By Joe Woods
I keep reading articles about the improved outlook consumers have. The economy is heading up, and as expected, so is consumer confidence. But, as consumer confidence goes up, so does spending, and subsequently... debt. Is anyone connecting the dots?
Back before the meltdown in 2008 we were spending more than ever. The housing market was booming. Interest-only mortgage loans were everywhere, credit card debt was at its peak and student debt was soaring. Who could have ever foreseen the coming fallout? Seriously! And now, look at the statistics.
A Federal Reserve Bank of NY report released last fall announced that consumers had now surpassed the previous high-water mark for total consumer debt of 12.7 Trillion back in 2008.
- Credit card debt is at its highest level since 2009
- Auto loan debt is at its all-time high
- Mortgage debt is steadily heading back up to the high of 2008
- Student loans are at an all-time high and climbing quickly
Are We Financially Ignorant?
So, we're spending more than we ever have, and we don't have the income to cover it? Yet, what we hear on the news (and from those watching the market) is that consumers are confident and everything is fine. Could it be, as a nation, we are financially ignorant? We clearly didn't learn from our grandparents who lived through the Great Depression. Our parents suffered through hard times in the late 70's and now we've been hit in '02 and dramatically in '08! We are financial little Dori's (“Finding Nemo” reference) swimming through a sea of shopping malls and online binge purchases.
Why is this happening? And why is the frequency of these major setbacks quickening? I have a couple theories for our crumbling financial situations. The first is we were all promised more by the previous generation. Our grandparents, the Greatest Generation, were born in the wake of the Great Depression and fought through World War II to make life easier for their children, the Baby Boomers.
The Boomers had an easier road, and much more prosperity. So, the arrow kept pointing upward. The Boomers gave way to Generations X. GenX was born and we began handing out participation medals for coming in last place. Now, my kids play T-ball and no one is allowed to keep score, just so everyone feels like they're a winner. And nothing makes someone happier than maxing out a credit card to keep up with the Joneses.
There is no denying that we have created the mess that we are in. And right now, it feels fine. Consumer confidence is up again. We spent nearly 5% more at Christmas time this year than last. Which couldn't possibly correlate to income growth. Did everyone get a 5% pay raise? Nevertheless, it's a boom time. But while everyone's on an all-expense-paid cruise, sailing off into the golden sunset, keep an eye on the horizon. The world may be round, but this economy is linear (flat). And we're heading for another cliff...
Joe Woods is CUDE and a 17-year credit union veteran. He can be reached at jmwoods2018@gmail.com