Victoria Grant Has It Right.

Victoria Grant of Cambridge, Ont. is earning a reputation as a financial pundit after her tirade against her homeland's borrowing practices went viral on YouTube.

If you feel like you are drowning in debt and there is no way out, you aren’t alone. As of April, one out of every five U.S, households owed more on their credit cards, medical bills, student loans and other un-collateralized debts than they had in assets. This, according to a University of Michigan report just released Monday.

“Some families have not been able to make substantial headway,” said Frank Stafford, an economist at the U-M Institute for Social Research and co-author of the report.

Since 2008, the only families whose savings levels have increased are those with $50,000 in savings.

Mark Zandi, chief economist for Moody’s Analytics, said the U-M results are consistent with other data showing that a large number of lower-middle income households have negative net worth.

“That is, they owe more than they own,” he said. “They are having trouble managing their debt.”

Among economic co-indicators, the U-M report revealed that many families fear more mortgage troubles ahead. About 1.7% of families surveyed in 2011 said it is “very likely or somewhat likely” that they will fall behind on their mortgage payments in the near future. Stafford said “the bad job market is definitely a factor.” The primary concern of the families surveyed was the impact of the primary income earner or their spouse losing their job or having to take a pay cut.

It’s possible, Stafford said, there will be continuing troubles for mortgages in 2013 and 2014.

Another troubling trend the report noted was that nest eggs weren’t quickly being rebuilt after families dug into savings to pay bills. Families with no savings or other liquid assets rose to 23% in 2011, up from 18.5% in 2009.

Surveyed families revealed credit card debt has increased 18%. About 10% of families in 2011 had $30,000 or more in credit card debt and other non-collateralized debts. That compares with 8.5% in 2009. The average interest rate being paid on that debt is 32%. If one were to pay $700/month on $30,000 in credit card debt and never use the card(s) again, it would take 15 years and around $110,000 to pay the debt off. Unless these families can find debt consolidation loans at 13-14%, or win the lottery, the future doesn’t look very bright.

But it is worse for the U.S. government. AKA, you and I and our tax dollars, because you know the banks will not be left holding the bag. Again.

If the survey reflects average families, then that level of credit card debt is representative of about 8 million households or $240 Billion, not quite as frightening as the $1.2 Trillion in student loans outstanding, but still a really big number. The average home value in 2011 was $164,000. The total number of foreclosures projected by the end of 2013 will be 7 million homes, or a loss in real estate mortgage loans of $918.4 Billion. It needs to be offset, by something.

It will be really interesting to see how our Congress sorts this entire mess out. If we took all three losses together, we would be looking to offset $2.3 Trillion in money squandered on loans never to be re-paid. I assume Congress will pass an extension on the carry cost of the student loans, extending the 3.2% and pushing out the increase to 6.4% until … when?

So, we all now know a little bit about how Spain and Ireland and Greece feels, to be helpless in the wake of government mishandling of their leadership responsibilities, and to be unable to assign accountability for policy outcomes. This little 12 year old Canadian girl has it right. Watch her explain here:


About Steve King

iPeopleFINANCE™ Chief Operating Officer. Former CEO of Endymion Systems, Inc. a $36m Information Systems Services company. Co-founder of the Cambridge Systems Group, the creator of ACF2, the leading IBM Mainframe Data Center Security product; acquired by Computer Associates. IBM, seeCommerce, marchFIRST, Connectandsell alumni. UC Berkeley alumni. View all posts by Steve King

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