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10 Places Where You Can Earn Six Figures and Still Be Broke

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

A household bringing in $100,000 each year might look financially stable on paper. But after factoring in taxes, housing, transportation, and other basic budget line items, a new MagnifyMoney analysis found six-figure families can easily struggle to make ends meet.

In our report, The Best and Worst Cities to Live On Six Figures, we analyzed 381 major metros across the U.S. to see where a family earning $100,000 has the most wiggle room in their budgets.

We based our estimates on a two-earner household with two adults and one child and a gross annual income of $100,000 ($8,333 per month).

Then we created a reasonable budget for monthly expenses and subtracted that total from their after-tax income. We ranked cities from worst (least amount of money left over at the end of each month) to best (the most amount of money left over at the end of each month).

Behind the Budget:

We based most of our budget estimates on publicly available data, but we had to make some assumptions. We assumed one of the household earners carries some student debt, that all families set aside at least 5% in personal savings, and that they enjoy some entertainment throughout the month. That budget includes basic necessities: housing, food, transportation, child care, as well as variable spending on student debt, savings, and entertainment. See our full methodology here.

Key Findings

  • In 11 out of 381 metro areas analyzed, households earning six figures would spend more than 90% of their total take-home pay on basic monthly expenses. The average across all 381 metros is 75% of take-home pay spent on monthly expenses.
  • In 71 out of 381 metro areas analyzed, households earning six figures are spending more than 75% of their budget on basic monthly expenses.
  • Six figures and broke in Washington, D.C.: The worst metro area for a family earning $100,000 includes Washington, D.C. and neighboring cities Arlington and Alexandria, Va. After factoring in monthly expenses, families would be $315 in the red. Stamford, CT, San Jose, CA, San Francisco, CA, and the New York City area round out the 5 worst areas for affordability.
  • California is the ultimate budget killer: The Golden State is home to 9 out of the top 20 worst metros for six-figure families, including San Francisco, San Jose, Santa Cruz, San Diego and Napa. However, Los Angeles area six-figure families are able to save about $500 a month more than San Francisco area families, thanks to lower housing costs.
  • Tennessee dominates: If you’re looking for bang for your buck, it doesn’t get more affordable than Tennessee. The top three best metros for six-figure households are in Tennessee, and a total of five out of the top 10 best metros on the list are from the Volunteer State.
  • Living large in Johnson City, Tenn.: The best metro area for a family earning $100,000 is Johnson City, Tenn., where families only spend 62% of their household budgets on basic expenses. After factoring in monthly expenses, families would have a surplus of over $2,400 each month.
  • The South reigns supreme. The Southeast and Southwest tied as the best region for six-figure families, requiring them to use an average of only 70% of their income on basic expenses.
  • Steer clear of the coasts. In another tie, the Northeast and West ranked worst among the five regions. On average, six-figure households spend 80% of their earnings in these regions.
  • Housing is a budget buster. In 64 out of 381 metros, six-figure households are spending more than one-quarter of their monthly income on housing. In 18 out of 381 metros, six-figure households are spending more than one-third of their budget on housing.
  • Child care isn’t cheap. Child care expenses consume 10% or more of household budgets in 42% all metro areas (161 of 381).

View the complete data here.

The WORST Metros for Six-Figure Households: By the Numbers

1. Washington, D.C./Alexandria/Arlington, VA

It’s shockingly easy for a household earning $100,000 to live beyond their means in this high-cost metro area. To meet the basic costs of these seven expenses, they would spend 5% more than they actually earn after taxes, leaving them $315 in the red. Housing and childcare alone consume a whopping 60% of the household budget of a family living in this metro area.

2. Bridgeport/Stamford/Norwalk, CT

Thanks mostly to lower average child care costs ($959 per month vs. $1,000+ in metros like Washington, D.C., and Boston), families earning $100,000 would be slightly better off — but only slightly. After accounting for expenses, they would still be $139 in the red. Housing has much to do with that. It would consume 43% of the household budget alone.

3. San Jose/Sunnyvale/Santa Clara, CA

It’s a good thing Silicon Valley gigs pay well. A $100,000-earning family in the San Jose/Sunnyvale/Santa Clara metro area would only just manage to make ends meet, according to our findings. They would spend 99% of their total income on basic expenses. Nearly half of their income would go toward housing (46%), more than households in any other metro area analyzed.

4. San Francisco/Oakland/Hayward, CA

Right next door to the no. 3 worst metro on our list, the San Francisco/Oakland/Hayward combo presents another budget-busting challenge for six-figure households. The area gets an edge because it has a slightly more affordable housing situation. A family earning $100,000 would use roughly 43% of their budget on housing. And when all’s said and paid for, families would use 96% of their earnings on basic expenses.

5. New York, NY/Newark/Jersey City, NJ

We land back on the East Coast for the no. 5 worst metro for six-figure households. New Yorkers and the bridge and tunnelers of Newark and Jersey City, N.J., may face exorbitant housing and child care expenses, but they luck out in one key area: transportation. The area ranks the third most affordable for transportation, likely due to the prevalence of public transit. A six-figure household would only use 13% of their budget to get around. That’s nearly half the rate spent on transit in nearby Lexington Park, Md. (23%). Still, cheaper transit options don’t quite make up for the fact that a family earning $100,000 in this area would still have to dedicate a total of 57% of their budget to housing and child care alone. At the end of the month, 96% of their earnings would be dust.

6. California/Lexington Park, MD

High earners in California/Lexington Park, Md., will spend a fair chunk of their earnings on transportation — 23% of their take-home pay. After housing, transportation is the most expensive line item in their budget. Still, they benefit from relatively low housing expenses compared to the other metros in the bottom 10, which gives households here a boost. Higher taxes also leave them with less take-home pay

7. Kahului/Wailuku/Lahaina, HI

Thanks to one of the highest income tax rates in the U.S., high-earning households in Hawaii start off with less take-home pay than their counterparts across the country. A married couple earning $100,000 and filing taxes jointly would get hit with an 8.25% state income tax rate.

Both higher housing costs and transportation expenses make this region in Hawaii, located on the island of Maui, one of the worst places for six-figure households. At the end of each month, they have just $292 left in the household budget. The majority of their take-home pay will go toward housing (38%) and transportation (18%).

8. Honolulu, HI

A family earning $100,000 in Honolulu would fare slightly better than their neighbors on Maui, thanks to lower transportation costs. At the end of each month, they have $302 left in the household budget, versus $292 for households in the Kahului-Wailuku-Lahaina area.

9. Boston-Cambridge-Newton, MA-NH

Relative to their take-home pay, Boston families earning $100,000 spend well over half their household budget on housing and child care — 36% and 17%, respectively.

10. Santa Cruz/Watsonville, CA

Santa Cruz-Watsonville, CA rounds out our rankings. A household earning $100,000 would scrape by at the end of the month with just $329 left.

The BEST Metros for Six-Figure Households: By the Numbers

1. Johnson City, TN

The Southeast is by far the best region to move to if you want to stretch your six-figure income, and Tennessee should be top of your list. Four out of the top 10 best places to earn six figures belong to Tennessee metros.

2. Morristown, TN

A six-figure family living in Morristown, TN would have just over $2,500 left in the bank after paying for essentials and a bit of entertainment. That’s plenty of cash to build up an emergency fund.

3. Cleveland, TN

Tennessee continues to dominate the list, with Cleveland, TN coming in third place among the most affordable places for six-figure households. Families spend just 63% of their post-tax monthly income on essentials, savings and entertainment.

4. Hattiesburg, MS

Hattiesburg, MS takes the no. 4 spot, where  a six-figure family can afford to cover essential expenses, plus savings and entertainment with just 64% of their post-tax income.

5. McAllen-Edinburg-Mission, TX

A family earning $100,000 per year in McAllen, TX would have more than enough to meet their basic needs and then some. Only 14% of their income is spent on transportation ($955 per month) and just 16% goes toward housing ($1,086 per month).

6. Jackson, TN

We’re back to the Volunteer state at No. 6 with Jackson, TN.

7. Chattanooga, TN-GA

Right on the border of Tennessee and Georgia, Chattanooga proves to be a great location of a family bringing in $100,000 per year. Relatively low housing, child care and transportation costs leave plenty of breathing room in the budget.

8. Lafayette-West Lafayette, IN

The midwest makes its first and only showing in the top 10 affordable places list with Lafayette, IN. Just under two-thirds (65%) of a family’s monthly post-tax income would be used on budget essentials like housing, food, child care and transportation.

9. Jackson, MS

We’re back to Mississippi at No. 9 with Jackson, MS making a strong showing among the most affordable places for a six-figure family.

10. Brownsville-Harlingen, TX

Texas rounds out the top 10 affordable places for $100,000 households, with the Brownsville-Harlingen area nabbing the last spot. Families would have over $2,300 left in the bank at month’s end based on our estimates.

A Tale of Two Cities

In the graphic below, see how different life is for a family earning $100,000 in Washington, D.C. vs. Johnson City, TN.

Regional Findings

Click a region to jump to the rankings:

West West West West West MidWest Northeast SouthWest SouthEast SouthEast

Methodology:

We based our findings on the projected disposable income for a family of three — two adults and one child age 4 years old. We assume the total household gross income is $100,000.

We estimated post-tax income for each metro area.

Housing

Based on metro-level estimates from U.S. Census Current Population Survey

Child care

Economic Policy Institute — State level child care costs in the U.S.

Food

Official USDA Food Plans: Cost of Food at Home at Four Levels, U.S. Average, April 2017

Based on a moderate plan for a family of three: One male (age 19 to 50 years), one female (age 19 to 50 years), and child (age 4 to 5 years). Adjustment factor of 5% added.

Transportation

Based on metro-level data compiled by the U.S. Dept. of Transportation

U.S. Dept. of Housing and Urban Development “Location Affordability Portal”

Student debt payment

State Level Household Debt Statistics 2003-2016, Federal Reserve Bank of New York.

The Student Loan Debt Balance per Capita is distributed equally over 10 years with an interest rate of 4.66%.

Entertainment

We assumed all households would spend 5% of their income on entertainment, per the Bureau of Labor Statistics Consumer Expenditures Survey (CE)

Personal savings

We assumed all households would set aside 5% for personal savings, based on averages from the St. Louis Federal Reserve Bank, personal savings rate.

Data analysis by Priyanka Sarkar, Arpi Shah and Mandi Woodruff.

Mandi Woodruff
Mandi Woodruff |

Mandi Woodruff is a writer at MagnifyMoney. You can email Mandi at mandi@magnifymoney.com

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Marcus Personal Loan Review: Goldman Sachs Takes on Online Lenders with Exclusive New Loan

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

woman working on laptop

Updated November 06, 2017

Goldman Sachs officially made its debut in the personal lending market this week with Marcus, its long-awaited online lending platform. With Marcus, the 147-year-old investment bank will offer consolidation loans up to $30,000 to credit-worthy consumers.

Goldman Sachs began to expand its audience from the super-wealthy to the average consumer earlier this year when it launched an online savings account with a super low $1 deposit. Named for founder Marcus Goldman, Marcus will offer the average American a way to “save money over high-interest credit cards,” the company says. If this works for the megabank, it could lead to similar changes in the industry, challenging the dominance of credit card issuers.

Another reason this is a big deal: Goldman has a big advantage over Silicon Valley competitors when it comes to funding. As a deposit-gathering bank, Goldman can raise FDIC-insured deposits. But Goldman also has deep relationships with institutional investors who might want to purchase consumer loans. Companies like Prosper use Goldman to help them fund their loans: now Goldman will be competing with its own customers. Plus it has the power of a well-established brand behind it. Marcus could be a major disrupter for developing online personal loan businesses.

In this Marcus by Goldman Sachs review, we will explain:

  • Who’s eligible for a Marcus loan
  • How to see if you’re prequalified
  • How to apply, how long it will take, and what documents you will need
  • The terms of the loan offers
  • Pros and cons

Who’s Eligible for a Marcus Loan

First you need the “secret” code

Marcus is super exclusive right now. You can only apply if you got a special code in the mail from the firm inviting you to use it. The bank says it’s doing that to get feedback on the service for now, but will offer Marcus to a broader audience in a few months. If you don’t have a code, you can sign up to be the first to know when Marcus expands its service. Also, you can’t apply just yet if you live in Maryland, but the bank says they are working on it.

So, if you received a code in the mail, and you live in one of the qualifying 49 states, you can go to Marcus.com and apply to see your offers for loan amounts and interest rates. The rate you get (6.99% – 23.99%) will depend on your creditworthiness and the length of the term of the loan. The fintech firm bases the amount of your loan offer on your creditworthiness, information in your application, and the company’s review of your ability to pay back the loan.

Healthy credit

Goldman says they are looking to service consumers with “prime” credit scores. That distinction usually lands someone at about 660 or higher on the FICO scale. The higher your credit score, the better your chance of being approved.

Having too many recent credit inquiries on your credit report could raise a red flag to their underwriters. Note: A soft pull, like the one used by Marcus to prequalify, will not count as a hard inquiry on your credit report. Although not reported, we expect that Marcus will have credit policy requirements on top of the credit score minimum. For example, people who have missed payments recently will likely be rejected, regardless of their credit score. Marcus will be a way for people with good credit scores to get a lower interest rate.

Debt-to-income ratio under 40%

You can get denied if your debt-to-income ratio is too high. For example, if your total monthly payments (including rent/mortgage and all items on your credit bureau) are more than 40% of your income, you would likely be denied.

If it’s above 50%, you might have a hard time getting approved for credit by most lenders. The ratio is calculated with the monthly payments that show up on your credit report, and other debt that shows up on your bureau. If your total monthly bills are $500, and your total monthly income is $2,500, you would have a 20% debt-to-income ratio.

