A Heap O’ Debt: Household Indebtedness Records Broken

To you, oh faithful readers, I suspect I am beginning to sound like a broken record.  You remember what a broken record sounds like, right?  Perhaps not.  Well, so you know, the ‘needle’ (or stylus) of a record player would sometimes get caught on a scratch on the record and skip back to a previous part of the recording and play over and over and over again. Pretty annoying if you were in the middle of the album versions of “Free Bird” or “In-A-Gadda-Da-Vida.”

Gosh if that does not make me feel like a ‘man of a certain age…’

At all events, I am beginning to think the repetitive messages of ever increasing, historic levels of household debt may have become a normalized part of everyday life.  That is, this data is no longer a surprise, or a source of alarm.  In fact, I rarely see any alarming headlines about it in the financial press, or if so, the stories fade to the background pretty fast. We may simply have become used to the fact that heaping debt onto our lives is a normal thing and no big deal.

Until it isn’t.

So, here is some data from the last quarter of 2019 courtesy of the New York Federal Reserve (read the press release here):

  • Total household debt increased by $193 billion (1.4%) to $14.15 trillion.
  • This is 22 consecutive quarters with an increase in household debt.
  • This new mark is $1.5 trillion higher than the previous peak of $12.68 trillion in the third quarter of 2008.
  • Mortgage balances rose by $120 billion in Q4.
  • Auto loans increased by $16 billion
  • Credit card debt increased by $46 billion
  • Student loan debt increased by $10 billion.
  • Of particular note is that transitions into delinquency for credit card debt deteriorated again in Q4, a trend that has been ongoing since 2016.
  • The Fed noted in particular a jump in credit card delinquencies owed by younger borrowers.

These numbers are significant, but when we look at the total increase in 2019 the trend is breathtaking:

  • For the year, the aggregate increase in household debt was $601 billion. That is the largest annual gain since 2007!
  • The main component in this increase was a $433 billion increase in mortgage balances.
  • Credit cards and auto loans increase by a $57 billion each.
  • Fortunately, student loan debt showed a smaller rate of growth, but it was still a robust $51 billion.

Often a picture is worth a thousand words (or in this case about 700!).  This is a chart provided by the Fed showing the growth in household debt since 2003:

Really a pretty astounding picture when we look at it like this. Yes, much can be credited to the improving economy beginning in 2013.  As we went back to work, and wages increased, it was only natural that we could take on more debt and pay for it.  Yet this trend simply cannot continue forever.  Economic expansion has its limits, particularly when unemployment is so very low.  Global events can trip things up very quickly, as we have seen recently with the Coronavirus outbreak.

What to do?  As always, we urge our clients to use their best judgement when issuing credit.  When receivables increase, and aging of debt increases, we encourage you to turn your debts over to us at the earliest possible moment to begin the collection process.  Now is the best time to do so as it is tax season and tax refunds are a great source of debt recovery.

And, as always, we are here to help. Let us know how we can help you!

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 15 years.

Image provided by: Nick Ares –  https://www.flickr.com/photos/aresauburnphotos/   

US Economy Grows along with 2019 Holiday Spending

I finally finished wrapping the last present and I’m happy to say I am officially ready for Christmas and have spent all I’m going to spend—that is, unless I have to make a last minute trip to the grocery store to pick up some whipped cream or other forgotten item.

According to the National Retail Federation annual report, consumers plan to spend a total of around $1050.00 (on average) for Christmas this year. That will amount to a total of about 730 billion dollars (!) up 4 percent from last year.

“The U.S. economy is continuing to grow and consumer spending is still the primary engine behind that growth,” NRF President and CEO Matthew Shay said.

Money spent will go towards presents ($659) non-gift holiday purchases like food and decorations ($227) and non-gift items for themselves ($162). I’d like to say I find the non-gift items for themselves category a bit ridiculous, but, in full disclosure, I did find a couple of nice things I bought for myself on Saturday. (It’s hard to pass up those kinds of deals, am I right?)

The NRF report also said that 91 percent of consumers are celebrating the winter holidays this year and 73 percent will use their smartphone or tablet to research purchases.  I fall safely within these statistics, but it also said that 19 percent started their shopping in or before September and 39 percent started before November. I’m an outlier in those two stats.  With Thanksgiving falling so late this year I did not start my shopping until December, and I felt a little rushed because of it.

I am a big online purchaser so when I read 56 percent will buy gifts online, I wasn’t surprised.  If anything, I would have thought that number would have been higher.  But 92 percent wanting to take advantage of free shipping was a no-brainer.

Thankfully, the holiday season isn’t just about stuff, stuff, and more stuff.  I am happy to report 68 percent of us are engaging in some kind of charitable endeavor. Yay!

We, here at A. Alliance, want to wish you a Merry Christmas and a healthy, happy and prosperous New Year.

 

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 14 years.

 

 

Coal in our Christmas Stockings? Consumer Debt Hits Another Record

I suppose one could argue that having coal in our Christmas stockings is not necessarily a bad thing.  In the 19th century, a lump of coal just may put off freezing to death for another day.  A good thing.

