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Americans Carry More Debt Than Ever; What Does it Mean for Vermont?

Consumer debt isn’t always a bad thing. It can be a sign of confidence, and evidence people are spending more and thus growing the economy.

However, Americans are in more debt than ever before. As noted on a segment of The Takeaway, consumer borrowing in America reached $12.7 trillion in the first three months of 2017.

This is a new high surpassing the peak of record household debt before the 2008 financial crisis.

Much of this rising debt reflects student loans and credit card debt. This kind of debt can drag on the economy, as consumers pay more of their wages to service loans. And as happened in the Great Recession,  excess debt can spark a wave of defaults.

Even though Vermont wasn’t hit as hard as some States during the Great Recession, by many measures, we also haven’t recovered as aggressively. That’s true even with our very low unemployment rate and low rate of labor underutilization.

As The Takeaway also notes, the increasing level of consumer debt across America “also shows that even with the recent uptick in the economy, families are still struggling and are using debt to help to make ends meet.”

Rachel Schneider, senior vice president at the Center for Financial Services Innovation (CFSI), and New York University Professor Jonathan Morduch recently wrote ”The Financial Diaries: How American Families Cope in a World of Uncertainty.”

They found that families put a premium on stability, but stability is getting harder and harder to achieve. Schneider says the most surprising stories she found were the ones from the middle-class families.

This reminds me of the 2016 Atlantic article, “The Secret Shame of Middle-Class Americans.” The author, seemingly a successful middle-class writer, wrote about how 47 percent Americans would struggle to come up with $400. He wrote:

“Four hundred dollars! Who knew? Well, I knew. I knew because I am in that 47 percent.”

This is a story that also plays out in Vermont. Economic data shows that even as Chittenden County has kept pace or slightly exceeded national wage trends, all 13 smaller counties in Vermont have average weekly wages below the national average. Again, that’s even with Vermont’s low unemployment.

While the story about wages and debt isn’t always reassuring, it’s important for business leaders to understand these trends. (And, of course, business leaders aren’t immune from their personal stresses related to stagnant income or high levels of personal debt.)

The book ”The Financial Diaries: How American Families Cope in a World of Uncertainty” contains a lot of fascinating data and recommendations. We’ll return to it in future posts.

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