A job

You must be employed and be able to verify your income to get approved for a Marcus loan.

Marcus will also consider other factors in your loan application, such as your intended use of the loan, to determine how much you’ll be offered. The bank will likely have its own combination of rules and scoring to determine your final offer.

How to See if You’re Prequalified

If you want to avoid a hard pull on your credit report, see if you prequalify for a Marcus Loan here. It is considered a soft pull on your credit and won’t harm your score. Later on in the process — if you decide to get the loan — you’ll get a hard pull on your credit score.

How to Apply

The Marcus site’s layout makes it super easy to apply for a personal loan. Of course, the first step would be inputting that special code you got in the mail. After that, it’s similar to other loan applications.

Step 1: The basics

First up, fill out the basic information in the online application. You’ll be prompted to fill out basic personal and financial information such as your name, address, income, etc. to determine if you qualify. You’ll also be asked for information about how much you’d like to borrow, what you’ll use the money for, among other questions about the loan. The soft pull occurs after you submit that information.

online application for personal loan

Step 2: Choose from your offers

If you qualify for a Marcus loan based on the information you submitted, you’ll be presented with a list of options for loans, rates, and terms.

Step 3: Submit

If you decide to proceed with the loan, you then have to complete a few more steps. At that point, you’ll add information to verify your identity such as your full Social Security or tax I.D. number or be asked for government-issued photo identification and additional information as necessary. Marcus might also ask for documents to verify your income such as recent pay stubs, bank statements, or a W2. This is when the hard pull happens, which will impact your credit score.

screen-shot-2016-10-14-at-3-06-06-pm

Terms

Marcus offers debt consolidation and credit consolidation loans up to $30,000 with an annual percentage rate (APR) that can be low as 6.99% and as high as 23.99%.

You can borrow the money for 2 to 6 years.

There are no fees, and your rate will be fixed for the life of the loan.

You can use a debt consolidation loan to pay off credit card debt, medical bills, or financed purchases such as rings, cars, or furniture. You cannot use a Marcus loan to refinance an existing student loan.

Pros & Cons of Marcus

Pros:

No origination fee. Because Marcus forgoes an origination fee — a fee you’d pay to receive the loan— the APR is your interest rate, even if you pay it off before the full term has expired. That’s unlike competitors like Lending Club and others that charge origination fees. If you pay an origination fee and end up paying off the loan ahead of time, your actual APR will be higher than stated.

No late fees. If you miss a payment, you won’t be charged a fee, but you will add on to the life of the loan and add more interest, and your final payment will be larger. This doesn’t save you from hurting your credit score, however. Your late payments will be reported to a credit agency, and will negatively impact your score. Eventually, after missed, partial, or late payments, your loan may default, and that will also impact your credit score.

Defer payments after a year of good behavior. If you’ve made payments on time for a full year, Marcus gives you the option to defer one payment. Marcus will also waive your interest payment for that month. The payment will extend your loan by one month, at which point you’ll pay the interest on it. If you miss a payment or make one late payment, you will lose access to the payment deferral feature for the life of your loan.

Cons:

Marcus is exclusive. At this point, Marcus is extremely exclusive, so you need to be invited to use it to try it out and see if you qualify. You also can’t sign up for it if you live in Maryland.

Lower APR with a balance transfer card. If your goal is to pay down credit card debt, you might be able to find a low or 0% APR balance transfer card and pay less overall. If you don’t have much debt, a balance transfer may be a better option.

Lower APR with SoFi and LightStream. If you want a personal loan without an origination fee, there are other options. SoFi and LightStream do not charge origination fees. They also offer APRs as low as 5.49% and 2.49%, respectively, and both top out around 15% on the high end compared to 22.9% with Marcus. With SoFi, you can check your rate without hurting your credit score. Just be warned: LightStream (which is a division of SunTrust Bank) does not offer soft pull functionality.

Make sure to compare your offer from Marcus with offers from SoFi and LightStream, as you could possibly end up with a lower APR overall. The downsides here would be that LightStream requires a minimum 680 FICO score, so it could be a bit more difficult to qualify for a loan. They also use a hard pull to determine your eligibility. Also, SoFi might take longer than the speedy 1-2 business days that Marcus promises to get your money to you since they have to connect you with other individuals.

Don’t get distracted by “no fees.” It’s easy to get pulled in by the promise of “no fees, ever,” but you should definitely still shop around because you might find a lower rate or better terms.

Several alternatives to Marcus exist to apply for a personal loan. We have compiled a list of the best personal loan companies here.

Every personal loan company has its own pricing model, which means you could get very different interest rates from different companies. It is in your best interest to shop around for the best rate before making a decision.

Some of the best alternatives today include SoFi and LightStream because of the many reasons mentioned above. Competitors such as Santander, Discover, and Best Egg or credit unions like SAFE Credit Union and Affinity, may give you a better offer as well depending on the information you provide. Some may have an origination fee, but use a lower credit score threshold to qualify applicants, or they might offer you a better APR.

Final verdict:

We believe that the growth of personal loans is great news for consumers. For people drowning in high-interest credit card debt, a low rate on a structured personal loan could offer significant savings. Marcus is good news for consumers. Goldman Sachs is using its access to low-cost funding as a way to challenge the big credit card companies. Their no-fee, low-interest rate loan could be a great way for consumers to consolidate debt. Unfortunately, it’s pretty difficult to gain access to the platform right now since it’s so exclusive, but we expect that to expand over time.

You can learn more about us and how we make money here.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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This Place Sure Has Changed: Which Cities Have Changed the Most?

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

A MagnifyMoney analysis looks at a decade of data to determine which communities are undergoing dynamic transformations, and which are standing still.

The cities that have changed the most in 10 years

“This place has changed” is a refrain you often hear from a city’s longtime residents. But change is a curious, inconstant thing; as some communities undergo great transformations, others seem frozen in time.

MagnifyMoney looked at nine elements of local change from 2006-2016 among the 50 largest metros in the United States, creating a Change Score (0-100) for each. The score factors in such measures as the changes in commute times, income, house prices, crime rates, building permits and more.

Change isn’t necessarily a good or bad thing. Big growth in commute times and rents can be negative, but they can also be a function of positive developments like job and income growth. Similarly, places without as much change could be more attractive to people working their way up the salary ladder or those retirees on fixed incomes, offering more affordable housing and less congestion.

But change often brings underlying challenges to the forefront, prompting communities to make tough calls on things that could hamper positive transformations going forward, like diversification of industries, infrastructure investment and tax policy.

MagnifyMoney is highlighting these places to encourage discussion in communities dealing with rapid change.

  1. Austin, Texas (90.4). Austin is a magnet for change, with the fastest job growth in the nation (+40% since 2006), 60% of residents moving since 2010, and a 54% rise in house prices since 2006, the most of the 50 metros ranked. Relatively lower living costs than tech centers like the San Francisco Bay Area and Seattle, along with a combination of satellite offices of larger tech companies, a burgeoning startup scene and no state income tax all contribute to Austin’s change leadership. The lowest-ranked element of Austin growth, building permits (No. 25 of 50), explains some of the outsize housing price appreciation.
  2. Dallas-Fort Worth (89.7). Dallas isn’t tops for change in any of the nine categories we looked at, but it ranks high because it’s in the top 10 for five categories, and ranks no lower than No. 19 (growth in rent, at 31% since 2006) for any single category. Dallas-Fort Worth’s top rank is for the decline in its crime rate, No. 4 (and down 43% from 2006).
  3. Houston (86.2). Houston rounds out the trio of big Texas cities at the top of the change list, led by housing factors. It ranks No. 2 for house price appreciation, at 38% from 2006, and No. 3 for building permit expansion. It lags on crime rate change (-27% from 2006), on which it ranked  No. 23 of 50 metros.
  4. Nashville, Tenn. (84.8). Ranking fifth in the nation for employment growth (24%) and building permit expansion, Nashville is the most changed city outside Texas in our ranking. In all, 53% of Nashville residents report moving since 2010, and median nominal income is up 26% from 2006. More challenging, median rent growth has far outpaced income growth, up 38% since 2006.
  5. Tie: Portland, Ore., and Denver (83.9).  Income, rent and commute times are where Portland ranks highest for change. Portland’s median rent of $1,158 a month is up 52% from 2006, while median income is up 31%, an impressive figure, but one that leaves many stretched in the face of rapidly rising rents. Commute times are up 12% on average from 10 years ago. As for Denver, its story is one of rising housing costs outpacing big job growth.  It ranks No. 2 for rent increases of 60% and No. 3 for house price increases of 35% in 10 years. Employment growth of 23% ranked No. 6, while income growth of 31% also ranked No. 6 of the 50 metros examined.

Places that changed the least

  1. Birmingham, Ala. (61.1) Birmingham ranks in the bottom half of change for all nine metrics we analyzed, and notably lags in employment growth, at 3% in the 10 years between 2006 and 2016. House prices, a double-edged sword, are down 2% from their 2006 level as of 2016, while commute times are identical to levels seen at the start of the 10-year period.
  1. Milwaukee (61.7) Milwaukee also lags in employment growth, at 4% in 10 years, but it’s one of the few areas where rent growth hasn’t significantly outpaced income growth, with median rent up 19% in 10 years (while incomes rose 15% over the same period).
  1. New Orleans (63.4) While New Orleans is third from the bottom in terms of change, in the wake of Hurricane Katrina in 2005, it has made big progress in one key metric; employment is up 30% since 2006, giving this city a No. 3 ranking among the 50 largest metros for growth. Where it lags is in metrics where too much change is a negative: rent growth and commute-time growth. Median rent in the New Orleans area is up 17% in 10 years, ranking No. 48 out of 50, while commute times are up just 1%, ranking No. 47.

What about the tech-heavy Bay Area?

With the rapid growth of tech companies in the last decade or so, there is some expectation that San Francisco and San Jose, the two metros that comprise the greater Bay Area, would rank higher on change than Nos. 24 and 10, respectively.

They are ranked Nos. 1 and 2, respectively, on income, Nos. 2 and 1 on commute-time growth, and Nos. 5 and 1 on rent growth, indicating significant shifts. The median income in San Francisco, the Peninsula, Marin and East Bay is up 37% in 10 years, while in the South Bay (San Jose) it’s up 36%, both leading the metros in our ranking.

Meanwhile, commute times increased 18% across both the San Francisco and San Jose metros, also ranked No. 1 of 50 metros, on top of already high levels of congestion from the peak of the last business cycle.

But house prices, while setting records and sitting among the most expensive in the country, have not grown as much over 10 years as other metros like Dallas, Houston, and Austin, which had less of a run-up during the housing boom of the mid-2000s.

San Jose ranked No. 20 for house price growth since 2006, while San Francisco ranked No. 47, using an index that accounts for all communities in the metro, not just desirable suburbs and neighborhoods that have seen outsize appreciation.  And crime rates have not declined as rapidly in the Bay Area as in other parts of the country, further limiting change rankings, with San Francisco ranking No. 44 for change in its crime rate.

Ranking Highlights

Commute times

% change in commute times, 2006 – 2016

  1. San Francisco +18%
  2. San Jose + 18%
  3. Los Angeles +12%
  4. Boston +12%
  5. Portland +12%

Employment

Employment change, 2006 – 2016

  1. Austin +40%
  2. Raleigh +32%
  3. New Orleans +30%
  4. San Antonio +29%
  5. Nashville +24%

Income

Median income change, 2006 – 2016

  1. San Francisco +37%
  2. San Jose +36%
  3. Austin +34%
  4. Oklahoma City +31%
  5. Portland +31%

House prices

House price index change, 2006 – 2016

  1. Austin +54%
  2. Houston +38%
  3. Denver +35%
  4. Las Vegas -34%
  5. Dallas +32%

Rent

% change in median rent, 2006-2016

  1. San Jose +68%
  2. Denver +60%
  3. Seattle +55%
  4. Portland +52%
  5. San Francisco +49%

Recent moves

% of residents who moved into their residence in 2010 or later

  1. Las Vegas 66%
  2. Phoenix 61%
  3. Austin 60%
  4. Orlando 58%
  5. Denver 56%

Median age

Change in median age of residents, 2006 – 2016

  1. Riverside, Calif. +3.4 years
  2. Phoenix +2.8 years
  3. Sacramento, Calif. +2.6 years
  4. Detroit +2.4 years
  5. Los Angeles +2.3 years

Methodology

We looked at nine factors to assess change, including:

  • Commute times — the percentage change in average commute times reported for each metro area in the U.S. Census American Community Survey, released in September 2017 and covering 2006-2016.
  • Building permits — The number of residential building permits issued, 2007-2016, as a percentage of the 2006 base of households, using data from the Department of Housing and Urban Development.
  • Median age — The change in median age of residents, 2006-2016, via the American Community Survey.
  • Employment — The percentage change in people employed from 2006-2016, via the American Community Survey.
  • Income — The percentage change in nominal median household income, 2006-2016, via the American Community Survey.
  • House prices — The percentage change in the nominal house price index, 2006-2016, via the Federal Housing Finance Agency.
  • Rent  — The percentage change in median rent from 2006 – 2016, via the American Community Survey.
  • Crime rate — The percentage change in the crime rate from 2006-2016, via the Federal Bureau of Investigation  Uniform Crime Reporting program.
  • Recent moves — The percentage of residents who moved into their current residence in 2010 or later, via the American Community Survey.

Ranks for each of the nine factors were evenly weighted to create a Change Score for each metro, from 0-100, with 100 representing the top score.

 

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Where the Wealthiest Millennials Stash Their Money

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There’s been much talk about millennials being fearful of the stock market. They did, after all, live through the financial crisis, and many are shouldering record levels of student loan debt, while grappling with rising fixed costs.

