New government data out from the Federal Reserve in their triannual survey of American families paints a bleak and dark picture of the state of finances of all of us. It’s no wonder why people are looking for less debt help these days. It seems they are financially down and out like they haven’t been in a couple of decades. An entire generation of workers has been desiccated by the impact of the recent financial recession and loss of net worth.
The study covered 2007-2010. It just takes the data crunchers at the Federal Reserve a bit of time to gather, process, and analyze the data. But what they concluded was that things are not looking up for the American family and thus not looking up for the people that provide you with debt relief help as well.
The study found that average income dropped almost eleven percent. The decline in income was most prevalent among more highly educated families, families headed by persons aged less than 55, and families living in the South and West regions. Read “more highly educated” as those today carrying a bunch of student loan debt. A double burden.
And it wasn’t just income that took a hit. With housing values dropping and less people able to save, net worth took it on the chin. Median net worth dropped almost 39 percent.
And if you live in the West then you probably already feel the 55 percent drop in median net worth in your area.
Although the overall level of debt owed by families was basically unchanged, debt as a percentage of assets rose because the value of the underlying assets (especially housing) decreased faster.
With overall median and mean debt basically unchanged or falling less than income, measures of debt payments relative to income might have been expected to increase. In fact, total payments relative to total income increased only slightly, and the median of payments relative to income among families with debt fell after having risen between 2004 and 2007.
The share of families with high payments relative to their incomes also fell after rising substantially between 2001 and 2007.
But apparently with all the other bad news, one nice note was that families headed by a self-employed worker consistently have the highest median and mean incomes of all work-status groups. If you’ve got a great business idea and you can make a go of it, looks like being your own boss is the most profitable path to have taken.
The concept of saving has lost ground as well with only 52 percent of families saying they are able to save. This is down from 56.4 percent from the previous survey. But for those that are saving, the amount has risen from 2.2 percent to 5.3 percent. Nothing like the fear of less to drive some panic saving.
Of all spending, six percent of families said their spending exceeded their income and about twenty percent said it was about the same.
The survey highlights why tapping retirement accounts to fund debt repayments is a most unfortunate occurrence since it is the biggest source of funds now, but leaves the consumer broke when they will need it the most.
On the debt front, the percentage of families with any type of debt decreased by 2.1 percent to 74.9 percent.
Families in the lowest income, wealth, and education groups—which tend to have fewer economic resources—are also less likely to have any debt.
Relatively large proportional decreases in the median amount of debt were widespread. Families headed by a person aged 45 to 54 saw a decrease of 8.7 percent, families headed by someone who was self-employed saw an 8.2 percent decrease, and couples with children saw their median debt fall 11.0 percent. Debt fell 17.8 percent among families headed by a person who worked in a technical, sales, or service job and 13.0 percent among nonwhite or Hispanic families.
The proportion of families carrying a credit card balance, 39.4 percent in 2010, was down 6.7 percentage points from 2007. The decreased prevalence of credit card debt outstanding was widespread and noticeable across most of the demographic groups, though the prevalence of credit card debt rose for families headed by someone aged 75 or older and among families headed by someone with no high school diploma. And if you flash forward a decade of so just imagine that being you with not enough money for retirement. Scary isn’t it?
Median credit card balance fell 16.1 percent.
Many Families Don’t Carry a Credit Card Balance
Of the 68 percent of families with credit cards in 2010, 55.1 percent carried a balance. as opposed to the 72.9 percent that had cards in 2007 and the 61 percent that carried a balance. Fewer families are using credit cards and of those, fewer are carrying a balance. A tough blow for the debt relief industry.
The people that reported paying their credit card balances in full each month increased to 56.4 percent in 2010 from 55.3 percent in 2007. The median family has only two credit cards and the median credit limit of all the cards fell to $15,000. This is quite telling when over the past few years debt relief companies have said they would only help people that had over $15,000 in debt. Once you filter out all of the people that don’t have cards, don’t carry balances, and don’t have debt over $15,000 the pool of potential consumers needing help gets smaller and smaller.
One area of debt increase was in payday loans. They rose with 3.9 percent of families reporting they had taken out a payday loan in 2010 from 2.4 percent in 2007. These loans were most prevalent for the lower income groups while people only 0.2 percent in the higher income groups reported taking out a payday loan.
It can’t be much of a surprise that the level of people that did fall more than 60 days past due on debt were primarily skewed to the lower income segments of the study. So when we look at the people most likely able to carry out a successful long-term repayment strategy it is less likely to happen with the most delinquencies carried by the lowest income levels with the highest levels of debt. – Source
With data like that it just seems to support why the shortest debt repayment strategy, a chapter 7 bankruptcy, is most likely to be the most successful for many people.