Household debt in America has been reshaped in ways that could potentially affect how advisors help manage clients’ liabilities.
The overall debt burden of U.S. households is $100 billion smaller than it was in 2008, and its breakdown looks a lot different, according to a new report from the Federal Reserve Bank of New York. Though mortgage debt remains the biggest burden, its share of household debt has declined along with that of credit card debt, while the share of student debt and auto loan debt has risen.
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As of the end of 2016, mortgage debt accounted for 71% of household debt, down from almost 79% in 2008, while student debt more than doubled since 2008 and more than tripled since 2003, to 10.4%.
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Auto loan debt had a 9.2% share at the end of 2016, about one-third larger than its 2008 share. All three types of debt ate up bigger shares of households’ income than credit card debt.
In dollar terms, housing debt fell $1 billion from its 2008 peak to $9 trillion, while student debt rose $700 billion to $1.3 trillion and auto debt gained $350 billion to $1.16 billion.
The demographics of U.S. debt are also changing. Older households, headed by those 60 and older, now account for just over 22% of outstanding U.S. debt, up from near 16% in 2008.
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While that is not necessarily good news for older households given that many are in or near retirement, it has raised the quality of debt outstanding since older households tend to have higher and more stable incomes than other age groups, according to the New York Fed.
As a result of these demographic changes plus tighter lending standards for mortgages — though not for auto loans — delinquency rates have fallen overall and foreclosure and bankruptcy rates are at their lowest levels since the New York Fed began collecting this data in 1999.
The creditworthiness of borrowers has also risen. Loan balances for borrowers with credit scores over 760 have risen by $878 billion while balances held by subprime borrowers have fallen by $752 billion since 2008.
But despite this good news, all is not well in the world of U.S. consumer debt, especially for younger people.