Record Credit Card Debt Raises Alarms
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What is the main topic discussed in this episode?
Here's your Money Briefing. I'm J.R. Whalen at The Wall Street Journal in New York. Since the financial crisis, consumer credit has expanded. There have been waves of growth in student loans, auto loans, mortgages, and credit cards. The amount of credit card debt held by Americans has grown to nearly a trillion dollars, and that's raising some concerns.
How much did U.S. credit card debt increase in the latest Federal Reserve report?
The ratio of debt in serious delinquency aged up to 5.3 percent, and that's for the general population. But for young people ages between 18 and 29, the percentage of debt in serious delinquency went up to 9.4 percent. That's quite a high number.
That's Wall Street Journal reporter Yuka Hayashi. She'll explain why mounting debt levels are making some economists nervous about the direction of the economy. That's next.
Is current credit-card debt higher than during the 2008 financial crisis?
A strong economy and job market is encouraging people to spend more and borrow more. Americans' credit card debt hit a new high in the fourth quarter. Wall Street Journal reporter Yuka Hayashi is on the line with us to discuss what it means for consumers and for the economy. So, Yuka, is this level of credit card debt higher than it was during the 2008 financial crisis?
The levels that we've seen in the past two quarters or so have been higher than during the financial crisis and soon after. In the last quarter, we saw credit card debts rising to $930 billion.
Why did credit card balances jump in the most recent quarter?
And that is a result of people spending aggressively amid a very strong job market wage growth and rallies in the stock market.
Now, debt typically rises in the fourth quarter, but do these numbers take people by surprise? It seems that way.
People do use credit cards more during the holiday season, of course, so there's always an uptick in credit card debt.
What other types of household debt have surged and what's driving them?
But the increase that we saw last quarter seems to be larger than that. And part of that could be explained by the shift that took place that had some issuers of store cards moving debt to credit cards from cards that were previously considered a different kind of consumer card.
And what does the debt level of the last quarter tell us about younger borrowers?
So in addition to the credit card debt amount going up, what we saw during the last quarter was an increase in what they call a serious delinquency in debt. And that's the ratio of debts that have been late by 90 days or more. And the ratio of debt in serious delinquency aged up to 5.3%.
Are economists and banks becoming concerned about rising household debt?
And that's for the general population. But for young people ages between 18 and 29, the percentage of debt in serious delinquency went up to 9.4%. That's quite a high number.
And this seems to be an unfortunate consequence with the rise of credit card debt along with the economic expansion we've seen over the past decade.
So after the financial crisis, financial companies tightened credit very, very sharply. So that caused debt of all types to fall sharply.
Which age groups show rising delinquency and how severe is it?
Debt levels have been coming up in the past several years as the economy improved. And also financial companies started loosening their lending standards a little bit.
So Yuka, in addition to credit card debt, have there been other categories of debt that have risen significantly during the economic expansion?
Actually, the household debt has been expanding constantly for nearly two years, reaching a record level. And the current level of household debt is now something like 12% higher than at the peak before the financial crisis. What has been driving the increase In recent months is the boom in mortgage lending. During the last quarter, mortgage originations jumped by 42%. 42% is a huge, huge increase. And that was caused in large part by a boom in refinancing of mortgages.
Do these debt levels make some people worry about the strength of the economy, even though we're in an expansion?
So compared to the delinquency levels we saw during the financial crisis, the current level is much, much lower. But people are beginning to pay attention. In a recent survey by the Federal Reserve, bankers said that they are beginning to tighten their lending standard. Recently, just a couple of weeks ago, a credit card company, Discover, said that the amount of debt they have on their book that is troubled has gone up sharply, and that prompted the stock price of the company to fall sharply that day.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–0:25
2
How much did U.S. credit card debt increase in the latest Federal Reserve report?
0:25–1:03
3
Is current credit-card debt higher than during the 2008 financial crisis?
1:03–1:40
4
Why did credit card balances jump in the most recent quarter?
1:40–2:08
5
What other types of household debt have surged and what's driving them?
2:08–3:06
6
Are economists and banks becoming concerned about rising household debt?
3:06–3:39
7
Which age groups show rising delinquency and how severe is it?
3:39–5:37
Speakers
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