But we are in the 21st.  I wonder how many of us have even seen a lump of coal, let alone used one for something useful.  Heck, even our barbecue grills rarely use charcoal anymore.  Most use propane.  Even our powerplants are converting to natural gas.  The piles of coal that once filled the power plant yards are disappearing as I write.  A good thing if you live near one as I do.

So, if you get a lump of coal, what to do?  Good question. May I suggest you regift it to the politician of your choice?  Please don’t send it to your faithful blogger; I have enough to empty out from last Christmas.

But I digress (again).

I beg to report that once again we have to reckon with a lump of coal in the form of the rising level of consumer debt, which once again reached historic levels in the third quarter.

To be clear: not just historic, but unprecedented.  Highest of all time.  We have never seen anything like this amount of consumer debt.  Ever.

Good or bad?  You can be the judge.  On the one hand, as we continue to experience low levels of unemployment, we should be able to afford to pay our debts.  Certainly, the argument is that consumer spending, with the resultant high levels of debt, is powering the economy.  On the other hand, it won’t take much to wiggle us into a difficult spot.  And we have plenty of things, nationally and globally, that can start the wiggle. More on this last later in the blog.

Here is the latest for the third quarter (from The New York Federal Reserve “Quarterly Report on Household Debt and Credit” read it here):

  • Total household debt increased by another $92 billion to $13.95 trillion
  • This is the 21st consecutive quarter with an increase in household debt
  • We have exceeded, by 3 trillion, the last peak reached in 2008 ($12.68 trillion).
  • Mortgage related debt increased by $31 billion, the largest component of household debt
  • Other types of debt all increased by an aggregate $64 billion including:
    • $18 billion in auto loans
    • $13 billion in credit card balances
    • $20 billion in student loans.
  • Not good news: “Aggregate delinquency rates worsened in the third quarter of 2019”.
    • As of September 30, 4.8% of outstanding debt was in some stage of delinquency
      • This is a 0.4 percentage point increase from the second quarter due primarily to increases in early delinquency buckets.
      • Of the $667 billion of debt that is delinquent, $424 billion is seriously delinquent (at least 90 days late or “severely derogatory”, which includes some debts that have previously been charged off that the lenders continue to attempt collection).

So, what happens from here?  I suppose it is anyone’s guess but given what appears to be the start of a very robust holiday spending season, we will reach another new record in the fourth quarter.  A lump of coal to me if I am right?  Bring it on I guess but this trend clearly is not sustainable.

What can go wrong?  Well, for one thing, our personal financial health can begin to deteriorate.

A measure of the financial health of the consumer has recently been published by the Consumer Financial Protection Bureau (CFRB).  While opinions on the effectiveness of the CFRB vary, their recent report “Financial Well-Being by State” (read the full report here) attempts to analyze how consumers view their financial well-being by age and then by state.  The intention is to spotlight differences in age and financial well-being and highlight areas of the country that need to pay particular attention to financial education efforts.

The ACA International (a business association for collections professionals) published a summary of the CFRB report (read it here). They write:

“According to the CFPB, financial well-being is defined as the state wherein an individual has a sense of:

  • Control over day-to-day and month-to-month finances;
  • Capacity to absorb a financial shock
  • Being on track to meet financial goals;
  • And the ability to make financial choices to enjoy life.”

The ACA notes “Financial well-being varies by age and where consumers live…on average adults ages 18 to 61 have a score [of 49] reflecting minimal savings and some difficulty making ends meet…”.

“A score of 49 is at the top of the medium-low financial well-being score range…”:

  • Most (60%) of adults in this range have minimal savings of $250 or more, but only 30% have $2,000 or more in savings.
  • Almost all of adults in this range (80%) find it somewhat or very difficult to make ends meet.
  • Some (32%) have had a credit card application rejected or are concerned about credit rejection.”.

That is pretty alarming when we add on our unprecedented the state of indebtedness.

Digging deeper, even lower scores have arguably unrecoverable financial problems.  Again, this varies quite a bit by state. From the ACA:

  • “In the very low category, (a score of 0-29) just 5% of adults in that group are certain they could come up with $2,000 for an emergency; while most (82%) sometimes or often experience “food insecurity” or “food hardship,” according to the CFPB.
  • In the low category (a score of 30-37); few (23%) save money on a regular basis and only some (38%) have more than $250 in liquid savings. Nearly half (45%) of adults in this group said they have experience with debt collectors.”

The ACA concludes: “The CFPB’s findings can be a benchmark for the accounts receivable management industry to consider when communicating with consumers and developing manageable payment plans.”

Coal for the holidays?  Let us hope not.  The bright side is that basically half of us do pay our bills, have the means to do so, and feel pretty confident about our financial well-being.  When circumstances warrant, however, we are here as your experts to help with your receivables management.  We are the experts in working with clients to optimize their recoveries.  Let us help!

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 14 years.

image provided by: creative commons