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Perhaps the most concerning stats I've seen are around fast rising consumer debt levels (and upticks in default rates on credit card debt + auto loan debt). If

Perhaps the most concerning stats I've seen are around fast rising consumer debt levels (and upticks in default rates on credit card debt + auto loan debt). If life was so good for so many people, how/why are so many people borrowing in the first place and have trouble paying it back?

Waterluvian 7y ago
I would love to better understand how much borrowing that puts people in financial hot water is for luxuries/optional stuff vs. borrowing for the fundamentals like housing, transportation, food, healthcare. Ie. how much consumer debt is because people put themselves in a bad position vs. they really had no choice to begin with. If anyone has any data, links, I'd appreciate it.
JamesBarney 7y ago
One of the reasons so many people are borrowing is the low interest rates. I could afford to buy my last car cash but for 1% financing for 3 years I'd rather have the cash.
- tempsy 7y ago
  That doesn’t explain rising late payment/default rates. Also (holy shit) the average credit card APR is 15%, apparently a record high since 1994. I do not pay interest on my cards, but I have a very high credit score and my rewards cards are all >22% APR. Something is very wrong if banks are borrowing at record low rates and yet consumers are borrowing in record amounts at record high rates! Source: https://www.creditkarma.com/credit-cards/i/average-apr-on-credit-card/ https://www.creditkarma.com/credit-cards/i/average-apr-on-cr...
  - User23 7y ago
    Credit cards are usury unless you have the cash flow and discipline to pay the complete amount due every statement. They're barely a step above payday and title loans (not in absolute effective APR, but morally). Personally I prefer to just use a charge card.
- User23 7y ago
  In the same vein, Interactive Brokers will give you 3.26% on a margin loan if you have over 100k in your account. At rates like that you're better off capitalizing the interest and letting the securities you bought on margin appreciate. Obviously don't do this if you don't know what you're doing, but it's actually perfectly safe with a proper options hedging strategy that ensures you don't get a margin call. To be clear this isn't financial advice, just an observation about what many people are doing due to the low rate environment.
  - cobookman 7y ago
    It’ll be interesting if rates ever do rise. Right now you might as well buy a house just cause. At 3% interest. It’s basically free money. Especially if you view inflation at 2%. Plus rental income and property appreciation. Why not?
    - charlesdm 7y ago
      Because it can go down in value. Plus purchase and annual taxes. But yes, mostly correct. I don't really see rates rising in a long time.
RickJWagner 7y ago
Rising consumer debt can be seen as an increase in consumer confidence. Defaults are another story. The economic environment is about as good as it can get. But people's attitudes towards money (and borrowing, and spending) are largely orthogonal. I expect as older generations die off and younger ones enter the spending economy we'll see more likelihood to borrow and spend. This will continue until the current generation gets badly burned (when the economy eventually peters out), then there will be a new generation with an attitude of frugality.

Waterluvian 7y ago

I would love to better understand how much borrowing that puts people in financial hot water is for luxuries/optional stuff vs. borrowing for the fundamentals like housing, transportation, food, healthcare. Ie. how much consumer debt is because people put themselves in a bad position vs. they really had no choice to begin with. If anyone has any data, links, I'd appreciate it.

JamesBarney 7y ago

One of the reasons so many people are borrowing is the low interest rates. I could afford to buy my last car cash but for 1% financing for 3 years I'd rather have the cash.

tempsy 7y ago
That doesn’t explain rising late payment/default rates. Also (holy shit) the average credit card APR is 15%, apparently a record high since 1994. I do not pay interest on my cards, but I have a very high credit score and my rewards cards are all >22% APR. Something is very wrong if banks are borrowing at record low rates and yet consumers are borrowing in record amounts at record high rates! Source: https://www.creditkarma.com/credit-cards/i/average-apr-on-credit-card/ https://www.creditkarma.com/credit-cards/i/average-apr-on-cr...
- User23 7y ago
  Credit cards are usury unless you have the cash flow and discipline to pay the complete amount due every statement. They're barely a step above payday and title loans (not in absolute effective APR, but morally). Personally I prefer to just use a charge card.
User23 7y ago
In the same vein, Interactive Brokers will give you 3.26% on a margin loan if you have over 100k in your account. At rates like that you're better off capitalizing the interest and letting the securities you bought on margin appreciate. Obviously don't do this if you don't know what you're doing, but it's actually perfectly safe with a proper options hedging strategy that ensures you don't get a margin call. To be clear this isn't financial advice, just an observation about what many people are doing due to the low rate environment.
- cobookman 7y ago
  It’ll be interesting if rates ever do rise. Right now you might as well buy a house just cause. At 3% interest. It’s basically free money. Especially if you view inflation at 2%. Plus rental income and property appreciation. Why not?
  - charlesdm 7y ago
    Because it can go down in value. Plus purchase and annual taxes. But yes, mostly correct. I don't really see rates rising in a long time.

RickJWagner 7y ago

Rising consumer debt can be seen as an increase in consumer confidence. Defaults are another story. The economic environment is about as good as it can get. But people's attitudes towards money (and borrowing, and spending) are largely orthogonal. I expect as older generations die off and younger ones enter the spending economy we'll see more likelihood to borrow and spend. This will continue until the current generation gets badly burned (when the economy eventually peters out), then there will be a new generation with an attitude of frugality.