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Federal Reserve reports consumers taking on more debt

Except for millennials, most are handling it well

Photo (c) Geber86 - Getty Images
The Federal Reserve has issued two reports showing that consumer debt is surging this year and that millennial consumers are having the hardest time handling it.

The New York Fed reports total household debt hit a new high in the second quarter of this year, rising by $82 billion to reach $13.29 trillion. Mortgage debt was the main driver, reaching $9 trillion. Car loans rose by $9 billion to $1.24 trillion, continuing a six-year upward trend.

At the same time, balances on home equity lines of credit (HELOC) went down by $4 billion. These debts have been declining for nearly a decade but accelerated now that the interest on these loans, secured by the equity in consumers' principal residences, is no longer tax deductible.

Even though total household debt rose for the 16th straight quarter and is now higher than the previous record reached just before the financial crisis, there are fewer danger signs now than at that time. Wilbert van der Klaauw, senior vice president at the New York Fed, says consumers aren't having as much trouble keeping up with payments.

Delinquency rates are stable

"While overall delinquency rates have remained stable at relatively low levels, transition rates into delinquency have fallen noticeably for student debt over the past year, reflecting an improved labor market and increased participation in various income-driven repayment plans," van der Klaauw said.

Even credit card delinquency rates were down slightly, with 7.9 percent of balances 90 or more days delinquent as of June 30, versus 8.0 percent at the end of the first quarter.

A second report, from the Federal Reserve Bank of St. Louis, finds people born in the 1980s -- largely the millennial generation -- are having the hardest time in today's economy, despite increasing economic growth and strong employment.

The study found that all generations lost wealth during the Great Recession, but millennials seemed to be hit the hardest.

Loss of wealth

"Wealth in 2016 of the median family headed by someone born in the 1980s remained 34 percent below the level we predicted based on the experience of earlier generations at the same age," the authors write. "The corresponding shortfalls of the 1960s cohort (–11 percent as of 2016) and the 1970s cohort (–18 percent) are worrying but are much smaller than their respective 2010 and 2013 shortfalls."

The study found that the typical millennial family lost ground between 2010 and 2016, falling even further behind the typical wealth life cycle. The authors say this represents a missed opportunity because asset appreciation is unlikely to be as rapid in the near future as it was during the recent period.

Perhaps because of this trend, millennials’ view of buying a home has turned negative, according to a survey by ValueInsured. In the third quarter of this year, only 48 percent of all millennials said buying a home in America today is a good investment, a record low.

That's down from 54 percent in the second quarter. The previous high was 77 percent two years ago.

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