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September 10, 2004
Report Issued on Household Debt
The Congressional Joint Economic Committee has issued a report on household debt and our economy that has some interesting and rather complex findings:
"Many analysts have expressed concern about the growth of consumer debt and its effect on the U.S. economy. Some fear that the combination of increasing debt and higher interest rates will impair the ability of households to meet their monthly financial obligations. However, interest payments as a percentage of disposable income have actually fallen since the end of the recession in 2001. Total household debt has increased since the end of the recession, but the vast majority of the increase can be attributed to the growth of home mortgage debt spurred by historically low mortgage interest rates.
Highlights:
* More than 90 percent of the increase in total household debt since the end of the recession is due to growth in home mortgage debt.
* As a share of total household debt, consumer credit (e.g., credit cards and automobile loans) has fallen to its lowest level in a decade.
* After rising throughout the 1990s, the burden of household debt has fallen in recent years.
* Total household assets are more than five times larger than total household liabilities."
Posted September 10, 2004 08:36 AM
Comments
The only phase that I found encouraging in the excerpts is the fact that Assets outnumbered Liabilities 5:1. Drawing on my personal experience of my friends in their twenties, I am concerned with their financial well being. Almost everyone of them has taken out equity loans against their houses. These are not short term loans and are on variable rates. There are not aware that in seven years, more than likely the 6% fixed would have paid for itself. Also they have taken 100% if not more of the equity out. This is scary to me when I see them not saving or paying down on the debt, but buying new cars and boats on their “excess” monthly income It is not going to be excess forever unless their salaries grow at the same rate as interest rates without a lag. The 10 year boat payment is not going to go down. I hope the article is correct in its outlook.
Posted by: Daniel B. Rose at September 17, 2004 12:30 PM
at Belmont University in Nashville, Tennessee. He consults with a variety of businesses on start-up and growth related issues, and with larger corporations on re-establishing entrepreneurial cultures within their organizations. Dr. Cornwall's current research interests include entrepreneurial finance and entrepreneurial ethics. He has authored or co-authored four books.
