April 11, 2022
American households added more than $1 trillion in new debt last year, the most in any year since 2007.
Total household debt rose by $1.02 trillion in 2021, to $15.6 trillion overall, the highest total ever recorded. It was boosted largely by higher balances on mortgages and auto loans.
I believe that much of this increase is because of the unexpected sharp rise in prices for homes and vehicles last year. For instance, the National Association of Realtors said the median home price last year rose to a record $346,900, a rise of nearly 17% over 2020. While that’s great for homeowners and sellers, it’s hard for buyers, especially as interest rates rise.
So, why are Americans taking on so much debt?
According to a survey from McKinsey & Company, American families tended to reduce spending during the brief, COVID-induced recession in 2020. But now that the economy is rebounding, pent up demand is being released on many fronts.
People who cut back on dining out, entertainment, traveling, and other discretionary spending are now doing those things, so much that spending ticked up significantly since February 2021:
In fact, Americans added $52 billion to their credit card balances in the fourth quarter of 2021 alone, the largest quarterly jump ever recorded. And things get surprising when U.S. debt is broken down by age:
The 40-55 age group is likely dealing with student debt. In some cases, it could be a double whammy of their own student debt and their children’s student loans. Yikes.
Either way, American debt is soaring, much to the delight of those making loans, I’m sure.