The truth is that historically, young people have always shied away from investing. A whopping 89% of 25- to 35 year-old heads of household surveyed by the Federal Reserve in 2016 said their families were not invested in stocks. That’s only two percentage points higher than the average response since the Fed began the survey in 1989.

MagnifyMoney analyzed data from the 2016 Survey of Consumer Finances, conducted by the the Federal Reserve, to determine exactly how older millennials — those aged 25 to 35 — are allocating their assets.

In 2016, wealthy millennial households, on average, owned assets totaling more than $1.5 million. That is nearly nine times the assets of the average family in the same age group — $176,400. Included were financial assets (cash, retirement accounts, stocks, bonds, checking and savings deposits), as well as nonfinancial ones (real estate, businesses and cars).

While the wealth of each group was spread across just about every type of asset, the biggest difference was in the proportions for each category.

To add an extra layer of insight, we compared the savings habits of the average millennial household to millennial households in the top 25% of net worth. We also took a look at how the average young adult manages his or her assets to see how they differ in their approach.

Millennials and the stock market

Despite significant differences in income, we found that both sets of older millennial households today (average earners and the top 25% of earners) are investing roughly the same share of their financial assets in the market – about 60%.

Among the top 25% of millennial households, those with brokerage accounts hold more than 37% of their liquid assets, or about $224,000, in stocks and bonds and an additional 26%, or $154,000, in retirement accounts. Meanwhile, just over 14% of their assets are in liquid savings or checking accounts.

By comparison, the average millennial household with a brokerage account invests a little over $10,000 in stocks and bonds, or 22% of their total assets, and they reserve about 21% of their assets in checking or savings accounts.

Millennial households invest most heavily in their retirement accounts, accounting for around 38% of their financial assets, although they have only saved $18,800 on average.

Wealthy millennials carry much less of their wealth in checking and savings, compared with their peers. Although wealthier families carry eight times more in savings and checking than the average family — $84,000 vs. $10,300 — that’s just roughly 14% of their total assets in cash, while for the ordinary young family that figure is around 20%

The Fed data show that those on the top of the earnings pyramid are able to save far more for the future, even though they’re at a relatively early stage of their careers.

Across the board, older millennial families hold the greatest share of their financial assets in their retirement accounts. Although that share of retirement savings is smaller for wealthier millennial families (26% of their financial assets, versus 38% for the average older millennial family), they have saved far more.

When looking at the median amount of retirement savings versus the average, a more disturbing picture emerges, showing just how little the average older millennial family is saving for eventual retirement.

The median amount of money in higher earners’ retirement account is $90,000 (median being the middle point of a number set, with half the available figures above it and half below). But the median amount is $0 for the typical millennial family, meaning that at least half of millennial-run households don’t have any retirement savings at all.

Millennials and their nonfinancial assets

Most of millennial households’ wealth comes from physical assets, such as houses, cars and businesses.

While nearly 60% of young families don’t own houses today, the lowest homeownership rate since 1989, homes make up the largest share of the family’s nonfinancial assets, Fed data show.

For the average-earning older millennial family, housing represents more than two-thirds of the value of its nonfinancial assets — 66.4%. On average, this group’s homes are valued at $84,000.

The homes of rich millennial households are worth 4.6 times more, averaging $470,000 — though they represents a lower share of total nonfinancial assets — 50%.

Cars are the second-largest hard asset for the average young family to own, accounting for about 14% of nonfinancial assets.

While rich millennials drive fancier cars than their peers — prices are 2.4 times that of average millennials’ cars — their $42,000 car accounts for just 4.5% of their nonfinancial asset. In contrast, they stash as much as 31% of their asset in businesses, 20 percentage points higher than the ordinary millennial.

It’s worth noting that young adults in general are not into businesses. A scant 6.3% of young families have businesses, the lowest percentage since 1989, according to the Fed data. (Among those that do have them, the businesses represent just over 11% of their total nonfinancial assets.)

The student debt gap

Possibly the starkest example of how wealthy older millennials and their ordinary peers manage their finances can be seen in the realm of student loan debt.

A significant chunk of the average worker’s household debt comes in the form of student loans, making up close to 20% of total debt and averaging $16,000. In contrast, the wealthiest cohort carries about $2,000 less in student loan debt, on average, and this constitutes just about 4.6% of total debt.

With less student debt to worry about, it’s no surprise wealthier millennial families carry a larger share of mortgage debt. About 76% of their debt comes from their primary home, to the tune of $233,500, on average. This is 4.5 times the housing debt of a typical young homeowner.

In some cases, the top wealthy have another 11% or so of their total debt committed to a second house, something not many of their less-wealthy peers would have to worry about — affording even a first home is more of a struggle.

When is the right time to start investing?

For many millennials the answer isn’t whether or not it’s wise to save for retirement or invest for wealth but when to start. Generally, paying off high interest debts and building up a sufficient emergency fund should come first. Once those boxes are ticked, how much young workers invest depends on their tolerance for risk and their future financial goals.

“It’s never too much as long as you’ve got money for the emergency fund, and as long as they are funding their other goals not through debt,” says Krista Cavalieri, owner and senior advisor at Evolve Capital in Columbus, Ohio.

The biggest mistake that Cavalieri has seen among her young clients is that very few have been able to establish an emergency fund that will cover at least three to six months’ worth of living expenses.

Kelly Metzler, senior financial advisor at the New York-based Altfest Personal Wealth Management, said older millennials may not be able to save outside of retirement accounts yet, which can be a concern if they want to buy a house or have other large purchases or unexpected expenses ahead.

Cavalieri said that’s because young adults’ money is stretched thin by the varies needs in their lives and the lifestyle they keep.

“Their hands are kind of tied at where they are right now,” she said. “Everyone could clearly save more, but millennials are dealing with large amounts of debt. A lot of them are also dealing with the fact that the lack of financial education put that in that personal debt situation.”

Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen at shenlu@magnifymoney.com

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Auto Loan Interest Rates and Delinquencies: 2017 Facts and Figures

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Led by a prolonged period of low interest rates, consumers now have a record $1.2 trillion1 in outstanding auto loan debt. Despite record high levels of issuance, the auto lending market shows signs of tightening. With auto delinquencies on the rise, consumers are facing higher interest rates on both new and used vehicles. In particular, over the last three years, subprime borrowers saw rates rise faster than the market as a whole. MagnifyMoney analyzed trends in auto lending and interest rates to determine what’s really going on under the hood of automotive financing.

Key insights

  1. Overall auto delinquency is on the rise, and the first quarter of 2017 saw near record volume ($8.27 billion) in new severely delinquent auto loans.54
  2. Interest rates are on the rise, with average new car loan rates up to 5.2%, 93 basis points from their lows in late 2013.2
  3. The average duration of auto loans (new vehicles) is up to 66.53 months. The longer loans make monthly payments more manageable even as interest rates rise.31
  4. The median credit score for an auto loan borrower dropped to 698.6 This broke a five-quarter trend for rising credit scores among auto loan borrowers.

Facts and figures

  • Average Interest Rate (New Car): 5.2%2
  • Average Interest Rate (Used Car): 9.02%3
  • Average Loan Size New: $28,5694
  • Average Loan Size Used: $17,0785
  • Median Credit Score for Car Loan: 6986
  • % of Auto Loans to Subprime Consumers: 34.3%7

Subprime auto loans

  • Total Subprime Market Value: $234 billion8
  • Average Subprime LTV: 113.4%9
  • Average Interest Rate (New Car): 11.35%10
  • Average Interest Rate (Used Car): 16.49%11
  • Average Loan Size (New Car): $27,85312
  • Average Loan Size (Used Car): $16,24013
  • % Leasing: 24.5%14

Prime auto loans

  • Total Prime Market Value: $733 billion15
  • Average Prime LTV: 97.91%16
  • Average Interest Rate (New Car): 3.96%17
  • Average Interest Rate (Used Car): 5.42%18
  • Average Loan Size (New Car): $31,96419
  • Average Loan Size (Used Car): $20,84720
  • % Leasing: 36.5%21

Auto loan interest rates

Interest rates for auto loans continue to remain near historic lows. Interest rates for used cars is now 9.02% on average. The average interest rate on new cars (including leases) is 5.2%. However, the historically low rates belie a tightening of auto lending, especially for subprime borrowers.

New loan interest rates

Consumer credit information company Experian reports that the average interest rate on all new auto loans was 5.2%, up 93 basis points from the trough in the third quarter of 2013.24 Compared to the previous year, interest rates are up 38 basis points for new cars. The interest rate increase reflected underlying tightening in the auto loan market for new vehicles.

During the last few years, lenders tilted away from subprime borrowers. In the second quarter of 2017, just 10.02% of new loans went to subprime borrowers compared with peak subprime lending of 11.48% in the fourth quarter of 2015. The movement away from subprime borrowers led to a smaller increase in new car interest rates.25

Across all credit scoring segments, borrowers faced higher average borrowing rates. Subprime and deep subprime borrowers saw the largest absolute increases in rate hikes, but super prime borrowers also saw an 18-basis-point increase in their borrowing rates over the last year. The average interest rate for super-prime borrowers is now 3.05% on average, the highest it’s been since the end of 2011.27

When comparing credit scores to lending rates, we see a slow tightening in the auto lending market since the end of 2013. The trend is especially pronounced among subprime and deep subprime borrowers. These borrowers face auto loan interest rates growing at rates faster than the market average. Consumers should expect to see the trend toward slightly higher interest rates continue until the economic climate changes.

Even with the tightening, interest rates remain near historic lows for borrowers with fair credit and above. However, the low rates aren’t translating to consumers are paying less interest on their vehicle purchases. The estimated cost of interest on new vehicle purchases is now $4,378,29 up 52% from its low in the third quarter of 2013.

Growth in interest paid over the life of the loan stems from longer loans and higher average loan amounts. The average maturity for a new loan grew from 62.4 months in the third quarter of 2008 to 66.5 months in early 2017.31 During the same time, average loan amounts for new vehicles grew 15.3% to $29,134.32

Used loan interest rates

Over the past year, interest rates for used vehicles swung to their lowest rates ever, but recent movements show that interest rates for used cars may be stabilizing or climbing. Year over year, used car interest rates increased by 5 basis points to 9.02%. The drop in average interest rates came from a dramatic increase of prime borrowers entering the used car financing market. In the second quarter of 2017, 46.91% of used-car borrowers had prime or better credit. The year before, 45% of used borrowers were prime.34

On the whole, borrowers in the used car market face modest increases in interest rates compared to this time last year. Super prime and prime borrowers saw upticks of 27 basis points and 19 basis points, respectively. This brought the average super prime borrowing rate up to 3.68% for used vehicles, and the prime rate to 5.42%.36 Despite the recent increases, interest rates for prime borrowers are still near historic lows.

On the other end of the spectrum, subprime and deep subprime borrowers saw larger than average interest rate increases last quarter. Deep subprime interest rates grew to 19.73%, a 44 basis point increase from the previous year. Subprime borrowers face rates of 16.49% for used cars, up 39 basis points from the previous year. Interest rate hikes for subprime borrowers are part of a broader trend that started in 2009. Since 2009, interest rates for subprime borrowers are up nearly two full percentage points, and interest rates for deep subprime borrowers are up 3.5 percentage points.

Along with interest rate increases, the estimated interest paid on a used car loan sits at $4,279, up $227 from this time four years ago. Rising interest rates factor into the increased interest costs, but they are not the primary driver of interest costs. A more important factor in the total interest cost is the longer average loan terms for used cars (61 months vs. 59 months),38 leading to more interest paid over the life of a car loan.

Auto loan interest rates and credit score

As of June 2017, the median credit score for all auto loan borrowers was 698.40 Following a five quarter increase in median credit scores of auto borrowers, median credit scores fell below 700 for the first time since 2016.

In the second quarter of 2017, just 34.3% of all auto loans were issued to subprime borrowers compared with an average of 35% over the past three years. Ally Financial, the nation’s largest auto lender, limited subprime lending to just 11.6 percent of their auto loan portfolio, and Wells Fargo, the nation’s third largest auto lender, announced intentions to limit subprime auto lending to less than 10 percent of their auto portfolio. Despite the actions of these big banks, trends towards lending to the highest quality auto borrowers may show signs of normalizing near the 35% number again.

Total auto loan volume decreased dramatically between 2008 and 2010. During that time, subprime and deep subprime lending contracted faster than the rest of the market. Since early 2010, auto lending rebounded to near pre-recession levels, but subprime lending lagged in recovery. However, in the last year and a half, subprime lending volume has shown signs of total recovery. In the second quarter of 2017, banks issued $50.9 billion to subprime borrowers, surpassing the average $48.2 billion of subprime auto loans issued each quarter between 2005 and 2007.

Loan-to-value ratios and auto loan interest rates

One factor that influences auto loan interest rates is the initial loan-to-value (LTV) ratio. A ratio over 100% indicates that the driver owes more on the loan than the value of the vehicle. This happens when a car owner rolls “negative equity” into a new car loan.

Among prime borrowers, the average LTV was 97.91%. Among subprime borrowers, the average LTV was 113.40%.44 Both subprime and prime borrowers show improved LTV ratios from the 2007-2008 time frame. However, LTV ratios increased from 2012 to the present.

Research from the Experian Market Insights group46 showed that loan-to-value ratios well over 100% correlated to higher charge-off rates. As a result, car owners with higher LTV ratios can expect higher interest rates. An Automotive Finance Market report from Experian47 showed that loans for used vehicles with 140% LTV had a 3.03% higher interest rate than loans with a 95%-99% LTV. Loans for new cars charged just a 1.28% premium for high LTV loans.

Auto loan term length and interest rates

On average, auto loans with longer terms result in higher charge-off rates. As a result, financiers charge higher interest rates for longer loans. Despite the higher interest rates, longer loans are becoming increasingly popular in both the new and used auto loan market.

