Debt may be an old problem, but what's getting us into hot water has certainly changed since the roaring '20s — and it might not bode well for the growing rich-poor gap our country faces.
Many Americans owe more than they own, and the situation intensified during the recession and its aftermath. A recent study by the Congressional Budget Office puts this into perspective. "The share of families in debt ... remained almost unchanged between 1989 and 2007 and then increased 50% between 2007 and 2013," the report said.
Housing and student-loan debts have been the main problem areas. Among U.S. households that had a negative net worth in 2007, 56% had student loan balances, averaging $29,000. Six years later, that jumped to 64%, owing $41,000 on average.
Housing debts have been worse. Only 3% of negative-worth families in 2007 had negative home equity, too, averaging $16,000. But by 2013, 19% owed an average of $45,000 more on their mortgages than their homes were worth.
Yet one type of debt that hasn't plagued low- and moderate-income families is debt tied to stock investing. The CBO report didn't even mention it. This is a notable departure from the 1920s, when reckless borrowing by plenty of mainstream Americans pushed up stock prices to overheated levels, contributing to the crash of 1929 that ushered in the Great Depression.
That was a period when college education and home ownership were off-limits to large segments of the population.
"Ordinary men and women invested growing sums in stocks and bonds," the Federal Reserve recalls in an online history. "Purchasers put down a fraction of the price, typically 10%, and borrowed the rest." When the market boom turned to bust, millions of speculators got crushed.
Nothing like that scenario played out in the recession of 2007-2009. Roughly half of all Americans don't own any stocks. Substantially fewer buy shares with borrowed funds.
Yet stock ownership, or the lack thereof, has contributed to the widening rich-poor divide: Wealthier Americans, who largely stayed in the market, were in a position to profit when stocks recovered. People of moderate means largely stayed on the sidelines and missed out.
Two other reports out recently offer different glimpses into the state of Americans' finances.
Talking money less taboo
Personal wealth remains a socially awkward topic to discuss, but perhaps it's becoming less so.
The deVere Group, polled 830 people with investible assets of $1.3 million or more. Forty-three percent ranked personal finance as the most difficult subject to discuss with family, friends and colleagues. That beat out politics (28%), sex (14%), religion (10%) and health (5%).
However, this latest survey marks a notable change from a similar poll two years ago, when 61% of high-net-worth clients cited money as the most touchy topic.
The latest results suggest that feelings of embarrassment or guilt tied to wealth, especially among the affluent, might be eroding. This could reflect the reality that many business leaders, politicians, celebrities, professional athletes and others can't avoid having their finances discussed in the open, said deVere CEO Nigel Green. "The rise of the digital age, and social media in particular, we believe, play an important part in this trend that is responsible for shifting the money taboo," he said.
More relaxed attitudes might be favorable anyway, as increased discussion of personal-finance issues could help people better achieve their goals and get better deals on financial transactions, Green said.
Read more: Americans' debt problems have evolved
Many Americans owe more than they own, and the situation intensified during the recession and its aftermath. A recent study by the Congressional Budget Office puts this into perspective. "The share of families in debt ... remained almost unchanged between 1989 and 2007 and then increased 50% between 2007 and 2013," the report said.
Housing and student-loan debts have been the main problem areas. Among U.S. households that had a negative net worth in 2007, 56% had student loan balances, averaging $29,000. Six years later, that jumped to 64%, owing $41,000 on average.
Housing debts have been worse. Only 3% of negative-worth families in 2007 had negative home equity, too, averaging $16,000. But by 2013, 19% owed an average of $45,000 more on their mortgages than their homes were worth.
Yet one type of debt that hasn't plagued low- and moderate-income families is debt tied to stock investing. The CBO report didn't even mention it. This is a notable departure from the 1920s, when reckless borrowing by plenty of mainstream Americans pushed up stock prices to overheated levels, contributing to the crash of 1929 that ushered in the Great Depression.
That was a period when college education and home ownership were off-limits to large segments of the population.
"Ordinary men and women invested growing sums in stocks and bonds," the Federal Reserve recalls in an online history. "Purchasers put down a fraction of the price, typically 10%, and borrowed the rest." When the market boom turned to bust, millions of speculators got crushed.
Nothing like that scenario played out in the recession of 2007-2009. Roughly half of all Americans don't own any stocks. Substantially fewer buy shares with borrowed funds.
Yet stock ownership, or the lack thereof, has contributed to the widening rich-poor divide: Wealthier Americans, who largely stayed in the market, were in a position to profit when stocks recovered. People of moderate means largely stayed on the sidelines and missed out.
Two other reports out recently offer different glimpses into the state of Americans' finances.
Talking money less taboo
Personal wealth remains a socially awkward topic to discuss, but perhaps it's becoming less so.
The deVere Group, polled 830 people with investible assets of $1.3 million or more. Forty-three percent ranked personal finance as the most difficult subject to discuss with family, friends and colleagues. That beat out politics (28%), sex (14%), religion (10%) and health (5%).
However, this latest survey marks a notable change from a similar poll two years ago, when 61% of high-net-worth clients cited money as the most touchy topic.
The latest results suggest that feelings of embarrassment or guilt tied to wealth, especially among the affluent, might be eroding. This could reflect the reality that many business leaders, politicians, celebrities, professional athletes and others can't avoid having their finances discussed in the open, said deVere CEO Nigel Green. "The rise of the digital age, and social media in particular, we believe, play an important part in this trend that is responsible for shifting the money taboo," he said.
More relaxed attitudes might be favorable anyway, as increased discussion of personal-finance issues could help people better achieve their goals and get better deals on financial transactions, Green said.
Read more: Americans' debt problems have evolved
