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Increasing Comfort with Debt Threatens Americans’ Long-Term Financial Health

Feb 05, 2021

Key Takeaways

  • Americans have become increasingly comfortable with carrying higher levels of debt
  • A key reason for the increased comfort is that monthly carrying costs are not higher
  • Properly managing debt levels is often a much lower priority than building assets

 

Americans increasingly rely on debt to fund their lifestyles and manage day-to-day needs, but that debt comes at a price. The more money individuals devote to paying down debt, the less they’ll have to invest for retirement and other important financial goals, like building an emergency savings fund or putting children through college.

The growing reliance on debt is attributable to several trends, including higher costs for big ticket items like paying for college and purchasing a home, as well as low interest rates and easy access to various types of credit. The result? The three main types of debt – mortgage debt, student loan debt, and auto loans -- have all substantially grown over the past few decades.

  • Mortgage debt in the U.S. hit an all-time high in late 2019 and by the first quarter of 2020 stood at $9.71 trillion, roughly double the mortgage debt held in 2003.
  • Student loan debt now stands at $1.5 trillion1 -- twice what it was a decade ago and five times more than it was in 2003. 2
  • Today, 85% of new vehicles are financed with a loan or lease, and 55% of used vehicle are purchased with financing.3

 

 

While lower interest rates may lessen the cost of borrowing, they also can encourage borrowing of larger amounts. Borrowing more and paying it back over much longer period of time—as has been the trend with auto and student loans—will inevitably make it harder for many Americans to build wealth critical to their long-term financial well-being. Americans seeking financial wellness have historically focused on building assets, but in a world where individuals have more responsibility than ever for their own financial health, managing their debt has become more important than ever, too.

 

Read More

To learn more, read Increasing Comfort with Debt Threatens Americans’ Long-Term Financial Health   PDF Opens in a new window.

 You may also be interested in other Financial Wellness opens in a new window topics.

 

Footnotes

  • 1American Association of University Women, “Deeper in Debt: Women and Student Loans in a Time of COVID”, 2020.
  • 2Federal Reserve Bank of New York, “New York Fed Consumer Credit Panel/Equifax,” 2020.
  • 3Experian, “Auto Loan Debt Sets Record High,” July 18, 2019, https://www.experian.com/blogs/ask-experian/research/auto-loan-debt-study/.

 

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