The average length to maturity for new car loans in the second quarter of 2017 is 66.5 months.48For used cars, the average is 61.1 months.49 Loans for both new and used cars are now more than six months longer on average than they were in 2009. Based on data from Experian, the increase in average length to maturity is driven primarily by an increasing concentration of borrowers taking out loans requiring 73-84 months of maturity.50

In the second quarter of 2017, just 7.3% of all new vehicle loans had payoff terms of 48 months or less, and 33.8% of all loans had payoff periods of more than 6 years.51 Among used car loans, 17.7% of loans had payoff periods less than 48 months, and an equal number, 17.7% of loans, had payoff periods more than six years.52

Auto loan delinquency rates

Despite a trend toward more prime lending, we’ve seen deterioration in the rates and volume of severe delinquency. In the first quarter of 2017, $8.27 billion in auto loans fell into severe delinquency.54 This is near an all-time high.

Overall, 3.92% of all auto loans are severely delinquent. Delinquent loans have been on the rise since 2014, and the overall rate of delinquent loans is well above the prerecession average of 2.3%.

Between 2007 and 2010, auto delinquency rates rose sharply, which led to a dramatic decline in overall auto lending. So far, the slow increase in auto delinquency between 2014 and the present has not been associated with a collapse in auto lending. In fact, the total outstanding balance is up 36% to $1.19 billion since 2014.57

However, the increase in auto delinquency means lenders may continue to tighten lending to subprime borrowers. Borrowers with subprime credit should make an effort to clean up their credit as much as possible before attempting to take out an auto loan. This is the best way to guarantee lower interest rates on auto loans.

Sources

  1. Quarterly Report on Household Debt and Credit August 2017.” Total Debt Balance and Its Composition: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.
  2. State of the Automotive Finance Market,” New Car Average Rates – Page 25, from Experian.TM
  3. State of the Automotive Finance Market,” Used Car Average Rates – Page 25, from Experian.TM
  4. Board of Governors of the Federal Reserve System (US), Average Amount Financed for New Car Loans at Finance Companies [DTCTLVENANM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENANM, October 2, 2017.
  5. Board of Governors of the Federal Reserve System (US), Average Amount Financed for Used Car Loans at Finance Companies [DTCTLVEUANQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUANQ, October 2, 2017.
  6. Quarterly Report on Household Debt and Credit August 2017.” Credit Score at Origination: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.
  7. Quarterly Report on Household Debt and Credit August 2017.” Auto Loan Originations by Credit Score, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.
  8. Calculated metric: “State of the Automotive Finance Market” Loan Balance Risk Distribution Q2 2017 – Page 5, from Experian,TM and “Quarterly Report on Household Debt and Credit August 2017.” Total Debt Balance and Its Composition: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.(3.71% of All Loans Are Deep Subprime + 15.97% of All Loans Are Subprime)X ($1.190 trillion in Auto Loans)
  9. U.S. Auto Loan ABS Tracker: January 2017,” from S&P Global Ratings. Accessed July 17, 2017.
  10. State of the Automotive Finance Market,” New Car Subprime Average Rates, Page 25, from Experian.TTM
  11. State of the Automotive Finance Market,” Used Car Subprime Average Rates, Page 25, from Experian.TM
  12. State of the Automotive Finance Market,” Average Loan Amounts By Tier, Page 19, from Experian.TM
  13. State of the Automotive Finance Market,” Average Loan Amounts By Tier, Page 19, from Experian.TM
  14. State of the Automotive Finance Market,” % Leasing By Tier, Page 16, from Experian.TM
  15. Calculated metric: “State of the Automotive Finance Market” Loan Balance Risk Distribution Q2 2017 – Page 5, from Experian,TM and “Quarterly Report on Household Debt and Credit August 2017.” Total Debt Balance and Its Composition: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.(41.7% of All Loans Are Prime + 19.74% of All Loans Are Super Prime)X ($1.190 trillion in Auto Loans)
  16. U.S. Auto Loan ABS Tracker: January 2017,” from S&P Global Ratings. Accessed July 17, 2017.
  17. State of the Automotive Finance Market,” Average Interest Rate Prime Rating (New Car), Page 25, from Experian.TM
  18. State of the Automotive Finance Market,” Average Interest Rate Prime Rating (Used Car), Page 25, from Experian.TM
  19. State of the Automotive Finance Market,” Average Loan Amounts By Tier, Page 19, from Experian.TM
  20. State of the Automotive Finance Market,” Average Loan Amounts By Tier, Page 19, from Experian.TM
  21. State of the Automotive Finance Market,” % Leasing By Tier, Page 16, from Experian.TM
  22. Graph 1 – Auto Loan Interest Rates, data compiled from historic Experian State of Automotive Finance Reports.
  23. Graph 2 – Average New Vehicle Interest Rates, data compiled from historic Experian State of Automotive Finance Reports.
  24. State of the Automotive Finance Market,” Average Interest Rate Prime Rating (New Car), Page 25, from Experian.TM
  25. State of the Automotive Finance Market,” New Loan Risk Distribution, Page 15, from Experian.TM
  26. Graph 3 – % of New Car Loans Issued to Subprime Borrowers, data compiled from historic Experian State of the Automotive Finance Market Reports.
  27. Average Interest Rate by Credit Score, data compiled from historic Experian State of Automotive Finance Reports.
  28. Graph 4 – Average Interest Rate by Credit Score (New Car Loans), data compiled from historic Experian State of Automotive Finance Reports.
  29. Calculated metric: Total Interest over the Life an Auto Loan (New Car).
    1. Board of Governors of the Federal Reserve System (US), Average Amount Financed for New Car Loans at Finance Companies [DTCTLVENANM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENANM, October 2, 2017.
    2. Board of Governors of the Federal Reserve System (US), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENMNM, October 2, 2017.
    3. Average New Car Interest Rate, data compiled from historic Experian State of Automotive Finance Reports.

    Calculated Total Interest is Amortized Interest as a function of Average Amount Financed,a Average Interest Rate on New Cars,c and Average Length to Maturity of new car loans.b

  30. Graph 5 – Estimated Interest on New Car Loan.
    1. Board of Governors of the Federal Reserve System (US), Average Amount Financed for New Car Loans at Finance Companies [DTCTLVENANM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENANM, October 2, 2017.
    2. Board of Governors of the Federal Reserve System (US), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENMNM, October, 2017.
    3. Average New Car Interest Rate, data compiled from historic Experian State of Automotive Finance Reports.

    Calculated Total Interest is Amortized Interest as a function of Average Amount Financed,a Average Interest Rate on New Cars,c and Average Length to Maturity of new car loans.b

  31. Board of Governors of the Federal Reserve System (US), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENMNM, October 2, 2017.
  32. Board of Governors of the Federal Reserve System (US), Average Amount Financed for New Car Loans at Finance Companies [DTCTLVENANM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENANM, October 2, 2017.
  33. Graph 6 – Average Used Vehicle Interest Rates, data compiled from historic Experian State of Automotive Finance Reports.
  34. State of the Automotive Finance Market,” Used Car Loan Risk Distribution, Page 15, from Experian.TM
  35. Graph 7 – Lending By Credit Score Q2 2016 vs. Q2 2017 “State of the Automotive Finance Market,” Used Car Loan Risk Distribution, Page 15, from Experian.TM
  36. State of the Automotive Finance Market,” Average Loan Rates By Credit Tier (Used Cars), Page 25, from Experian.TM
  37. Graph 8 – Average Interest Rate by Credit Score (Used Car Loans), data compiled from historic Experian State of Automotive Finance Reports.
  38. Board of Governors of the Federal Reserve System (US), Average Maturity of Used Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVEUMNQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUMNQ, October 2, 2017.
  39. Graph 9 – Calculated metric: Estimated Interest on Used Car Loans.
    1. Board of Governors of the Federal Reserve System (US), Average Amount Financed for Used Car Loans at Finance Companies [DTCTLVEUANQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUANQ, October 2, 2017.
    2. Board of Governors of the Federal Reserve System (US), Average Maturity of Used Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVEUMNQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUMNQ, October 2, 2017.
    3. Average Used Car Interest Rate, data compiled from historic Experian State of Automotive Finance Reports.

    Calculated Total Interest is Amortized Interest as a function of Average Amount Financed,a Average Interest Rate on New Cars,c and Average Length to Maturity of new car loans.b

  40. Quarterly Report on Household Debt and Credit August 2017.” Credit Score at Origination: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.
  41. Graph 10 – Credit Score at Auto Loan Origination “Quarterly Report on Household Debt and Credit August 2017.” Credit Score at Origination: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.
  42. Graph 11 – % of New Loans Issued to Subprime Borrowers. Calculated metric from “Quarterly Report on Household Debt and Credit August 2017.” Auto Loan Originations by Credit Score ((<620+620-659)/Total Lending), from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.
  43. Graph 12 – Auto Loan Origination by Credit Tier “Quarterly Report on Household Debt and Credit August 2017.” Auto Loan Originations by Credit Score, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 17, 2017.
  44. U.S. Auto Loan ABS Tracker: January 2017,” from S&P Global Ratings. Accessed July 17, 2017.
  45. Graph 13 – Average LTV at Auto Loan Origination “U.S. Auto Loan ABS Tracker: January 2017,” from S&P Global Ratings. Accessed July 17, 2017.
  46. Understanding automotive loan charge-off patterns can help mitigate lender risk,” from Experian.TM Accessed July 17, 2017.
  47. State of the Automotive Finance Market Q4 2010,” Pages 25-26, from Experian.TM
  48. Board of Governors of the Federal Reserve System (US), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENMNM, October 2, 2017.
  49. Board of Governors of the Federal Reserve System (US), Average Maturity of Used Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVEUMNQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUMNQ, October 2, 2017.
  50. State of the Automotive Finance Market,” Percentage of new loans by Term, Page 22, from Experian.TM
  51. Calculated metric: “State of the Automotive Finance Market,” Percentage of new loans by Term, Page 22, from Experian.TM
  52. Calculated metric: “State of the Automotive Finance Market,” Percentage of new loans by Term, Page 22, from Experian.TM
  53. Graph 14 – Average Auto Loan Length to Maturity (Months).
    1. Board of Governors of the Federal Reserve System (US), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENMNM, October 2, 2017.
    2. Board of Governors of the Federal Reserve System (US), Average Maturity of Used Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVEUMNQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUMNQ, October 2, 2017.
  54. Quarterly Report on Household Debt and Credit August 2017.” Transition into serious delinquency (90+ days): Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.
  55. Graph 15 – New Severely Delinquent Auto Loans (90+ Days) “Quarterly Report on Household Debt and Credit August 2017.” Transition into serious delinquency (90+ days): Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.
  56. Graph 16 – % of All Loans Severely Delinquent “Quarterly Report on Household Debt and Credit August 2017.” % of Balance 90+ Days Delinquent: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.
  57. Quarterly Report on Household Debt and Credit August 2017.” Total Debt Balance and Its Composition: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017. (Q1 2014 compared to Q2 2017.)
Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah at hannah@magnifymoney.com

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U.S. Mortgage Market Statistics: 2017

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Homeownership rates in America are at all-time lows. The housing crisis of 2006-2009 made banks skittish to issue new mortgages. Despite programs designed to lower down payment requirements, mortgage originations haven’t recovered to pre-crisis levels, and many Americans cannot afford to buy homes.

Will a new generation of Americans have access to home financing that drove the wealth of previous generations? We’ve gathered the latest data on mortgage debt statistics to explain who gets home financing, how mortgages are structured, and how Americans are managing our debt.

Summary:

  • Total Mortgage Debt: $9.9 trillion1
  • Average Mortgage Balance: $137,0002
  • Average New Mortgage Balance: $244,0003
  • % Homeowners (Owner-Occupied Homes): 63.4%4
  • % Homeowners with a Mortgage: 65%5
  • Median Credit Score for a New Mortgage: 7546
  • Average Down Payment Required: $12,8297
  • Mortgages Originated in 2016: $2.065 trillion8
  • % of Mortgages Originated by Banks: 43.9%9
  • % of Mortgages Originated by Credit Unions: 9%9
  • % of Mortgages Originated by Non-Depository Lenders: 47.1%9

Key Insights:

  • The median borrower in America puts 5% down on their home purchase. This leads to a median loan-to-value ratio of 95%. A decade ago, the median borrower put down 20%.10
  • Credit score requirements are starting to ease somewhat The median mortgage borrower had a credit score of 754 from a high of 781 in the first quarter of 20126
  • 1.24% of all mortgages are in delinquency. In 2009, mortgage delinquency reached as high as 8.35%.11

Home Ownership and Equity Levels

In the second quarter of 2017, real estate values in the United States surpassed their pre- housing crisis levels. The total value of real estate owned by individuals in the United States is $24 trillion, and total mortgages clock in at $9.9 trillion. This means that Americans have $13.9 trillion in homeowners equity.12 This is the highest value of home equity Americans have ever seen.

However, real estate wealth is becoming increasingly concentrated as overall homeownership rates fall. In 2004, 69% of all Americans owned homes. Today, that number is down to 63.4%.4 While home affordability remains a question for many Americans, the downward trend in homeownership corresponds to banks’ tighter credit standards following the Great Recession.

New Mortgage Originations

Mortgage origination levels show signs of recovery from their housing crisis lows. In 2008, financial institutions issued just $1.4 trillion of new mortgages. In 2016, new first lien mortgages topped $2 trillion for the first time since the end of the housing crisis, but mortgage originations were still 25 percent lower than their pre-recession average.8 So far, 2017 has proved to be a lackluster year for mortgage originations. Through the second quarter of 2017, banks originated just $840 billion in new mortgages.

