Americans expect to be in debt forever
Things may be looking up from a macro-economic standpoint, but on a more personal level, 18 percent of Americans, who are currently in debt, think they’ll go to their graves owing money to creditors.
Another 11 percent who currently owe money for credit cards, auto loans, student loans, mortgages, etc. expect to pay off their debts, but not until they are in their seventies, according to a survey conducted by Princeton Survey Research Associates International, which was commissioned by CreditCards.com.
Even those who do not currently owe money to creditors are pessimistic about their outlook. Thirteen percent of all those surveyed, those with and without debt, believe they will "never" pay off what they owe.
"These numbers are disturbing," said Christopher Viale, president of Cambridge Credit Counseling of Massachusetts, a nonprofit that helps people reduce debt. "I am most concerned about the 13 percent who expect that they’ll never be debt-free, given all the negative consequences that come with such a bleak outlook."
Boomers are more likely than Millennials to believe they’ll never get their bills paid off. According to the research, 31 percent of those 65 and up expect to die in debt while 22 percent of those between 50 and 64 expect to do the same. Only six percent of Millennials who are currently in debt expect to expire in that financial state.
"Young people tend to answer financial questions very hopefully," Mr. Viale said. "When we ask 16- and 17-year-olds how much they think they’ll make after they graduate from college, we never get an answer less than $100,000."
Pessimism around debt was fairly consistent across income levels. Fourteen percent of those earning under $30,000 a year believe they’ll never pay off their debts while 12 percent of those making between $30,000 and $49,900 said the same. Fourteen percent of debtors making between $50,000 and $74,900 say they’ll die in debt while 12 percent of those with annual incomes at or above $75,000 feel the same way.
Being in debt is not enough to stop consumers from charging purchases during the holiday season. While 74 percent expect to pay off charges within three months of purchases, six percent think it will take four months, two percent say six months to a year and two more say it will take more than a year to be clear. Households with incomes of $75,000 or higher are most likely to take on debt during the holidays.
Discussion Questions
How will growing levels of personal debt affect consumer shopping behavior and the retail industry in the years ahead? Are any of these effects being felt now?
In sum, older people with debt think it is less likely that they will pay off their debt before they die. That’s logical if you believe you are closer to death than birth and if you have had the debt for more than 10 years and it’s substantial by your definition.
Similarly, younger people have more optimism about their future earnings and the possibility of long-term debt. Thank G-d I say.
Student debt is apparently proportionately larger and longer in duration of any debt in the U.S. So there’s something to be said for walking around with that burden and “shrugging” it off to move on with your life, albeit with a student loan to pay off.
It’s the attitude towards debt and not the actual levels (except for dead broke, i.e., no money at all) that influence people’s shopping behavior. And it’s those attitudes and behaviors that retailers should measure and monitor. Yes, track the levels of spending potential and disposable income, but know how consumers feel about it.
Before credit cards shoppers were limited to immediate payment, loans and other installment plans. The overriding philosophy and goal was to be debt free. You only spent what you could afford NOW with the possible exception of buying a house, underwritten as the “American Dream.”
Today is very different from then. The American Dream is changing shape even as we discuss this article. Every marketer has to understand that if they are to realistically anticipate and plan.
Many Boomers were raised by Depression-era parents who understood that if you couldn’t pay for it with cash, you couldn’t afford it. We’re well past that now, with TV channels full of ads for debt consolidation “services,” payday loans and ambulance chasing attorneys promising a quick buck.
The short-term outlook for retail is probably pretty good, because many people want immediate gratification. Longer-term, it could be disastrous for many families. And now that Congress has passed a bill to ensure that the big banks can get another taxpayer bailout, watch for further predation from Wall Street.
As neither an economist nor Nostradamus (or many, many other things), my gut tells me that ongoing debt will become the “norm,” i.e., people will accept the fact that they will owe and pay in a different way, but it won’t change their shopping behavior too much.
Debt is an addiction like drugs or alcohol. Easy to get hooked and hard to kick the habit. It’s legal and it’s always been around so the future will most likely look like the past and present. Sometimes it’s a useful business tool when properly used. Misuses in my opinion are college loans, consumer loans and credit cards. In my opinion the worst kind of loan is the college loan. It adds up fast, lures people who are really not college material into going to college, and they will have the monkey on their backs forever. As retailers we are dependent on the credit-addicted consumer and we are usually happy to keep providing more of it, jacking up our prices and offering consumers 5 percent cash-back. As retailers we will keep finding better ways of feeding the addiction.
I’m actually a bit encouraged by these findings. In most cuts of the data, a small minority believe their debt will be perpetual. Based upon recent surveys, I believe consumer sentiment and confidence continue to grow in most major metropolitan areas of the U.S. This is not true globally, however. I also see positive, but slow growth into 2015, despite the questionable Black Friday results.
Today debt is cheap but it will not stay this way for ever. The older American consumers have lost their Depression mentality, which was somewhat revived by the Great Recession. Those people who lost their house are back borrowing again because some in government keep saying it was not their fault. This will not work well in the future. Unless consumer debt gets reduced, the consumer will be forced to reduce shopping when interest rates increase. Prior year Christmas shopping has been somewhat muted due to old debt. I think it’ll be the same for this year. Consumers are spreading the spending to ease the pain.
I have never felt comfortable owing money and budget a significant portion of any money earned to reducing debt. I grew up with that philosophy demonstrated by my parents, and hopefully I’ve given that to my son. Conversely, I can’t understand those who consistently live beyond their income. For retail, an opportunity and responsibility exists. Like liquor ads that ask people to “drink responsibly,” do we ask shoppers to “Buy responsibly and within your means”? Who wins and loses when someone dies in debt, the creditor, the debtor’s family, the economy?
In viewing these statistics, it’s sad to hear these numbers.
Yes, everything price-wise keeps going up but the income keeps going down. basic necessities like medical co pays, food are being put on credit cards to buy time until the next pay check. Even if you pay off your credit card debt monthly so you don’t have interest charges, you never feel like you are getting ahead or have even a small rainy day fund.