A recent Federal Reserve report contains some disturbing news about personal debt trends in the U.S. First, total consumer debt is at its highest level since 2011. ($11.5 trillion if you like to read large numbers!) Even worse, the level of consumer debt (mortgages, car loans, student loans and credit card debt) increased by 2.1% during the last quarter of 2013. That’s the fastest rate of increase since the third quarter of 2007. Do you remember what happened shortly after that? I sure do, which is why I am so reluctant to trust the equity markets with my retirement money.
We can speculate that the driving force behind this somewhat alarming data is increased consumer confidence in our economy. However, even if that confidence is justified, the outcomes here are not appropriate. Financial security means having the ability to weather a financial storm. If your credit card debt exceeds your savings, you have no real financial security. For example, what happens if you lose your job, like so many have since 2007?
I hope that most of this bad news does not apply to baby boomers. Americans in general have historically been bad savers. I think all of us have become more aware of consumer debt and its problems but it seems that we haven’t gotten over the hump on savings.
The Bankrate.com survey reports that retirees were more likely to have higher levels of savings. 64% of retirees said their emergency funds or savings account balances were greater than their credit card debt. For those who were not retired, it was only 51%.
On the other hand, that data may tell tell us that 36% of retirees have more credit card debt than savings. This does not even include car loans or mortgage debt. How do those retired folks sleep at night with that level of insecurity? I hope my interpretation is incorrect and that a significant portion of that 36% have no credit card debt at all.
Keep saving folks. We are not in a risk-free economy.