 

As recently as 2010, three banks (Wells Fargo, Bank of America, and Chase) originated 56 percent of all mortgages.13 In 2016, all banks put together originated just 44 percent of all loans.9

In a growing trend toward “non-bank” lending, both credit unions and nondepository lenders cut into banks’ share of the mortgage market. In 2016, credit unions issued 9 percent of all mortgages. Additionally, 47% of all mortgages in 2016 came from non-depository lending institutions like Quicken Loans and PennyMac. Behind Wells Fargo ($249 billion) and Chase ($117 billion), Quicken ($96 billion) was the third largest issuer of mortgages in 2016. In the fourth quarter of 2016, PennyMac issued $22 billion in loans and was the fourth largest lender overall.9

Government vs. Private Securitization

Banks tend to be more willing to issue new mortgages if a third party will buy the mortgage in the secondary market. This is a process called loan securitization. Consumers can’t directly influence who buys their mortgage, but mortgage securitization influences who gets mortgages and their rates. Over the last five years government securitization enterprises, FHA and VA loans, and portfolio loan securitization have risen. However, private loan securitization which constituted over 40% of securitization in 2005 and 2006 is almost extinct today.

Government-sponsored enterprises (GSEs) have traditionally played an important role in ensuring that banks will issue new mortgages. Through the second quarter of 2017, Fannie Mae or Freddie Mac purchased 46% of all newly issued mortgages. However, in absolute terms, Fannie and Freddie are purchasing less than in past years. In 2016, GSEs purchased 20% fewer loans than they did in the years leading up to 2006.8

Through the second quarter of 2017, a tiny fraction (0.7%) of all loans were purchased by private securitization companies.8 Prior to 2007, private securitization companies held $1.6 trillion in subprime and Alt-A (near prime) mortgages. In 2005 alone, private securitization companies purchased $1.1 trillion worth of mortgages. Today private securitization companies hold just $490 billion in total assets, including $420 billion in subprime and Alt-A loans.14

As private securitization firms exited the mortgage landscape, programs from the Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) have filled in some of the gap. The FHA and VA are designed to help borrowers get loans despite having smaller down payments or lower incomes. FHA and VA loans accounted for 23 percent of all loans issued in 2016, and 25 percent in the first half of 2017. These loan programs are the only mortgages that grew in absolute terms from the pre-mortgage crisis. Prior to 2006, FHA and VA loans only accounted for $155 billion in loans per year. In 2016, FHA and VA loans accounted for $470 billion in loans issued.8

Portfolio loans, mortgages held by banks, accounted for $639 billion in new mortgages in 2016. Despite tripling in volume from their 2009 low, portfolio loans remain down 24% from their pre-crisis average.8

Mortgage Credit Characteristics

Since banks are issuing 21% fewer mortgages compared to pre-crisis averages, borrowers need higher incomes and better credit to get a mortgage.

The median FICO score for an originated mortgage rose from 707 in late 2006 to 754 today. The scores on the bottom decile of mortgage borrowers rose even more dramatically from 578 to 648.6

Despite the dramatic credit requirement increases from 2006 to today, banks are starting to relax lending standards somewhat. In the first quarter of 2012, the median borrower had a credit score of 781, a full 27 points higher than the median borrower today.

In 2016, 23% of all first lien mortgages were financed through FHA or VA programs. First-time FHA borrowers had an average credit score of 677. This puts the average first-time FHA borrower in the bottom quartile of all mortgage borrowers.8

Prior to 2009, an average of 20% of all volumes originated went to people with subprime credit scores (<660). In the second quarter of 2017, just 9% of all mortgages were issued to borrowers with subprime credit scores. Who replaced subprime borrowers? The share of mortgages issued to borrowers people with excellent credit (scores above 760) doubled. Between 2003 and 2008 just 27% of all mortgages went to people with excellent credit. In the second quarter of 2017, 54% of all mortgages went to people with excellent credit.6

Banks have also tightened lending standards related to maximum debt-to-income ratios for their mortgages. In 2007, conventional mortgages had an average debt-to-income ratio of 38.6%; today the average ratio is 34.3%.15 The lower debt-to-income ratio is in line with pre-crisis levels.

LTV and Delinquency Trends

Banks continue to screen customers on the basis of credit score and income, but customers who take on mortgages are taking on bigger mortgages than ever before. Today a new mortgage has an average unpaid balance of $244,000, according to data from the Consumer Financial Protection Bureau.3

The primary drivers behind larger loans are higher home prices, but lower down payments also play a role. Prior to the housing crisis, more than half of all borrowers put down at least 20%. The average loan-to-value ratio at loan origination was 82%.10

Today, half of all borrowers put down 5% or less. More than 10% of borrowers put 0% down. As a result, the average loan-to-value ratio at origination has climbed to 87%.10

Despite a growing trend toward smaller down payments, growing home prices mean that overall loan-to-value ratios in the broader market show healthy trends. Today, the average loan-to-value ratio across all homes in the United States is an estimated 42%. The average LTV on mortgaged homes is 68%.16

This is substantially higher than the pre-recession LTV ratio of approximately 60%. However, homeowners saw very healthy improvements in loan-to-value ratios of 94% in early 2011. Between 2009 and 2011 more than a quarter of all mortgaged homes had negative equity. Today, just 5.4% of homes have negative equity.17

Although the current LTV on mortgaged homes remains above historical averages, Americans continue to manage mortgage debt well. Current homeowners have mortgage payments that make up an average of just 16.5% of their annual household income.18

Mortgage delinquency rates stayed constant at their all-time low (1.24%). This low delinquency rate came following 30 straight quarters of falling delinquency, and are well below the 2009 high of 8.35% delinquency.11

Today, delinquency rates have fully returned to their pre-crisis lows, and can be expected to stay low until the next economic recession.

Sources:

  1. Board of Governors of the Federal Reserve System (U.S.), Households and Nonprofit Organizations; Home Mortgages; Liability, Level [HHMSDODNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HHMSDODNS September 28, 2017.
  2. Survey of Consumer Expectations Housing Survey – 2017,” Credit Quality and Inclusion, from the Federal Reserve Bank of New York. Accessed June 22, 2017.
  3. Home Mortgage Disclosure Act, Consumer Financial Protection Bureau, “Average Loan Amount, 1-4 family dwelling, 2015.” Accessed June 22, 2017.
  4. U.S. Bureau of the Census, Homeownership Rate for the United States [USHOWN], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/USHOWN, September 28, 2017. (Calculated as percent of all housing units occupied by an owner occupant.)
  5. “U.S. Census Bureau, 2011-2015 American Community Survey 5-Year Estimates,” Mortgage Status, Owner-Occupied Housing Units. Accessed September 28, 2017.
  6. Quarterly Report on Household Debt and Credit August 2017.” Credit Score at Origination: Mortgages, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 28, 2017.
  7. Calculated metric:
    1. Down Payment Value = Home Price* Average Down Payment Amount (Average Unpaid Balance on a New Mortgageb / Median LTV on a New Loanc) * (1 – Median LTV on a New Loanc)
    2. Home Mortgage Disclosure Act, Consumer Financial Protection Bureau, “Average Loan Amount, 1-4 family dwelling, 2015.” Accessed September 28, 2017. Gives an average unpaid principal balance on a new loan = $244K.
    3. Housing Finance at a Glance: A Monthly Chartbook, September 2017.” Page 17, Median Combined LTV at Origination from the Urban Institute, Urban Institute, calculated from: Corelogic, eMBS, HMDA, SIFMA, and Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff.
  8. Housing Finance at a Glance: A Monthly Chartbook, September 2017.” First Lien Origination Volume from the Urban Institute. Source: Inside Mortgage Finance and the Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff.
  9. Mortgage Daily. 2017. “Mortgage Daily 2016 Biggest Lender Ranking” [Press Release] Retrieved from https://globenewswire.com/news-release/2017/04/03/953457/0/en/Mortgage-Daily-2016-Biggest-Lender-Ranking.html.
  10. Housing Finance at a Glance: A Monthly Chartbook, September 2017.” Combined LTV at Origination from the Urban Institute, Urban Institute, calculated from: Corelogic, eMBS, HMDA, SIFMA, and Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff. Accessed September 28, 2017
  11. Quarterly Report on Household Debt and Credit August 2017.” Mortgage Delinquency Rates, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 28, 2017.
  12. Calculated metric: Value of U.S. Real Estatea – Mortgage Debt Held by Individualsb
    1. Board of Governors of the Federal Reserve System (U.S.), Households; Owner-Occupied Real Estate including Vacant Land and Mobile Homes at Market Value [HOOREVLMHMV], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HOOREVLMHMV, September 28, 2017.
    2. Board of Governors of the Federal Reserve System (U.S.), Households and Nonprofit Organizations; Home Mortgages; Liability, Level [HHMSDODNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HHMSDODNS, September 28, 2017.
  13. Mortgage Daily, 2017. “3 Biggest Lenders Close over Half of U.S. Mortgages” [Press Release]. Retrieved from http://www.mortgagedaily.com/PressRelease021511.asp?spcode=chronicle.
  14. Housing Finance at a Glance: A Monthly Chartbook, September 2017” Size of the US Residential Mortgage Market, Page 6 and Private Label Securities by Product Type, Page 7, from the Urban Institute Private Label Securities by Product Type, Urban Institute, calculated from: Corelogic and the Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff. Accessed September 28, 2017
  15. Fannie Mae Statistical Summary Tables: April 2017” from Fannie Mae. Accessed June 22, 2017; and “Single Family Loan-Level Dataset Summary Statistics” from Freddie Mac. Accessed June 22, 2017. Combined debt-to-income ratios weighted using original unpaid balance from both datasets.
  16. Calculated metrics:
    1. All Houses LTV = Value of All Mortgagesc / Value of All U.S. Homesd
    2. Mortgages Houses LTV = Value of All Mortgagesc / (Value of All Homesd – Value of Homes with No Mortgagee)
    3. Board of Governors of the Federal Reserve System (U.S.), Households; Owner-Occupied Real Estate including Vacant Land and Mobile Homes at Market Value [HOOREVLMHMV], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HOOREVLMHMV, September 28, 2017.
    4. Board of Governors of the Federal Reserve System (U.S.), Households and Nonprofit Organizations; Home Mortgages; Liability, Level [HHMSDODNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HHMSDODNS, September 28, 2017.
    5. U.S. Census Bureau, 2011-2015 American Community Survey 5-Year Estimates, Aggregate Value (Dollars) by Mortgage Status, September 28, 2017.
  17. Housing Finance at a Glance: A Monthly Chartbook, September 2017.” Negative Equity Share, Page 22. Source: CoreLogic and the Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff. Accessed September 28, 2017
  18. Survey of Consumer Expectations Housing Survey – 2017,” Credit Quality and Inclusion, from the Federal Reserve Bank of New York. Accessed September 28, 2017.
Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah at hannah@magnifymoney.com

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Average Household Credit Card Debt in America: 2017 Statistics

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Even as household income and employment rates are ticking up in the U.S., credit card balances are approaching all-time highs. What’s behind the growth of credit card spending among consumers? In a new report on credit card debt in America, MagnifyMoney analyzed credit debt trends in the U.S. to find out exactly how much credit debt consumers are really taking on and, crucially, how they are managing their growing reliance on plastic.

Key Insights:

  • While credit balances are increasing, the amount of debt that households are carrying from month to month is actually much lower than it was leading up to the 2008 financial crisis. As of December 2016, households with credit card debt owed an average of $8,158, down 22.9 percent compared to October 2008, when household credit card debt peaked at $10,588.
  • Credit card balances and credit card debt are not the same thing. The 73 million Americans who pay their bill in full each month have credit card balances reported to the major credit reporting bureaus.
  • Assessing financial health means focusing on credit card debt trends rather than credit card use trends.

Credit Card Debt in the U.S. by the Numbers

Credit Card Use

Number of Americans who use credit cards: 201 million1

Average number of credit cards per consumer: 2.32

Number of Americans who carry credit card debt: 125 million3

Credit Card Debt

The following figures only include the credit card balances of those who carry credit card debt from month to month.

Total credit card debt in the U.S.: $527 billion4

Average credit card debt per person: $4,2055

Average credit card debt per household: $8,1586

Credit Card Balances

The following figures include the credit card statement balances of all credit card users, including those who pay their bill in full each month.

Total credit card balances: $784 billion as of January 2017, an increase of 7.4 percent from the previous year.7

Average balance per person: $3,9058

Who Pays Off Their Credit Card Bills?

42 percent of households pay off their credit card bills in full each month

31 percent of households carry a balance all year

27 percent of households sometimes carry a balance10

Understanding Household Credit Card Balances vs. Household Debt

At first glance, it may seem that Americans are taking on near record levels of credit debt. Forty-two percent of American households11 carry credit card debt from month to month, and, if you look at the total credit card balances among U.S. households, the figure appears astronomical — $784 billion. But that figure includes households that are paying their credit debt in full each month as well as those that are carrying a balance from month to month.

While credit balances are increasing, the amount of debt that households are carrying from month to month is actually much lower than it was leading up to the 2008 financial crisis. The total of credit card balances for households that actually carry debt from month to month is $527 billion.

As of the second quarter of 2017, households with credit card debt owed an average of $8,158.3 That is a decrease of 22.9 percent compared to October 2008, when household credit card debt peaked at $10,588.12b

And as household incomes have risen in recent years, this has helped to lower the ratio of credit card debt to income. Today, indebted households with average debt and median household incomes have a credit card debt to income ratio of 14.4 percent.13 Back in 2008, the ratio was 19.1 percent.

Per Person Credit Card Debt

Once we adjust for these effects, we see that an estimated 125 million Americans carry $527 billion of credit card debt from month to month. Back in 2008, 5 million fewer Americans carried debt, but total credit card debt in late 2008 hovered around $631 billion.16 That means people with credit card debt in 2008 had more debt than people with credit card debt today.

