Confidence high, debt higher: Is a crash coming?
I have a 2010 Honda Odyssey. I bought it with 40,000 miles on it, and now it’s up to about 130,000.
Two years ago, when my 2003 Ford Explorer finally gave out, I picked up a 2004 Acura from a friend of mine for $5K. Had 60,000 miles on, now about 80,000 or so.
Both cars are paid up, and my plan is to keep them both for as long as they last.
Could I afford a new car today? Yeah. Could I afford two new cars? It would sting, but yeah. I could swing it. Am I even contemplating it? No, no, no, a thousand times no. And no again, for good measure.
Why? Because ever since the crash of 2008, I’ve become frugal, prudent, careful. I’m not a total drip — after all, I just spent a week at Disney World, not exactly a cheap vacation — but I make sure I don’t spend money I don’t have.
In short: if I can’t afford it, I don’t buy it. And if I can afford it, I make sure I need it or, at minimum, want it really, really, really, bad.
I was shaken by The Great Recession, which began 10 years ago this month. My wife was pregnant with our first kid, we just sold our stake in a restaurant, my second job had evaporated, and I was constantly trading my $15,000+ credit card debt around from one zeropercent card to the next.
All of a sudden, banks were failing, two of my income streams evaporated, a new baby was born, and credit card companies stopped with the zero-percent deals.
We hunkered down. A few years passed, and that credit card debt disappeared due to vigilance on our part. I vowed to never put myself in that position again.
And I haven’t.
But uh … the lesson was not heeded by everyone. Check out these two related stories: Consumer confidence is at an 18-year high, and American household debt is at an all-time high.
“These historically high confidence levels should continue to support healthy consumer spending in the near-term,” Lynn Franco, director of economic indicators at The Conference Board, said in a prepared statement.
Which is lovely, except consumers in America are leveraged to the teeth and, in some cases, probably leveraged their teeth, as the household debt is $13.2 trillion, according to the Fed.
That number comes out to over $105,000 per American household. Now granted, that includes mortgage debt, but take out mortgage debt? Average household owes over $36,000. That’s credit cards, car loans, home equity loans, student loans, and everything else.
I sit here and proudly say outside of my mortgage — and there but for the grace of Alan Greenspan go I — my household is currently at $0 debt (not including mortgage, which I’m furiously paying off as quickly as I can). And it’s not because we’re wealthy; we just don’t buy stuff, unless it’s needed or really, really, really wanted. (See my upcoming Sunday column for one of those stories ...)
And know this: Delinquency rates on credit, auto, and student loans are rising. Is another crash coming, reminiscent of 2008? I’m going say yeah, probably. With consumer confidence soaring and banks willing to extend credit for everything other than bad mortgages, something will eventually give.
I’m not trying to scare you — especially you younger readers who weren’t directly hit by ‘08 — but I am trying to give you a peek into how I’ve been doing things.
I’ve been working hard, saving as much as I can, not buying crap I don’t need, saving my expenditures for needs or true, wellthought-out wants.
I encourage you to do the same. It may feel like the good times are here again, economically speaking, but behind every boom is a looming bust. And to me, the combination of soaring consumer confidence and soaring debt makes it feel like the storm is brewing.