“Household Debt” is a combination of your mortgage payments plus the required payments you have to make on “consumer” debt- including credit card accounts- each quarter. This amount is divided by your quarterly disposable (after income tax) income to find the percent or “ratio” of debt-to-income.
Henry points out that the Household Debt Service rate is the lowest it’s been since the Fed began measuring it.
They first measured it in 1980 so debt at 30 year lows which is awesome. Americans are also socking away the money for a rainy day.
In addition to reducing our reliance on debt. Henry points to another positive factor: we’re saving more. “In the mid-80s the personal saving rate peaked at 10%. And then from there on it declined to 2% as the use of credit continued to expand.” Again, it’s no coincidence that we sank to that all-time low in saving around 2005-2007-- just before the recession hit.
Since then, according to Henry, the personal savings has been rising. It reached 6.7% in June 2009- more than twice the rate of December 2007. By the end of the second quarter of this year it had declined to 5.6%. None-the-less, Henry maintains that Americans’ “balance sheets have improved even though they’re saving less than [immediately] after the recession.”
It would be great to have a generation that values thrift and swears off most debt going forward. I mean the Millennials will be very wary of debt after they have to pay off $25K in tuition for a major that sometimes never pays them back. It would be hard to see that same person rack up $25k more worth of consumer debt after they have paid off that mountain.
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