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Are American Consumers Taking On Too Much Debt?

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How much consumer debt is too much?

Today’s infographic uses extensive data from Equifax to try and answer this question.

We put consumer debt in a historical context, while providing an in-depth look at the latest numbers on different categories of debt such as student loans, credit cards, and mortgages to see how they compare.

American Consumer Debt

In the United States, there are three broad types of debt in the spectrum: government, corporate, and consumer debt.

Government debt consists of federal, state, and municipal debt, and adds to a total of 136% of GDP. Meanwhile, corporate and consumer debt, which together constitute private debt, amount to 197% of GDP.

The History of Consumer Debt

Before diving into the numbers, there are two historical developments worth mentioning that have greatly influenced consumer debt.

The first is the rise of consumer credit through the 20th century.

If you go back to the 1800s, it was a different place:

  • Information moved as fast as a boat.
  • 90% of Americans lived in rural areas.
  • 75% of Americans were involved with agricultural production.
  • There was a stigma around borrowing to buy luxury items, and some saw it as immoral.
  • Credit was only used in essential cases, such as borrowing money to buy seeds for farming.
  • Credit history was oral and based on personal reputation.

Today is vastly different. Information travels instantaneously, the economy is diversified, computers are everywhere, and factories pump out cheap goods that people want to buy. Credit history is universal, and 72% of Americans have at least one credit card.

For more information about the development of credit in the 20th century, check out this motion graphic video on the history of credit cards.

The second factor that greatly influenced today’s consumer debt situation was government intervention in the mortgage markets between 1949 and 2000.

Agencies such as the Federal Housing Administration (FHA), Ginnie Mae, Fannie Mae, and Freddie Mac were active with the following objectives:

  • Insuring mortgages
  • Providing liquidity to the mortgage finance system
  • Stabilizing the mortgage market
  • Expanding the secondary market for mortgages

Between 1949 and 2000, home ownership increased from 54% to 64.7%.

However, that coincided with increases in debt-to-income ratios (20% to 73%) and mortgage debt to household assets (15% to 41%).

The Composition of Consumer Debt

According to Equifax, U.S. consumer debt is at $12.44 trillion. Here’s how it breaks down:

TypeDebtPercentage
Mortgage$8.96 trillion72.0%
Student Loans$1.27 trillion10.2%
Auto Loans$1.14 trillion9.2%
Credit Card$0.74 trillion6.0%
Other$0.33 trillion2.6%
Total Consumer Debt$12.44 trillion100.0%

Consumer Debt Trends

1. Mortgage Debt

Mortgage debt, by far the largest category of consumer debt, peaked during the 2008 Financial Crisis at close to $10 trillion. Today, however, it makes up 72% of total consumer debt at $8.96 trillion.

This debt has been partially fueled by the lowest interest rates in history, which have put mortgage rates at all-time lows.

Since 2010, mortgage defaults and delinquencies have both trended down back towards normal levels.

2. Student Loans

For the first time in history, consumers are more in debt to student loans than any other type of non-mortgage debt.

The amount of student debt per person has steadily increased each year – especially for young people. For 18-25 year olds, student loan debt per person has increased from $4,637 in 2005 to $10,552 in 2015. The average young millennial now owes over 60% of of their non-mortgage debt to student loans.

In total, Americans now have $1.3 trillion in student debt, spread between 44 million people.

3. Credit Cards and Private Label Cards

Credit card spending has been steadily increasing since the Financial Crisis, but it has not yet hit pre-crisis levels yet. As it stands, Americans have $665.8 billion in credit card debt spread between 391.9 million cards.

Debt from private label cards, on the other hand, has surpassed pre-crisis levels. Private label cards are typically used to provide credit at department stores, furniture stores, and other retail locations. It is now at $77.4 billion, though this is relatively small compared to other credit card debt that exists.

4. Auto Loans

Total outstanding balances on auto loans and leases have increased 9.3% year-over-year to $1.14 trillion – putting it at all-time highs and making it the third largest consumer debt market overall.

However, auto loan delinquencies have been generally trending down over recent years.

Putting it All Together

As far as non-mortgage debt goes, consumers have never been more indebted.

However, mortgage debt is what really moves the needle for total debt numbers – and that is still not near levels seen during the Financial Crisis.

TypeAmountAll-time Highs?
Mortgage$8.96 trillionNo
Student Loans$1.27 trillionYes
Auto Loans$1.14 trillionYes
Credit Card$0.67 trillionNo
Private Label Cards$0.08 trillionYes
Other$0.33 trillionn/a

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Investor Education

The Top 5 Reasons Clients Fire a Financial Advisor

Firing an advisor is often driven by more than cost and performance factors. Here are the top reasons clients ‘break up’ with their advisors.

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The following content is sponsored by Morningstar
This circle graphic shows the top reasons for firing a financial advisor.

The Top 5 Reasons Clients Fire a Financial Advisor

What drives investors to fire a financial advisor?

From saving for a down payment to planning for retirement, clients turn to advisors to guide them through life’s complex financial decisions. However, many of the key reasons for firing a financial advisor stem from emotional factors, and go beyond purely financial motivations.

We partnered with Morningstar to show the top reasons clients fire an advisor to provide insight on what’s driving investor behavior.

What Drives Firing Decisions?

Here are the top reasons clients terminated their advisor, based on a survey of 184 respondents:

Reason for Firing% of Respondents
Citing This Reason
Type of Motivation
Quality of financial advice
and services
32%Emotion-based reason
Quality of relationship21%Emotion-based reason
Cost of services17%Financial-based reason
Return performance11%Financial-based reason
Comfort handling financial
issues on their own
10%Emotion-based reason

Numbers may not total 100 due to rounding. Respondents could select more than one answer.

While firing an advisor is rare, many of the primary drivers behind firing decisions are also emotionally driven.

Often, advisors were fired due to the quality of the relationship. In many cases, this was due to an advisor not dedicating enough time to fully grasp their personal financial goals. Additionally, wealthier, and more financially literate clients are more likely to fire their advisors—highlighting the importance of understanding the client. 

Key Takeaways

Given these driving factors, here are five ways that advisors can build a lasting relationship through recognizing their clients’ emotional needs:

  • Understand your clients’ deeper goals
  • Reach out proactively
  • Act as a financial coach
  • Keep clients updated
  • Conduct goal-setting exercises on a regular basis

By communicating their value and setting expectations early, advisors can help prevent setbacks in their practice by adeptly recognizing the emotional motivators of their clients.

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Curious about what drives investors to hire a financial advisor? Discover the top 5 reasons here.

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