Average credit card debt among those who carry a balance today is $4,205 per person2 or $8,158 per household.3 Back in 2008, credit card debtors owed an average of 23.7 percent more than they do today. In late 2008, the 115 million17 Americans with credit card debt owed an average of $5,567 per person12a or $10,689 per household.12b

Delinquency Rates

Credit card debt becomes delinquent when a bank reports a missed payment to the major credit reporting bureaus. Banks typically don’t report a missed payment until a person is at least 30 days late in paying. When a consumer doesn’t pay for at least 90 days, the credit card balance becomes seriously delinquent. Banks are very likely to take a total loss on seriously delinquent balances.

In the second quarter of 2010, serious delinquency rates on credit cards were 13.74 percent of all balances owed, nearly twice as what they are today. Today, credit card delinquency rates are down to 7.38 percent.14

Our Method of Calculating Household Credit Card Debt

Credit card debt doesn’t appear on the precipice of disaster, but the recent growth in balances is cause for some concern. Still, our estimates for household credit card debt remain modest.

In fact, MagnifyMoney’s estimates of household credit card debt is two-thirds that of other leading financial journals. Why are our estimates comparatively low?

A common estimate of household credit card debt is:

This method overstates credit card debt. The Federal Reserve Bank of New York/Equifax Consumer Credit Panel (CCP) does not release a figure called credit card indebtedness. Instead, they release a figure on national credit card balances. Representatives of the Federal Reserve Bank of New York and the Philadelphia Federal Reserve Bank both confirmed that the CCP includes the statement balances of people who go on to pay their bill in full each month.

To find a better estimate of credit card debt, we found methods to exclude the statement balances of full paying households from our credit card debt estimates. Statement balances are the balances owed to a credit card company at the end of a billing cycle. Even though full payers pay off their statement balance each month, their balances are included in the CCP’s figures on credit card balances.

To exclude full payer balances, we turned to academic research outside of the Federal Reserve Banks. The paper, Minimum Payments and Debt Paydown in Consumer Credit Cards, by Benjamin J. Keys and Jialan Wang, found full payers had mean statement balances of $3,412. We used this figure, multiplied by the estimated number of full payers to find the statement balances of full payers.

Our credit card debt estimate is:3

Credit Card Debt: Do We Know What We Owe?

Academic papers, consumer finance surveys, and the CCP each use different methods to measure average credit card debt among credit card revolvers. Since methodologies vary, credit card debt statistics vary based on the source consulted.

MagnifyMoney surveyed these sources to present a range of credit card debt statistics.

Are We Paying Down Credit Card Debt?

A Pew Research Center study25 showed that Americans have an uneasy relationship with credit card debt. More than two-thirds (68 percent) of Americans believe that loans and credit card debt expanded their opportunities. And 85 percent believe that Americans use debt to live beyond their means.

Academic research shows the conflicting attitude is justified. Some credit card users aggressively pay off debt. Others pay off their bill in full each month.

However, a substantial minority (44 percent)26 of revolvers pay within $50 of their minimum payment. Minimum payers are at a high risk of carrying unsustainable credit card balances with high interest.

In fact, 14 percent of consumers have credit card balances above $10,000.27 At current rates, consumers with balances of $10,000 will spend more than $1,400 per year on interest charges alone.28

Even an average revolver will spend between $58130 and $59731 on credit card interest each year.

Credit Debt Burden by Income

Those with the highest credit card debts aren’t necessarily the most financially insecure. According to the Survey of Consumer Finances, the top 10 percent of income earners who carried credit card debt had nearly twice as much debt as average.

However, people with lower incomes have more burdensome credit card debt loads. Consumers in the lowest earning quintile had an average credit card debt of $3,000. However, their debt-to-income ratio was 21.7 percent. On the high end, earners in the top decile had an average of $11,200 in credit card debt. But debt-to-income ratio was just 4.9 percent.

Although high-income earners have more manageable credit card debt loads on average, they aren’t taking steps to pay off the debt faster than lower income debt carriers. In fact, high-income earners are as likely to pay the minimum as those with below average incomes.32 If an economic recession leads to job losses at all wage levels, we could see high levels of credit card debt in default.

Generational Differences in Credit Card Use

  • Boomer consumers carry an average credit card balance of $6,889.
  • That is 24.1 percent higher than the national average consumer credit card balance.34
  • Millennial consumers carry an average credit card balance of $3,542.
  • That is 36.1 percent lower than the median consumer credit card balance.35

With average credit card balances of $6,889, baby boomers have the highest average credit card balance of any generation. Generation X follows close behind with average balances of $6,866.

At the other end of the spectrum, millennials, who are often characterized as frivolous spenders who are too quick to take on debt, have the lowest credit card balances. Their median balance clocks in at $3,542, 36.1 percent less than the national median.

Better Consumer Behavior Driving Bank Profitability

You may think that lower balances spell bad news for banks, but that isn’t the case. Credit card lending is more profitable than ever thanks to steadily declining credit card delinquency. Credit card delinquency is near an all-time low 2.34 percent.14

Despite better borrowing behavior, banks have held interest on credit cards steady between 13% and 14%37 since 2010. Today, interest rates on credit accounts (assessed interest) is 14%. This means bank profits on credit cards are at all-time highs. In 2015, banks earned over $102 billion dollars from credit card interest and fees.38 This is 15 percent more than banks earned in 2010.

How Does Your State Compare?

Using data from the Federal Reserve Bank of New York Consumer Credit Panel and Equifax, you can compare median credit card balances and credit card delinquency. You can even see how each generation in your state compares to the national median.

Median Credit Card Balance by Age (All Consumers) by State

Footnotes:

  1. Source: Survey of Consumer Expectations, © 2013-2015 Federal Reserve Bank of New York (FRBNY). “The SCE data are available without charge at www.newyorkfed.org and may be used subject to license terms posted there. FRBNY disclaims any responsibility or legal liability for this analysis and interpretation of Survey of Consumer Expectations data.”The October 2016 Survey of Consumer Expectations shows 75.02 percent of people with credit reports had balances on credit cards. The August 2017 Report on Household Debt and Credit showed 268 million adults with credit reports. For a total of 201 million credit card users.
  2. August 2017 Report on Household Debt and Credit , Page 4, Q1 2017, 453 million credit card accounts. 459 million credit card accounts / 201 million credit card users1 = 2.3 credit cards per person.
  3. The 2015 Report on the Economic Well-Being of U.S. Households reports 58 percent of credit card users carried a balance in 2015. 201 million1 * 58% = 116 million people with credit card debt.Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows that 67 percent of credit card users were not “full payers.” This results in a high estimate of 135 million people with credit card debt.

    Average estimate is 125 million with credit card debt.

  4. Using data from the 2015 Report on the Economic Well-Being of U.S. Households, 201 million credit card users * (58 percent not full payers) * $4,262 per individual5 = $496 billion in credit card debt.Using data from Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we calculate 201 million credit card users * (67 percent not full payers) * $4,148 per individual5 = $558 billion in credit card debt.

    Average estimated total credit card debt is $527 billion.

  5. The August 2017 Report on Household Debt and Credit shows $784 billion in outstanding credit card debt. Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows an average balance of $3,412 for “full payers.” Using their estimate of 33 percent full payers, we calculate:[$784 billion – ($3,412 (full payer balance) * 33% full payer * 201 million credit card users1)] / (201 million credit card users * (100% – 33% not full payers)) = $4,148

    Using their estimate of 42 percent full payers, from the 2015 Report on the Economic Well-Being of U.S. Households and the $3,412 full payer balance from Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we calculate:

    [$784 billion – ($3,412 (full payer balance) * 42% full payer * 201 million credit card users1)] / (201 million credit card users * (100% – 42% not full payers)) = $4,262

    Average estimated credit card debt per person is $4,205.

  6. Average per person credit card is $4,2055 and the average household contains 1.94 adults over the age of 18. $4,205 * 1.94 = $8,158.
  7. August 2017 Report on Household Debt and Credit, Compare Q2 2016 to Q2 2017, outstanding credit card debt (Page 3).
  8. August 2017 Report on Household Debt and Credit, Page 3, Q2 2017, credit card debt $784 billion / 201 million1 = $3,905.
  9. 2016 State of Credit Report” National 2016 Average Balances on Credit Cards, Experian, Accessed May 24, 2017. National Balance on Bankcards — average of $5,551.
  10. Page 30, 2015 Report on the Economic Well-Being of U.S. Households.
  11. 2013 Survey of Consumer Finances reports 37.1 percent of U.S. households carry credit card debt. There are 125.82 million U.S. households.Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw reported that 46.1 percent of U.S. households carried a balance the month prior to the Survey of Consumer Finances.

    Between 48 million14 and 58 million15 households carry credit card debt. Using the average of the two estimates, we believe 53 million households out of 125.82 million households carry credit card debt.

  12. a. CCP data shows 76.6 percent of people with credit reports had balances on credit cards in September 2008. The May 2017 Report on Household Debt and Credit showed 240 million adults with credit reports in Q3 2008. For a total of 183 million credit card users.The August 2017 Report on Household Debt and Credit shows $866 billion in outstanding credit card debt in Q3 2008. Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows an average balance of $3,412 for “full payers.” Using their estimate of 33 percent full payers, we calculate:

    [$866 billion – ($3,412 (full payer balance) * 33% full payer * 183 million credit card users)] / (183 million credit card users * (100% – 33% not full payers)) = $5,365

    U.S. Census Bureau, Survey of Income and Program Participation, 2008 Panel, Wave 4shows 44.5 percent of all households with a credit report have credit card debt. Using this along with the $3,412 full payer balance from Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we calculate:

    [$866 billion – ($3,412 (full payer balance) * (100% – 44.5%) full payer * 240 million people with credit reports)] / (240 million people with credit reports * (44.5% not full payers)) = $5,769

    Average estimated credit card debt per person is $5,567.

    b. Average per person credit card is $5,56712a and in 2008, the average household contained 1.92 adults over the age of 18. $5,567 * 1.92 = $10,689.

  13. U.S. Bureau of the Census, Real Median Household Income in the United States [MEHOINUSA672N], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MEHOINUSA672N, September 6, 2017.
  14. August 2017 Report on Household Debt and Credit , Page 12, % of Total Balance 90+ Days Delinquent, Credit Cards
  15. Statement balances are the balances owed to a credit card company at the end of a billing cycle. Full payers will pay off the entirety of their statement balance each month. Finding an estimate of full payers” statement balances was not an easy task. The Federal Reserve Bank of New York does not provide estimates of full payers compared to people who carry a balance.In order to get our estimates, we turned to academic research outside of the Federal Reserve Banks. In the paper, Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we found robust estimates of the statement balances of “full payers.” According to their analysis (see Table 1-A), full payers had mean statement balances of $3,412 (when summarized across all credit cards) before they went on to pay off the debt.

    We multiplied $3,412 by the estimated number of full payers to get the estimated balances of full payers.

  16. CCP data shows 76.6 percent of people with credit reports had balances on credit cards in September 2008. The May 2017 Report on Household Debt and Credit shows 240 million adults with credit reports in Q3 2008. For a total of 183 million credit card users.The May 2017 Report on Household Debt and Credit shows $866 billion in outstanding credit card debt in Q3 2008. Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows an average balance of $3,412 for “full payers.” Using their estimate of 33 percent full payers, we calculate:

    $866 billion – ($3,412 (full payer balance) * 33% full payer * 183 million credit card users) = $659 billion

    U.S. Census Bureau, Survey of Income and Program Participation, 2008 Panel, Wave 4shows 44.5 percent of all households with a credit report have credit card debt. Using this along with the $3,412 full payer balance from Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we calculate:

    $866 billion – ($3,412 (full payer balance) * (100% – 44.5%) full payer * 240 million people with credit reports) = $587 billion

    Estimated credit card debt is $623 billion.

  17. Source: Survey of Consumer Expectations, © 2013-2015 Federal Reserve Bank of New York (FRBNY). “The SCE data are available without charge at www.newyorkfed.org and may be used subject to license terms posted there. FRBNY disclaims any responsibility or legal liability for this analysis and interpretation of Survey of Consumer Expectations data.”The October 2016 Survey of Consumer Expectations Shows 75.02 percent of the adult population uses credit cards. The August 2017 Report on Household Debt and Credit shows 267 million adults with credit reports. For a total of 201 million credit card users. Page 30, 2015 Report on the Economic Well-Being of U.S. Households shows that 58 percent of households with credit cards sometimes or always carry a balance.

    201 million * 58% = 116 million people with credit card debt

  18. Source: Survey of Consumer Expectations, © 2013-2015 Federal Reserve Bank of New York (FRBNY). “The SCE data are available without charge at www.newyorkfed.org and may be used subject to license terms posted there. FRBNY disclaims any responsibility or legal liability for this analysis and interpretation of Survey of Consumer Expectations data.”The October 2016 Survey of Consumer Expectations Shows 75.02 percent of the adult population uses credit cards. The August 2017 Report on Household Debt and Credit shows 267 million adults with credit reports. For a total of 201 million credit card users. Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows that 67 percent of credit card users were not “full payers.”

