The Great Recession hit many of Americans’ pockets hard, resulting in financial problems many in the middle class never dreamt of, including layoffs, shrinking nest eggs and new, unfamiliar reliance on social programs.
Others, who were less severely affected, took a lesson from observing those who were and used the recession as a time to pay down debt and get their finances in order.
With the economy apparently now on an upswing, data indicates consumers have gotten more comfortable with spending. According to the Federal Reserve’s Flow of Funds data, Americans are embracing debt once again.
Studies show consumer debt has continued to increase and recently reached an all-time high of $3.2 trillion.
People aren’t buying frivolous items, though. This time, consumers are borrowing money to finance things like college tuition. According to CNNMoney, student loan debt increased $114 billion to $1.08 trillion last year.
Bill Rieber, professor of economics at Butler University said education debt typically assumes three forms: your debt, your spouse/partner, and debt for your children.
He said last year, 24 percent of the population had education debt. The average debt for one’s self was $25,750; for spouse, $24,600; and for parents financing their child’s education, $15,000.
“Certainly student debt is a much bigger part of the expenditures of the population,” said Rieber.
An arguably more risky form of credit, auto financing, has also come roaring back. The Federal Reserve’s research shows the amount of outstanding auto debt is the highest it’s ever been.
“Yes, the automotive market has been doing quite well,” said Rieber. “If you look at the Midwest, particular cars include mid-sized sedans and crossover vehicles.”
Federal Reserve reports indicate increased credit card usage. Rieber doesn’t totally agree with this finding. He said not only did the recession scare people into decreasing debt and taking on less debt, but many financial institutions are more cautious and simply aren’t granting loans to consumers with poor credit.
“People are better positioned. They are putting more on down payments,” he added.
The unemployment rate has gone down which also may account for more spending. Rieber maintains this isn’t true for the African-American population, however, he believes their debt is still declining.
“All groups really had no choice – they had so much debt,” said Rieber.
What has decreased is mortgage debt. Numbers show American household debt reached its peak in 2007 and has since decreased 15 percent. Home mortgage debt accounted for much of the decline. It has decreased 22 percent since 2007.
“I think the lenders and borrowers have learned a big lesson that home prices don’t automatically rise and that we’re not recession proof in the U.S. by any means,” said Rieber.
