Household debt averages considered
The previous three articles have dealt with the issue of household finance, specifically debt as it is reported by the Federal Reserve. This is not intended to be a math class but the data given is reported as a median figure, not an average. Frequently we think of them in the same terms, but depending on how much data you have and when the variation is from very high to very low, the averages and median can tell a very different story.
Webster’s Dictionary defines the average as the exact or close approximate quotient obtained by dividing the sum total of a set of figures by the number of figures. Webster’s definition of the median is the value that represents the point where there are as many numbers above it, as there are below it. They show an example using the numbers 3, 4, 5, 8 and 10. The total is 30 and divided by five the average is 6. The median however, is 5 because 3 and 4 are below it and 8 and 10 above. This is significant only because our data is limited to median figures based on households who reported debt in the categories listed — student loans, credit cards and automobile loans.
As we would logically expect as the age of the group increases, student loan debt decreases. For households having debt, 44.8 percent of those under age 35 reported student loans with a median debt of $18,500. For the age group of 45 to 54 the number reporting student loans dropped to 23.7 percent, but their median debt rose to $20,000. We can guess that more professional careers were still paying off larger loans. That is a guess, but the median increasing means there are more large loans still being paid off. At the top age bracket of 75 years and older, no one reported a student loan. Again, logical reasoning appeals to our assessment.
Credit cards are the “wild card” in this data. For the entire population reporting debt, 43.9 percent reported some debt on credit cards. The youngest reporting group — under 35 years — reported a 45.4 percent number with credit cards but a small median balance of $1,400. In the 45 to 54 age group, over half (52.3 percent) reported a balance and it was twice ($2,800) the 35 and under group. Even though we might expect the 45 to 54 age group to be in their better earning years, they probably still have some children at home or in school somewhere and have repairs to home and car as well as all the other usual home expenses. Because the median does not tell us the top figure of any category, there could be a large number of smaller debts and a few very large balances hidden in the reporting. At 55 to 64 the median balance stayed at $2,800, but the number of people reporting dropped to less than half — 41.4 percent. Surprising to me, the age group over 75 still reported some participants (26.2 percent) with credit card debt and equally surprising median of $2,100.
Probably the biggest concern to our nation’s economists is the auto loan debt. The automotive industry is important to our economy in the total number of people employed directly and indirectly in production of cars and light trucks. As the price of vehicles — cars and trucks — has increased over the years, our ability to pay for them in the “standard three-year loan period” has given way to much longer periods of indebtedness. In this report for the families reporting indebtedness, over one-third (33.8 percent) had an auto loan. The median was $12,800. For those under 35, the percent of loans was 38.7 percent and the median balance was $13,000 — about the median for the entire reporting group. In the 35 to 44 age group, 44.3 percent reported a loan and the median had increased to $14,000. As the age groups get older, the number of reports drops and the median balance gradually goes down. Could this be simply as we age cars are less of a status symbol than they were when we were younger and we have other more pressing claims on our income like educating our kids and in cases like mine, being concerned about grandchildren and their education? At the 75 and above age only 13.7 percent had a car loan and the median figure reported was $10,000. It is difficult to pay for a new mid-size car on a Social Security check, so I’m surprised that the number is even that high.
This series is not intended for any purpose other than personal use for anyone who is curious. My sons fit into all the above categories with their sons and daughters in college, high school, etc. They have credit cards, car loans and probably some student loans to worry about.
My concern is for the future of our nation and the economy in general. Our National Debt continues to mount with no visible effort being made by our leaders to balance our budget much less worry about paying off our swelling deficit. The children we are educating today may need more than a Siri or an Alexa to solve the problem.
One thing I discovered doing the research on these articles was a new (to me) source of credit. A group of families, under 10 percent in the studied group, used Home Equity Line of Credit (HELOC) as a means of financing debt. This would probably include reverse mortgages, etc., along with just borrowing against the equity in the house. The highest median debt in this category was the age group 45 to 54 at $41,000. In this age group 5.4 percent were participating about the same percent as in the over 75 category which had a lower balance at $28,000.
No where in the data did they tell us what a “reasonable” interest rate actually should be. Nor did they give instructions on balancing household budgets.
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Editor’s note: Leo Lynch, an award-winning columnist, is a native of Benton County and has deep roots in northwest Arkansas. The opinions expressed are those of the author. He is a retired industrial engineer and former Justice of the Peace.