    201 million * 67% = 135 million people with credit card debt

  19. The 2013 Survey of Consumer Finances reports 37.1 percent of U.S. households carry credit card debt. There are 125.82 million U.S. households.
  20. Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw reported that 46.1 percent of U.S. households carried a balance the month prior to the Survey of Consumer Finances.
  21. The 2013 Survey of Consumer Finances reports a median credit card debt of $2,300 per household with credit card debt.
  22. Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw used CCP data and determined a more realistic median credit card debt of $3,500 per household. Two-person households systematically underreported their debt.
  23. The 2013 Survey of Consumer Finances reports a median credit card debt of $5,700 per household with credit card debt.
  24. Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw used CCP data and determined a more realistic average credit card debt of $9,600 per household.
  25. The Complex Story of American Debt, Page 9.
  26. Table 1 in Minimum Payments and Debt Paydown in Consumer Credit Cards.
  27. Recent Developments in Consumer Credit Card Borrowing.
  28. Board of Governors of the Federal Reserve System (US), Commercial Bank Interest Rate on Credit Card Plans, Accounts Assessed Interest [TERMCBCCINTNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/TERMCBCCINTNS, September 7, 2017.May 2017 interest rate on accounts assessed interest 14%: $10,000 * 14% = $1,400.
  29. Table 1 in Minimum Payments and Debt Paydown in Consumer Credit Cards.
  30. $4,1482 * 14%28 = $581
  31. $4,2622 * 14%28 = $597
  32. Minimum Payments and Debt Paydown in Consumer Credit Cards.
  33. 2013 Survey of Consumer Finances.
  34. 2016 State of Credit Report” National 2016 Average Balances on Credit Cards, Experian, Accessed May 24, 2017. Average credit card balance for baby boomers is $6,889 compared to a national average of $5,551.
  35. 2016 State of Credit Report” National 2016 Average Balances on Credit Cards, Experian, Accessed May 24, 2017. Average credit card balance for millennials is $3,542 compared to a national average of $5,551.
  36. Board of Governors of the Federal Reserve System (US), Commercial Bank Interest Rate on Credit Card Plans, Accounts Assessed Interest [TERMCBCCINTNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/TERMCBCCINTNS, September 7, 2017.
  37. U.S. Bureau of the Census, Sources of Revenue: Credit Card Income from Consumers for Credit Intermediation and Related Activities, All Establishments, Employer Firms [REVCICEF522ALLEST], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/REVCICEF522ALLEST, September 7, 2017.
  38. CCP data shows 76.6 percent of people with credit reports had balances on credit cards in September 2008. The May 2017 Report on Household Debt and Credit shows 240 million adults with credit reports in Q3 2008. For a total of 183 million credit card users.The May 2017 Report on Household Debt and Credit, Page 3, Q3 2008, credit card debt $886 billion / 183 million = $4,720
  39. State Level Household Debt Statistics 1999-2016, Federal Reserve Bank of New York, May, 2017. All average credit card debt balances are calculated using the following formula:(Total Credit Card Balancea – Balance of Population Not Carrying Debtb) / Population Carrying Credit Card Debtc
    1. Total Credit Card Balance = (Average Credit Card Debt Per Capita * Population)
    2. Balance of Population Not Carrying Debt = Average Credit Card Debt Per Capita * Population * % of Population Using a Credit Card
    3. Population * % of Population Using a Credit Card * (1 – .375)
  40. State Level Household Debt Statistics 1999-2016, Federal Reserve Bank of New York, May, 2017.
  41. Data from Consumer Credit Explorer.
Hannah Rounds
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Hannah Rounds is a writer at MagnifyMoney. You can email Hannah at hannah@magnifymoney.com

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How to Raise a Kid You Won’t Have to Cut Off in 20 Years

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Today’s young people are more likely than previous generations to live with their parents, according to a 2017 analysis from the Pew Research Center. In 2016, 15 percent of 25- to 35-year-olds lived in their parents’ home, compared to 10 percent of Gen Xers in 2000.

Even when kids move out, it’s not uncommon for them to receive financial support from their parents. In fact, 62 percent of Americans age 50 and older gave a relative money in the last five years, with the largest sums often going to adult children, according to a 2017 Merrill Lynch retirement study.

Parents may not find those statistics encouraging, but the good news is there are ways to teach kids how to be financially responsible, and it involves raising the bar by asking kids to do more in the way of financial responsibilities. Studies have shown that when more is expected of a child (or anyone), they actually perform to that level of expectation. The same can be said of how they deal with money.

Don Roork, a Certified Financial Planner at AssetDynamics Wealth Management, has noticed a pattern with kids, adults and money. “Kids learn good money habits from just watching and being around their parents,” says Roork.

Roork also points out that money lessons aren’t always explicit verbal lectures on finance. “Kids watch mom and dad making good financial decisions, and voilà — the kids’ money behavior matches their parents’,” says Roork.

So when it comes to raising financially independent adults, it becomes clear that it’s important to start when they are kids. Here are some ways personal finance experts recommend easing your children — gently and kindly — into financial adulthood by weaning them from the family wallet.

Set expectations

As soon as your child begins asking for things like toys, restaurant meals or trips to the movie theater, they are ready to learn about the money it takes to support these wants. When a child expresses a desire for something beyond the basics, start the conversation then and there about how they’ll soon be responsible for these “luxury items.”

Of course, you don’t have to start charging them rent (not a bad idea, though), but you will want to follow up your expectations with actions.

For example, if your family goes out to eat, your child can pay for their meal or contribute to a portion of the bill. These expenses can be age appropriate and should increase over time as your child earns more money. They can start with things like snacks at the movies and move up to cellphone bills and car insurance.

Financial adviser Jamie Pomeroy of Financial Gusto says this should all start with communication: “Sitting down with your child and having a clear and frank conversation about who’s paying for what, can pay huge dividends.”

Another good exercise would be to show them prices on things they’ll need as adults, like a home or a car. Molding their expectations around what it takes to live will only help them down the road.

To drive this point home, Pomeroy suggests laying out a real plan designed to increase financial responsibility. “Make sure that you and your child are on the same page about what expenses they are responsible for, what you’ll continue to pay for (for now), and then introduce them to a budget to help them manage those expenses,” he says.

Create a reward system

Get-out-of-debt guru Dave Ramsey warns against giving kids an allowance and instead recommends that money given to a child should be tied to actions, like completing chores or other household projects. The idea is to get kids ready for the real world by emulating it with a system of compensation tied to work.

CFP Jeff Rose of Good Financial Cents says, “One of the first steps in teaching your kids financial independence is giving them responsibilities around the home that are both paid and unpaid.”

Ramsey is also a proponent of giving children the opportunity to earn more money in “commissions” when they find extra things to do or take initiative in solving problems around the house.

Teach them personal finance

Many kids are shocked when they get into the real world and finally begin grasping the finite nature of money. Mom and Dad spring for everything, so why would money ever run out?

Clint Haynes, CFP of NextGen Wealth, says there’s a fix for this. “Make it a point to sit down with your kids and show them what your budget looks like, how it works, and why it truly is the foundation to personal finance,” he says.

When your child asks for candy at the store, don’t deflect them with, “We don’t have the money.” Instead, let them know that the money you have available isn’t earmarked for candy, showing them how a budget works in real life.

Other lessons you can teach early on include those around saving, compound interest and even giving.

Brian Hanks, a CFP out of Idaho, has an experiment he urges his clients to conduct with their children once they are high school seniors. He suggests parents hand over their checkbook and have their kid cover all the family’s expenses for the entire school year.

“Paying a family’s bills is eye-opening, and your teen starts to develop new money habits,” Hanks says.

Let them earn real money

You can start by giving your kids an allowance that is tied to performance: completing chores, excelling in school, and having a good attitude can factor into their “compensation.” Be sure to enforce the association between what they do and how they are compensated. Once they can work legally, you can taper off their allowance.

Ed Snyder, CFP at Oaktree Financial Advisors, says children who have jobs will be more thoughtful about their spending and better with money in general. “Working will help them think through their spending and hopefully be more responsible,” he says.

Keep in mind kids don’t always have to wait until they are 16 to get a job. They can start a business or participate in gigs that allow kids under 16 to work with a permit, like modeling or acting.

Challenge them

Not only should your kids be responsible for expenses and make their own money, Eric Jansen of AspenCross Wealth Management says kids should be challenged in their money habits.

“Set up 90-day savings and spending challenges as a fun way to help them better understand and manage the trade-offs between spending money on what they want and what they need,” Jansen says.

No-spend or savings challenges are great ways to teach lessons about money while showing your child what they are capable of if they focus on their goals.

You can even create competitions among siblings, like seeing who can save the most money.

Trust the process

Sound like a lot of work? It is! Financial independence doesn’t happen overnight.

“Some of these [money] lessons may click sooner in some kids than in others — even within the same family,” says Snyder. “Don’t give up hope. … Just keep showing them good examples and teaching them good old-fashioned financial lessons.”

Be patient, be kind, and be confident that the lessons you are teaching them will serve them well into adulthood.

Aja McClanahan
Aja McClanahan |

Aja McClanahan is a writer at MagnifyMoney. You can email Aja here

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6 Bad Money Habits That Could Wreck Your Finances — and How to Break Them

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Bad spending habits — everyone has at least one of them. Maybe for you it’s adding “just one more thing” to your shopping cart, or repeatedly getting slapped with overdraft or late payment fees.

These bad habits may seem innocuous at first but could easily turn into financial self-sabotage.

“Breaking a habit like these can be really difficult because these habits have developed over the years, and they provide us with psychological comfort and safety,” says Thomas Oberlechner, founder and Chief Science Officer at FinPsy, a San Francisco-based consulting firm that integrates behavioral expertise into financial services and products.

Oberlechner says the key to overcoming a bad money habit lies in knowing when you’re using the impulsive, right side of your brain — as opposed to the focused, concentrated left side — in financial decision-making.

“It’s really about psychological experience. It’s about behavior. If we understand the role of emotion, then we have a chance to fix it,” Oberlechner says.

Once you understand yourself and can identify your bad habit, Oberlechner adds, then you can create a plan “that turns your impulsive or unconscious behavior into the healthy financial behavior that [you] actually want.”

Of course, breaking any bad habit is easier said than done.

MagnifyMoney spoke to financial professionals to hear how they and their clients broke their bad habit. See if any of their hacks could help you break yours.

Bad money habit #1: Spending money as soon as you get it

The solution: Automation

If you’re constantly feeling broke just a few days after you receive a paycheck, you may be guilty of this bad money habit. One way to make sure you hold onto some of your cash is to use what the behavioral finance community calls a “commitment device” to lock you into a course of action you wouldn’t choose on your own, like saving your money.

In this case, the device is automation. Automating your savings won’t help you stop siphoning money from your checking account the same day your direct deposit clears, but it can make sure you save what you need to first. Check with your bank or the human resources department at work to have a portion of your paycheck automatically sent to a savings account instead of putting the entire sum in your checking account.

You should automate your bills and credit card payments for the pay period, too. Once your obligations are automated, “you can be impulsive with your play money,” says Oberlechner.

Bad money habit #2: Reaching for your credit card all the time

The solution: A cash diet

Paying for everything you buy with a credit card can be good practice if you pay off your card every month. If you’re chronically swiping your credit card for things you can’t afford to pay off by the next billing cycle, leave your card at home and use cash instead.

When you don’t pay off your card each billing cycle, you rack up interest charges on everyday purchases, and that may cost you a lot more money in the long run. If you’re using more than 30 percent of your total credit limit each month, you may also be harming your credit score.

To break your habit, leave your credit card at home and use cash or a debit card for your purchases.

“Take a certain amount of cash and say ‘I can spend no more than that,’” says Vicki Bogan, an associate professor at Cornell University in Ithaca, N.Y., who researches behavioral finance. “If you have a huge [spending] problem, try to limit yourself so that you only have access to a certain amount of money.”

If you really want to challenge yourself, you can try going on what’s called a spending freeze, where you stop spending any money on non-essentials for a period of time. On top of helping you save money, the freeze can help you notice how much money you may be wasting simply because you’re always pulling out your credit card. After your freeze ends, you may be less inclined to swipe your credit card.

Another rule that could help you break your swiping habit is the $20 rule. The financial rule of thumb is simple: Anytime your purchase is less than $20, pay in cash, not credit. The $20 rule forces you to think about whether or not a purchase is worth swiping your card for. Chances are, if what you’re buying costs less than $20, it’s not something you’d be OK paying interest on.

Bad money habit #3: Spending beyond your means

Solution: Budgeting

If you chronically spend beyond your means each pay period, you are likely digging yourself into debt. Get a handle on this habit by understanding how much money you have coming in and how much you can afford to spend on a monthly basis. You can use budgeting apps like Mint or YNAB to make that part easier. These tools can also help you identify the spending categories that are costing you more than you might realize.

Oak Brook, Ill.-based certified financial planner Elizabeth Buffardi tells MagnifyMoney that after examining one of her client’s expenses she found the client was spending a lot of money at drugstores picking up snacks and little things after work. So the client gave herself a budget of $10 per drugstore visit to save money.

“We’ve been seeing her spending at drugstores go down steadily over the last few months,” says Buffardi.

Buffardi had two other clients who struggled with overspending because they loved to shop online. They both created boundaries for themselves when it came time to pay for the items in their online shopping carts. One client decided to buy a certain amount of gift cards that she could use on a given site.

“If she spent all the gift cards in the first day, then she was done until the next paycheck. If she wanted something that was more expensive than the amount she had on the gift cards, she had to hold off on other purchases in order to purchase the more expensive item,” says Buffardi.

The other client simply removed her credit card number from her payment profiles so it would be more difficult to make thoughtless purchases. Her theory, Buffardi tells MagnifyMoney, was that if she was forced to stop and pull out her credit card before she could make the purchase, it might slow her down and give her time to think about the purchase she is about to make and — maybe — stop some purchases from happening.

Bad money habit #4: Always buying lunch from a restaurant

The solution: Plan your lunches a week in advance

If you’re losing $10-$15 a day to the local deli during the workweek, remember this: You don’t have to buy lunch if you bring it to work with you. However, organizing your day so that you actually have time to prepare and pack your lunch may be where you struggle.

