I chose these indicators because all are something that ordinary people deal with every day. All of us have control over our own spending and how far into debt we go. If we are not making the salary we want then we are free to look for a new job or an additional job. There is also the possibility of going back to school to raise your educational level in order to get a better job. This may, of course, put us deeper into debt.
We are in debt as a country, and as individuals, but with the economy as strong as it is people have no qualms about going deeper into debt. There are increases in delinquency rates on consumer loans, record numbers of bankruptcy filings, and an increasing share of income devoted to paying interest on debt. These are signs that some households are becoming overextended.
In this paper I discuss bankruptcy, consumer credit, inherited wealth and the difference in the way some generations handle debt.
Personal income, installment debt and unemployment are coincident or lagging economic indicators or both. By many measures the US economy is very healthy, but increasing consumer debt and personal bankruptcies raise concerns about the future.
Credit card debt is higher than ever, and personal bankruptcies soared in 1995 and 1996 (Silverman 1997). Over 10% of Americans are expected to declare bankruptcy during the 1990s unless the trend changes, and there is no longer public scorn for those who file bankruptcy (Darlin 1997).
Consumer credit remains readily available despite rising bankruptcies. This trend is attributed to a credit-friendly social policy which requires credit to be extended without discrimination. Furthermore, easy credit is needed to allow consumers to buy goods. The lending business also remains lucrative.
To manage risks, financial institutions resort to diversification and risk shifting. The cost of bankruptcy is also incorporated in the cost of credit (Lykins and Plankenhorn 1996).
The post baby-boom group known as Generation X is accumulating a great deal of debt, mostly through credit cards. The average credit card balance of households headed by someone under 25 nearly doubled from 1990 to 1995. There seems to be little desire among these people to live within their means (Shenk 1997). However, young people who can establish good credit will reap numerous benefits.
A good credit record can provide young consumers with access to financing, thus enabling them to make purchases that they otherwise would not be able to make. In addition, good credit can enhance young people=s chances of getting good jobs. Borrowers who pay on time and in full may be able to convince potential employers that they are responsible and can manage their own finances (Shafer 1997).
However, missed payments on bank credit card debt reached a new high of 2.13% of outstanding credit card debt in the 4th quarter of 1997. The American Bankers Association reported a decline in the percentage of accounts more than 30 days overdue during the quarter, although there was a rise in the percentage of loaned dollars delinquent.
Consumer debt represents about 20.6% of disposable income (Kingson-Bloom 1998). The debt-service ratio can be used as an accurate predictor of future consumer spending growth or a source for explaining aggregate consumer spending. Furthermore, the ratio of debt service to income, if analyzed together with other economic indicators, will reveal future income growth. This ratio analysis is beneficial to financial service institutions as through this, they can determine debt payment capacities of clients (Murphy 1998).
On the whole the Generation Xers have a gloom and doom attitude towards money, and maybe with good reason.
Social security will probably be out of money by the time they reach retirement age and most feel that they will never be out of debt, so they live life as such.
Money conflicts in relationships are reflective of society=s growing insecurity about its financial future. America is turning into a fatalistic culture. This negativity is based on economic conditions that contradict the once prevalent belief of never-ending prosperity. The United States= stalled economy, mind boggling national debt, and the prospect of the collapse of the Social Security system have left many Americans terrified about their ability to make ends .