Currently showing: Funding longer lives > Social contract


06 Aug 13 09:45

In its latest quarterly report on household debt and credit, the New York Federal Reserve broke the happy news that families across the U.S. are getting their finances in order. http://www.newyorkfed.org/research/national_economy/householdcredit/DistrictReport_Q12013.pdf

Aggregate consumer debt declined a further 1% to USD 11.23 trillion, a long way off the peaks of 2008 as homeowners paid off their mortgages and paid down credit card debt in response to the financial crisis. The hope is that with their with finances in better shape, consumers may soon be willing to spend more freely, spurring economic growth.

Sadly, the devil is in the detail. While most forms of consumer debt have been diminished, student loans have continued to grow, as the NY Fed show here: http://www.newyorkfed.org/studentloandebt/

Student loans are now the largest form of consumer debt after mortgages, 16.2 percent of all Americans have student loan debt and, as of the end of March 2013, 11.2 percent of those loans were more than 90 days delinquent.

As Catherine Rampell notes in a recent blog in the New York Time, a growing number of these heavily indebted students are living at home with their parents, often through unemployment: http://economix.blogs.nytimes.com/2013/08/01/millennials-in-their-parents-basements/?_r=0

While the rest of us are doing quite well, it seems that the Millennial generation are facing a very bleak future. As ugly as the picture is in the U.S., we all know that things are far worse in Europe, where more than half of the youth in countries like Greece and Spain are unemployed.

That presents a huge problem for the rest of us who, after all, expect the Millennials to foot the bill for our healthcare and welfare in retirement. It also means that we are producing a generation of consumers who are short of money and are used to living with less. We can expect them to have lower aspirations and expectations, and we can only hope that they are more idealistic. That makes me wonder who will buy and insure luxury cars in future, for instance, and where growth will come from if an indebted and impoverished generation doesn't somehow out-consume the podgy, greedy folk who came before them?


Category: Funding longer lives: Social contract


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