Savings & Investment, Smart Spending

Fewer Americans Hold Debt, But Those Who Do Hold More of it

A recent report from the US Census Bureau has analyzed data regarding household debt from the years 2000 to 2011.  The findings show that the number of households that hold debt has actually dropped from 74 percent to 69 percent.  However, at the same time, the median amount of household debt increased from $50,971 to $70,000.  There are fewer people that are in debt, but those who are in debt owe more.

The Household Debt report goes into detail about the age groups and how debt has changed amongst the various ages.  While there was an increase in every age group, the largest increase (based on percentage) was those who fall in the 65 years old and over category.  This group saw their average debt more than double from $12,072 in 2000 to $26,000 in 2011.  While this age group usually sees very little debt, due to houses being paid off and other debts eliminated, they increased tremendously in the first decade of the millennium.  One of the primary reasons is that there have been 2 recessions since 2000.  Many seniors saw their retirement savings plummet back in 2002, only to recover and plummet even further in 2008.  This has caused them to need money to maintain their standard of living.  Rather than come out of retirement and rejoin the workforce, an easier solution is to refinance the house.

The US Census Bureau has also released a Household Wealth report for the same time period.  This report shows a similar pattern.  Except that wealth has not been increasing amongst households, it has gone down considerably.

The average household wealth (including home equity) rose from $81,821 in 2000 to $106,585 in 2005 before plummeting to $68,828 in 2011 (a 35% decrease).  We can see that during that time there was a recession that hit in 2002, but a quick turnaround in the market brought the market up to new highs.  During that same time period the housing market was booming and home values were skyrocketing.  In 2008, the market dropped losing nearly half its value, and the housing market busted.  It has been in the years since 2011 that most of the recovery has been made.

The picture does look a lot better if you remove home equity from the scenario.  The median household wealth remained virtually unchanged from 2000 to 2005, and then dropped about 18% from 2005 to 2011.

The debt report does not adjust for regional variations like the wealth report does.  Depending on the area of the country, some households performed better, or worse.   The West saw the largest variations in their wealth, jumping from $78,999 in 2000 to $146,841 in 2005 before dropping back to $50,431 in 2011.  The Midwest, on the other hand saw very little increase between 200 and 2005, but then dropped from $105,307 to $81,049 in 2011.

When a recession comes along, people tend to flee from debt and try to hoard as much cash as possibly.  Shortly after the recession interest rates fall in an attempt to jump start the economy.  The results are many opportunities people see as too good to pass up, and jump at the chance for a great deal.  At the same time people become very risk averse when the market is in shambles.   After the great recession, they lost a lot of their net worth and have been reluctant to take on more risk.  This means that wealth has not grown back as fast as it could have.  In a few years the new debt and wealth reports will come out and we will be able to better understand just what effect the record low interest rates have had on wealth and debt.  Until then, it is apparent that people do not want to take on debt, and the median household wealth has actually suffered as a result.