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U.S. Household Debt at Record Highs - No Big Deal?

US household debt hit a new record earlier this year of almost $15 trillion. That’s a scary number and huge on a stand-alone basis. For comparison purposes, the national debt is around $28 trillion. But, the US consumer is doing much better than they appear by simply looking at household debt. In fact, US households appear to be in better shape financially than they have been in a long time. Debt isn’t the only number hitting record highs. According to a recent report by the Federal Reserve, the net worth of households and nonprofits in the United States rose to nearly $137 trillion as of the end of March 2021.

Yes, the debts are high but the assets dwarf those debts. This puts the net worth of households at more than 600% of GDP which is also a record high. These numbers make sense when you consider stocks and housing prices are at or near all-time highs. Net worth is not evenly distributed across households and the data can obviously be skewed by the ultra-wealthy. However, there are several other pieces of data that seem to indicate the American consumer is in pretty good shape financially.

  1. Savings rates remain elevated at close to 15%. This savings rate is significantly higher than the 50-year average. Checks from the government and people not spending on things they normally do have certainly helped this. We wouldn’t expect the savings rate to stay at this level but it’s nice while it lasts.

  2. Credit card debt has fallen by 17% since the end of 2019. This is GREAT news.

  3. Total Household debt relative to income is at its best level since 1980.

  4. Incomes are rising.

  5. Home equity is at an all-time high thanks to a strong housing market.

  6. Wealth for the bottom 50% is at an all-time high and the same is true for the 50th to 90th percentile.

Unfortunately, most of the households who are better off from rising prices in financial assets are the people at the top levels of the wealth scale. It is nice to see that people further down the ladder when it comes to finances are finally experiencing a boost. It’s not just the top 10% or top 1% who are better off.

Things are far from perfect of course. There are still millions of people who are unemployed. Some families were severely impacted by COVID and many small businesses were unlucky to be in the wrong line of business during a pandemic. Predicting the economic future is extremely difficult. Who would have predicted that the US consumer would be in this position 15 months ago when the US economy was shut down? Nobody knows exactly what comes next from here, but whatever the economy throws at us, the US consumer is in a pretty good place to be able to handle it.

Bottom Line: Consumption of goods and services represents approximately 70% of our economy, so the health of the US consumer is very important.

- Brett


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