Leave room in your busy schedule to pack your lunch in the mornings, or during the evening when you may have more time to yourself.

Melville, N.Y.- based certified financial planner David Frisch says he packs his lunches in the evening because he knows he runs late in the morning. He puts together everything but the dressings and sauces he plans to eat while making dinner, so lunch is already 90% done, then he adds the last 10 percent in the morning.

Frisch suggests setting a budget for how much you’d like to spend on food per pay period, then tracking how much money you typically spend on the convenience of frequently going out to lunch. Again, a budgeting app can be handy here to easily identify places where you spend the most.

Compare that amount to how much you spend on food for entertainment purposes, like going out to dinner with friends over the weekend and for your necessities, like eating lunch to fuel your workday.

“If you are spending so much money on convenience, you have that much less money to spend on everything else,” says Frisch. If you’re spending money from your food budget for convenience purposes, you may be more reluctant to go out on Saturday night for dinner.

If you’re already packing your lunch, but purchase a second lunch because you’re still hungry or you no longer want to eat what you packed, try packing a larger meal or having leftovers for a second lunch.

Bad money habit #5: Ordering out for dinner because you’re too tired to cook

The solution(s): Prep when you have time/energy; try meal delivery services

It’s easy to spend more than $50 getting dinner delivered three to four days out of the week, or buying groceries that go to waste because you’re too tired to cook. Oberlechner suggests doing some of the “work” of making dinner when you know you have more energy.

“If you’re too tired to cook in the evening, replace the spontaneous behavior by preparing dinner in the morning. So in the evening you don’t have the work of preparing anything,” he tells MagnifyMoney.

Another hack Oberlechner suggests is making a little extra dinner for the days you know will be especially long, when you won’t want to cook dinner. For example, if you know Tuesday is a really long day but Monday is not, cook a little extra on Monday and have those leftovers for dinner on Tuesday.

If cooking dinner simply isn’t a habit for you, you can try a meal kit service like Blue Apron, Plated, or HelloFresh to get interested in cooking, suggests Brooklyn, N.Y.- based certified financial planner Pamela Capalad. She tells MagnifyMoney she’s advised many of her clients to sign up for a meal kit service, then transition into grocery shopping and cooking at home regularly.

Generally, the services cost about $10 to $15 per serving and can serve up to four people.

Bad money habit #6: Letting your kids throw extra things in your shopping cart

The solution(s): Shop solo or lay ground rules early

Frisch says he and his wife solved this problem with their now 15-year-old triplets when they were four years old.

“Up until they were four we couldn’t bring them to a supermarket because it was impossible for my wife and I to watch three kids at the same time,” says Frisch. The easiest recommendation, he says, is to have somebody watch them at home while you go do the shopping. You may spend some money on a sitter, but you are also saving money without an eager child sneaking candy and toys into your shopping cart as well.

If an extra set of hands at home isn’t available, then try to set ground rules before you go to the store. For Frisch, that meant allowing the triplets to get one — just one — extra item at the store.

When a child wanted to add something “extra” to the cart, Frisch or his wife would say, “If you want this now, then you have to put the other one back.”

“Ultimately what happened was they kind of had to make a decision as to which one they would really get,” says Frisch.

The triplets quickly realized they could all benefit from working together.

“They actually started to communicate and say ‘if you get this and I get this, we can share,’” Frisch told MagnifyMoney. “They just figured out that if they all got one thing and shared, they ultimately all got more than they would have.

Brittney Laryea
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Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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6 Career Strategies for People Who Are Coping With Depression

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Jana Lynch was 27 years old when she was formally diagnosed with depression. The illness wasn’t severe enough for her to start seeking regular treatment until eight years later, when a panic attack at work sparked a series of events that changed her career — and her finances — forever.

At the time, Lynch was working full-time for a social service agency. “Not only was my anxiety and depression through the roof, making it hard to get out of bed, concentrate on tasks, meet deadlines, communicate with coworkers, and remember meetings, but the nature of my job made it a dangerous environment for my mental health at the time,” she says.

Rather than resign outright, she decided to take a four-month leave on short-term disability. A break, she thought, might help. But when the time came to return to work, the same issues began to surface again. In the end, she chose her mental health over working full time.

“Looking back, it was a terrible choice because of the impact on my long-term personal finances,” she says. “But in the moment, it was the best decision for me and my family.”

Lynch’s story is not unique. In a 2004 study that followed workers over the course of six months, researchers found workers with depression dropped out of the workforce at a rate of 12 percent compared to only 2 percent of their peers.

While depression may force affected workers out of active employment at higher rates, it is also true that those who become unemployed are more likely to show signs of depression — three times more likely, according to a 2010 NIH study.

Thomas Richardson, a leading researcher at Solent NHS Trust, one of the largest community providers in the UK’s National Health System, notes that there is most definitely a correlation between unemployment and depression, but that causation is not as easy to pin down.

“In research such as this it’s always a case of chicken and egg: Which came first?” he says. “A lot of research is only at one time point, so it’s hard to say which came first.”

Some research shows losing your job impacts depression because it makes it hard to cope financially, but other studies suggest it has little impact.

“I think it probably works both ways and is a vicious cycle,” Richardson continues. “Someone becomes depressed, struggles at work, and loses their job. This then exacerbates their depression further.”

6 Strategies to Manage Depression and Work

Abigail Perry, author of Frugality for Depressives, had already been formally diagnosed with depression as a part of a bipolar disorder when unrelated chronic fatigue forced her out of traditional employment.

“I thought I’d be nothing but a burden for the rest of my life,” says Perry. “I wondered who would ever want someone who couldn’t pull her own weight financially, and I became suicidal. A lot of therapy and medication management doctor visits later, I finally started believing that I might have worth despite not being able to work.”

Those struggling with balancing their career and depression need not lose hope.

Richardson notes that many are able to develop coping strategies, allowing themselves to stay in the workplace. He’s developed six key strategies that his research has revealed to be helpful to workers with depression.

1. Intentionally look for work you enjoy.

“Try and do a job you enjoy or are interested in,” Richardson encourages. “If not possible, then try and focus on those bits of your job you do enjoy.”
Allyn Lewis, lifestyle blogger and storytelling strategist from Pittsburgh, Pa., has learned this technique through the course of building her business.

Diagnosed with a depression that was further fueled by her father’s suicide when she was a teen, Lewis never truly entered the traditional workforce, but has found self-employment to suit her disability.

Her motivating enjoyment comes from the community-based aspect of her business.

“Telling my story and talking openly about my anxiety, depression, and the loss of my dad is what keeps me active in my career,” says Lewis, 26. “That might sound strange, but when I keep my mental health journey to myself, it feels like it’s all about me. And if I’m having a down day, week, or month, what’s it matter if I do the work or get the things done? But, by talking about my mental health and using my own story to raise awareness, it makes it something that’s much bigger than myself.”

2. Don’t push yourself too hard.

“Don’t push yourself too hard at work,” says Richardson. “Acknowledge when you are struggling. It’s best to slow down early on than to keep going until you crash.”

Lewis learned this lesson through experience.

“Back in the day when I owned my own public relations firm, I would take on any client, under any circumstance, for any amount of money, and I’d make any accommodation or request they asked for. I ended up overbooked, underpaid, and at a point that was way beyond burnt out,” Lewis says.

“I kept trying to push my anxiety and depression aside to pretend like it wasn’t getting in the way, but the best thing I ever did was starting to tune into what my mental health was telling me. Only then was I able to shift into a business model that worked for me.”

3. Ask for help — and know your rights.

Richardson recommends going to your manager or supervisor for access to resources when your symptoms become too much to bear. If you work at a larger company, it may be more appropriate to get in touch with your human resources department.

This can seem intimidating, as you don’t want to give your superiors any reason to question your work ethic or your ability to provide value to the company.

But Perry, who now works full time in a remote position, notes that depression is covered by the Americans with Disabilities Act (ADA). This means your employer cannot fire you because of your disability — in this case, depression — and that they have to provide reasonable accommodations in order to allow you to do your job.

“Even if you don’t ask for accommodations, you need to make it clear that your absences or other work difficulties are based on a real medical condition,” Perry says. “Imagine being a supervisor with an employee who takes a lot of sick days, or may be easily agitated by interpersonal interaction or additional stress. In a vacuum, that’s a problem employee. Understanding the context, that’s someone who is doing their best to be a good employee despite a disability.”

4. Keep a healthy perspective on your career goals.

“It’s easy in a career to focus on goals, but this makes you vulnerable to depression,” says Richardson. “If you don’t get that promotion it might really impact you and lead to self-critical thoughts which fuel depression.”
He recommends instead harkening back to why you enjoy your work and the current position you’re in.

Lynch, who currently works as a freelance writer and editor, relates to the depression that can be felt when career expectations aren’t met.
“I try hard not to get angry at myself if I didn’t do as much as I’d like, or if my inbox isn’t bursting with inquiries,” says Lynch, “which is hard to deal with when you like to work and tie your work to your self-worth. But depression makes it difficult to look for clients. It’s a horrible, vicious cycle that I deal with only by telling myself this is temporary. It will get better at some point.”

5. Nurture hobbies and social contacts.

Lynch and Lewis both note exercise as a way of sustaining a healthy hobby. Lewis teaches yoga, and Lynch regularly attends a gym. While not the primary goal, a side effect of going to the gym or studio happens to be spending time with other people of similar interests.

Nurturing hobbies and maintaining social contacts are important from Richardson’s research — even if doing so initially feels overwhelming.

6. Practice mindfulness.

Finally, Richardson recommends practicing mindfulness, even when you’re not in the throes of depression. Emerging research suggests that mindfulness may not only alleviate depression, but could prevent relapses.

Richardson has produced a free mindfulness resource, which can be accessed here.

Depression and Your Finances

Career and finance often go hand in hand, so it’s no surprise that the ripple effects of depression can often extend into your finances as well.

By understanding and confronting these challenges head-on, there are strategies you can use to protect your finances as you learn to manage depression.

In a recent study published in the British Psychological Society’s Clinical Psychology Forum, Richardson studied people with bipolar disorder as they were going through a depressive episode. During these episodes, he found four key ways that their finances suffered.

Missing bills

Lynch notes that before she set up automatic payments, she would have trouble remembering pay upcoming bills. She’d get her statements, but ignore them. This led to unnecessary costs like late fees.

Richardson’s study finds that this behavior is typical for depressives. It found that missing bills was a financial manifestation of avoidant coping behaviors. In order to avoid being late on charges you may not know or remember exist, it’s important to get in the habit of confronting  through that pile of mail as you establish the habit of paying through automation.

Poor planning

“It can be harder to keep track of your finances when things get tough,” relates Perry. “Monitoring spending, keeping up with due dates — it’s exhausting even in good conditions. If you spend more because of depression, or if you simply don’t keep as close of an eye on things, your budget could take a big hit.”

Perry’s insights are congruent with Richardson’s findings. Those with depression have a harder time completing tasks like budgeting because planning ahead is made more difficult. The study also revealed that rational thinking and the ability to remember past purchases in order to log them into a spreadsheet were impaired.

Comfort spending

Perry says that when you’re depressed, you’re more likely to get caught up in comfort spending.

“This could be anything from convenience or junk food, which adds up, or going out for drinks, dinner, or entertainment. Alternately, you may be more likely to spend money on things that you think will make you happy or comforted — from convenience gadgets to home décor to clothes.”
Richardson adds the example of being overly generous with one’s family as an example of comfort spending.

Compounding anxiety

Richardson’s study finds that financial stress compounds anxiety and depression. This stress leads to more dire mindsets, like extreme anxiety and hopelessness.

“As a business owner, there’s always so much pressure around profit,” says Lewis. “Even when you’re up, you never know how long it will last, so you have to keep hustling. When I’m going through a period of depression, this puts me in a cycle of ‘I’m never making enough,’ which is a thought that likes to pair itself with ‘I’m not good enough.’ Depression has a sneaky way of switching my mindset from one of abundance to one of scarcity.”

Lewis’s reports of low self-worth are also common, according to Richardson’s work. Self-criticism over “economic inactivity” was detected in study participants.

Seeking Mental Health Care

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For help developing more coping strategies or getting resources that can help you manage your depression, consider seeking out mental health care services.

“I think all depressives — especially ones who aren’t on medications — should have therapists,” says Perry. “It may take a few tries to find someone you work well with, but then that person will be a great lifeline. Therapists can help you deal with the things that depression makes harder with strategies, workarounds, or just working through past events that are contributing to or causing your current depression.”

Therapy and medication management specialists can be expensive, though. Many regions in America face a shortage of mental health care providers, and the matter is further complicated when you consider that some providers may be out-of-network, bringing copays up even if you are currently insured.

Related article: 5 ways to find lower the cost of therapy

If you can’t figure out how to fit these services into your budget, seek out therapists who offer sliding-scale payment options based on your income. Another affordable resource is public mental health care clinics, though their availability may be limited.

If you have insurance and don’t immediately need medication, keep in mind that a mental health care professional may not have an M.D. or Ph.D. after their name. Licensed Clinical Social Workers (LCSWs) and other counselors often accept insurance and are able to provide therapy, referring you out to a psychiatrist for prescription needs when necessary.

Lynch did seek therapy and go on medication for a while, though she now leans on other coping mechanisms such as avoiding triggers and exercising regularly.

“I recommend it if you feel you need it,” she says. “There is no shame in getting whatever kind of help you need.”

Today, Lynch operates from a place of acceptance. Depression is a part of her life that she has learned to deal with. While she doesn’t categorize herself as what we would consider classically “happy,” she does consider herself to be as content as possible, and actively seeks out happiness within her circumstances.

Brynne Conroy
Brynne Conroy |

Brynne Conroy is a writer at MagnifyMoney. You can email Brynne at brynne@magnifymoney.com

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