The Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit, dated February 2013, shows consumer debt increased in fourth quarter 2012, reaching a total of $11.34 trillion. Breaking it down into the four main debt components, the report shows that mortgage balances account for $8.03 trillion, which is relatively unchanged from the previous quarter. Student loan balances increased by $10 billion, credit card balances increased by roughly $5 billion, while auto loans were up by $15 billion in the fourth quarter.
While Americans continue to operate in debt, the Federal Reserve Bank of New York points out that overall, our delinquency rates are improving. As of Dec. 31, 8.6 percent of outstanding debt was delinquent, compared to 8.9 percent three months earlier. However, the 90-plus day delinquency rate for student loans has risen to 11.7 percent.
In a recent Pew Research Center analysis of consumer finance data collected by the Federal Reserve, 56 percent of households with heads younger than 35 have decreased or saw no change in their debt over the last decade (2001-2010). The median debt owed by younger households is $15,473, while the median debt owed by older households stood at $30,070 in 2010. It is important to note that $15,473 is the median debt, meaning half of households younger than 35 owe more. The most indebted 10 percent owe more than $207,700.
In households headed by a person younger than 35 of age, 35 percent owed on debt secured by residential property; 32 percent carried auto loans; 40 percent owed on student loans, and 39 percent owed credit card debt. In contrast, households with heads 35 and older, 52 percent had mortgage debt; 30 percent carried auto loans; only 13 percent owed on student loans, while credit card was just as prevalent at 40 percent.
The Pew Research Center was able to correlate the amount of debt to education level. In 2010, 88 percent of college-educated households were in debt, with the median debt around $114,500. Comparatively, households of those who did not graduate from high school owed around $6,400. The typical young household debt for student loans is about $13,410.
Interestingly, for younger households, the frequency of student loan debt and credit card debt were about the same. While credit card debt is down from 2001, when 50 percent of younger households carried credit card debt, it is important to understand debt management. Debt management helps ensure that you make wise borrowing decisions. It can help prevent you from becoming overextended. Next week, I’ll take a closer look at consumers’ debt safety ratio, which compares your monthly consumer debt payments to your monthly take-home pay.
William G. Lako Jr., CFP, is an executive in residence at Kennesaw State University’s Coles College of Business and a principal at Henssler Financial. Lako is a certified financial planner.The MDJ will periodically publish columns from KSU business faculty.