Consumer Credit Has Outpaced Incomes Since The Great Recession
The economy is not working for average Americans. The economy and jobs have grown for about a decade. Yet drug overdoses from fentanyl, cocaine and methamphetamine are still going up as are suicides. Many are anxious about their economic security. Massive amounts of consumer credit – credit cards, student loans and car loans – in part reflect that economic stress. Families need more access to stable jobs that offer good pay and strong benefits. But those jobs are still hard to find, driving families deeper into debt. Rather than helping, President Trump has broken his promise to stand up for average Americans. When facing a choice, he has regularly chosen the rich and powerful over the economic security of middle-class Americans.
The continued expansion of consumer credit in a growing economy is a clear indication that things aren’t going well. Families often take on more debt because their incomes are not keeping pace with higher costs for education and health care. They also borrow consumer credit to help them pay their bills when they face short-term drops in incomes, for example, because of a layoff, a cut back in hours at work or unexpected time away from work to care for children, parents and spouses. Costs and risks have gone up, while incomes have only grown slowly. Consumer debt has become the go-to pressure valve for squeezed middle-class families.
Consumer credit has grown faster than after-tax incomes since the Great Recession. It grew from an average of 14.9% of after-tax income in June 2009, when the Great Recession ended, to 18.5% in September 2019 (see figure below). Families would have had $653 billion less in debt in September 2019 if consumer credit had just grown at the same rate as income since the end of the Great Recession. That consumer debt has outpaced incomes in an expanding economy is not a sign of middle-class wellbeing.
Consumer Credit Grew Faster Than After-Tax Incomes Even As Incomes Went Up and Taxes Went Down
More consumer debt puts families in a precarious financial situation. It tends to carry higher interest rates than mortgages, for instance. And it can put families’ finances at risk because repayment entirely rests on people having a stable and well-paying job, which is still often hard to come by these days. Many borrowers are at risk of having to make difficult choices between paying their debt and paying their bills.
The rapid growth of consumer debt has financially hollowed out America’s middle class. The average amount of consumer debt has grown to record highs for all income groups since the Great Recession, except for those in the bottom fifth (see figure below). That debt growth has been especially strong among families in the middle 60% of the income distribution (see figure below). For example, the average amount of debt for families between the 20th and 40th percentile of the income distribution increased by 47.1% from $14,180 (in 2019 dollars) in June 2009 to $20,860 in September 2019. Debt also grew by 23% for those in the middle of the income distribution and by 58.9% among families between the 60th and 80th percentile. Sharply larger debt burdens are a widely shared phenomenon among America’s middle-class families.
Consumer Debt Has Grown To Record High For Middle-Class Families
It doesn’t have to be this way. A growing economy doesn’t have to go along with widespread financial insecurity. A number of things could help to give families real economic security. This would include not only having a job, but having well-paying, stable jobs with good benefits. It would also include affordable and adequate health insurance, among other things, to keep costs down. It would include protecting key social programs such as Social Security. And it would include making it easier for families to afford sending their children to college. Families wouldn’t need to borrow as much if they weren’t so tightly squeezed from slow or no income growth and high costs.
But on all of these measures, President Trump has either moved in the wrong direction or failed to act. He promised to stand up for average Americans worried about their future and that of their children. Yet he has undermined wage growth by, for instance, rescinding expanded overtime protections. He has also given more power to already powerful corporations by allowing more mega mergers across many industries. He has failed to invest in infrastructure, despite pledging to do so, which would have created good jobs in key industries. Worse, his ad hoc trade disputes have wreaked havoc on manufacturing and agriculture, increasing financial insecurity in those sectors. Farm bankruptcies, for instance, rose sharply in 2019. And states that heavily rely on manufacturing saw jobs go down in 2019. He has enacted a series of policies to undermine health care, leaving millions without health insurance. And he has either already cut or proposed to cut Social Security, Medicare and Medicaid benefits, worsening the financial threats to struggling families. Finally, he has failed to take action on the growing student loan crisis. President Trump and his administration kicked middle-class families when they were down.
It is clear that this economy is not working for a lot of families. Continued economic growth and job creation are not enough to rebuild a thriving middle class. They need more help from President Trump and his administration to gain real financial security. But, rather than actually helping them, President Trump made it harder for families to get ahead.
