He’s always been there. Debt. Even though the Pennsylvania Divorce Code doesn’t really mention him by name. If you talk to hearing officers who are tasked with making an equitable distribution, they tell you that debt is the most annoying thing to deal with. In some cases, this is the only thing they deal with because none of the assets had “equity”.
We found some interesting data on this topic in Experian’s recent 2019 debt analysis. Some of it isn’t very helpful. When you see a statistic that tells you that the average 18-23 year old has a mortgage debt of $ 142,000, you have to ask how many people 23 and under actually have a mortgage. However, there is also some useful information. This writer grew up in the 1960s. A world where auto and mortgage debt were about the only debt available. At the time; even credit cards were in fact “charge cards” with the balance supposed to be paid monthly. It was the age of the 20-year mortgage. You bought a house at age 30 and “burned” the mortgage when you paid it off at age 50. The residence was now your “nest egg”.
The world has changed and the data shows it. The mortgage balances of people in my baby boomer bracket are on average just under a quarter of a million dollars. This value approximates $ 300,000 when you consider HELOC (home equity) debt. In 1986, the entire student loan portfolio in the United States was $ 10 billion. Thirty-five years later, that total is $ 1.7 trillion. Note that those defined by actuaries as “seniors” (over 55) average $ 40,000, which suggests to me that this is not baby boomer debt, but rather from a debt they incurred for their children. In addition, despite a robust economy from 2015 to 2019, all classes of Americans except Gen X saw a marked increase in their debt.
|Baby boomers (56-74)||Generation X (40-55)||Millennials (24-39)||Generation Z (18/23)|
|Average debt 2019||$ 135,841||$ 96,984||$ 78,396||$ 9,593|
|2015-2019% change in debt||ten%||(7.5)||58%||22%|
|Average credit card balance||$ 8,215||$ 6,949||$ 4,889||$ 2,230|
|Average mortgage balance||$ 238,344||$ 175,865||$ 224,500||$ 142,600|
|Average car loan balance||$ 21,570||$ 18,759||$ 18,201||$ 14,272|
|Average personal loan balance||$ 17,175||$ 19,253||$ 11,819||$ 4,526|
|Average student loan balance||$ 39,981||$ 34,957||$ 34,795||$ 12,495|
|Average HELOC balance||$ 49,221||$ 45,006||$ 41,239||$ 32,854|
If there is any good news to be found in this dataset, it has to do with mortgage interest rates and HELOC debt. 30-year mortgage rates were around 6% on average in 2008 and only exceeded 4% twice in subsequent years. Unfortunately, personal debt, especially credit card debt, has remained stable with minimum rates in the range of 14-15% and 23-24% as the average maximum rate. These rates can cripple a household from a financial standpoint and make real savings almost impossible to achieve.
Gone are the days of HELOCs where the interest component was deductible, but we still see many people avoiding these loans for this reason. The truth is that a not deductible HELOC rates at 3-4% still beat the pants not deductible 14-24% credit card debt, or withdrawing retirement money in the form of a loan or distribution. The same is true for auto debt, although our experience shows that the price of cars today is often closely related to the loan agreement.
Divorce lawyers today and tomorrow will need to design plans that deal with debt constructively. We are living in a time when many clients need our services in what is known as “the golden years”. The Experian chart suggests that all generations face increasing debt and that “gold” may be more plated than real.[View source.]