flows, but we love acting like positive gains will last forever. I’m worried about the levels of debt and what it means for everyone’s mobility in the event of the inevitable downturn. Houses are lost and lives can be destroyed when you suddenly lose a job and have tons of debt.

    Sadly I’m not sure if we’ll ever learn our lesson.
    Mrs. Picky Pincher recently posted…What’s for Dinner? February 23My Profile

    Reply
    • Mustard Seed Money says

      February 24, 2018 at 7:01 pm

      It’s really too bad that we all know that it’s only a matter of when the market will tank. Too many people act like this is the first time that something like this has ever happened 🙁

      Reply
  12. Laurie@ThreeYear says

    February 23, 2018 at 4:53 pm

    I just wrote about this very topic. I am concerned, because when our society takes on a lot of debt, it destabilizes our economy down the road when we have to pay the debt back, because a greater share of our $$ has to go to the interest on all those loans, and less can go to purchasing goods and services. Plus it makes us more likely as a society to have another banking crash. I think we need to keep pushing saving and developing emergency funds as important things for people to do.

    Reply
    • Mustard Seed Money says

      February 24, 2018 at 7:03 pm

      I’m right there with you Laurie!!! I am screaming to get your financial house in order now while you can. It may be a little too late in a couple of years 🙁

      Reply
  13. Paul says

    February 24, 2018 at 11:23 am

    I think we’re headed for a downturn, but I’m not super worried – we need a return to reality every once in a while (buying bitcoin with credit cards is not normal behavior…).
    Paul recently posted…Lessons From A Tire Change Gone BadMy Profile

    Reply
    • Mustard Seed Money says

      February 24, 2018 at 7:04 pm

      Hahaha…you are absolutely right…buying bitcoin with credit cards is something everyone needs to avoid 🙂

      Reply

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