Consumers today have taken on a massive amount of debt but are spending like crazy and it's creating a bubble in the US economy. Today, consumers drive 70% of the US economy and in the fourth quarter of 2023, their spending jumped up by $208 billion. At the same time, household saving rates currently sit at a mere 3.7% which is way down from the historical rate of 9%. What’s worrisome is that along with this, households have added a shocking $212 billion to their debt during that period, resulting in over a 100% increase in consumer spending that was financed by debt.
While consumers show no signs of slowing down, credit card delinquency rates with 30-day default rates have risen from 5.9% a year ago to 8.5% today and one in every twelve holders of credit cards is missing their payments. The last time this happened was in 2011 when unemployment was at 9%, but today it sits at a near all time low of 3.7%. Delinquency rates for auto loans and mortgage loans have also increased lately, but none of this seems to worry consumers.
6 comments:
This is very unfortunate, while normally there are many reasons why credit card debt becomes prevalent, including unemployment as you stated, I believe it is mostly just general negligence or apathy in our situation. Generally most people either don't know how money works or care not to learn. And with recent trends such as TikTok hyper-consumption has been running rampant causing more issues than necessary. There also seems to be little consequence to this if people keep doing it so either it's not being enforced enough or the banks are being too lenient.
I believe one reason for this is that a lot of people spend without thinking about the consequences. Many Americans are financially illiterate and do not understand how the credit system works. This causes issues, such as the one your article talks about. By not understanding how the credit system works, individuals will find themselves in a cycle of debt. In return, individuals with high levels of debt and financial instability are less likely to contribute to the economic growth of the country.
i think high debts and very low savings is a very alarming sign for the economy especially since your article mentions that consumers drive 70% of the economy. The combination of high debts and low savings means that in the future people have less money to spend as alot of will be going towards paying the debt this could cause serious issues for our economy like a recession. I think it is important that the government take steps to educate people about how to be financially responsible since our gdp is dependent on it
Considering how low the consumer sentiment index was last year, it is quite paradoxically to see people spending like we are in “good times”. The credit card delinquency rates are concerning, especially when we have seen economic downturns being caused on a similar scenario not so long ago.
The result of a "pay it back later" mentality has seemingly put some banks in a tight spot as the delinquincy rate on their cards goes up. Hopefully, a national drive in financial literacy, some economic management of prices, and a lecture to banks who keep giving out cards like no tomorrow occur, otherwise, I'd hate to see any government bailouts to banks that see mass delinquencies and subsequent losses to follow.
This is crazy to think about, but is true. Unfortunately a lot of Americans are not trained on how to spend their income, and a lot believe eventually the money will come back. This notion of "I will have the money later", puts not only Americans in a tight spot but also financial institutions, and our economy as a whole.
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