Wells Fargo: Americans Are Taking on Debt to Keep Up With Expenses
Financial advisors may want to sit down with their clients to chat about spending: American households appear to be taking on debt to keep up with rising living expenses, according to a recent Wells Fargo & Co. report cited by Bloomberg.
The debt-to-disposable-income ratio had been falling after the financial crisis, apart from a spike in 2013. But it's been inching higher since the fourth quarter of 2016, according to the news service. And Americans may be spending more because they’re feeling more confident and expect their incomes to grow, Wells Fargo analysts John McElravey and Ryan Brinkoetter write in a presentation cited by Bloomberg.
But much of that growing debt is in education loans, and that could be dampening Americans’ appetite for other kinds of debt, the analysts write. Total student loan debt has ballooned from $530 billion in 2007 to $1.36 trillion in 2017, according to data from the Federal Reserve Bank of New York cited by Bloomberg.
Meanwhile, personal savings rates have fallen to their lowest levels since 2005, according to Bureau of Economic Analysis data cited by the news service. According to the data, they currently hover just above 2% of disposable personal income, Bloomberg writes.
Lower-income households appear to be the worst hit, according to the news service. Because they don’t typically own retirement accounts, homes or investments, such households were left out of the asset appreciation in recent years, Bloomberg writes.
The personal savings rate cited by the Bureau of Economic Analysis contrasts sharply with recent findings by Fidelity. Analysis of the company’s 9.2 million individual retirement accounts and 15.3 million participants in corporate defined contribution plans found that retirement savings reached new records, averaging more than $100,000 for the first time. Fidelity also found that a third of 401(k) savers are putting away 8.6% of their incomes.