We’re not great, but we’re arguably better than our elected officials.
Are we responsible consumers?
Yes, I’m talking about you and me. How are we doing, collectively, at managing our income and spending?
The question came to mind when the New York Federal Reserve Bank released the most recent figures on consumer debt earlier this month.
If you look at the gross numbers, our debt is scary: as of March, some $18.20 trillion worth of household debt has been accumulated. That’s up a whopping $4 trillion since the end of 2019, just before the pandemic started.
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The Fed data shows that collectively, we’ve increased our mortgage debt. We borrowed more against our home equity credit lines. But we reduced our credit card debt. And believe it or not, we decreased our automobile debt.
The Prudence Test
The test of prudence, however, isn’t how many trillions we owe. It’s how much of our income goes to making payments on our debts. If it’s a crushing burden, we’re in trouble. If it’s easily handled, we’re fine.
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That’s where FRED, the huge graphical database maintained by the St. Louis Fed, comes in handy. Its quarterly updated chart shows household debt service payments as a percent of disposable personal income ended 2024 at only 11.28% of disposable personal income — our income after taxes and other required payments.
This is down slightly from 11.72% at the end of 2019. It’s down massively from the 15.85 percent recorded at the end of 2007, the peak of the housing bubble. The last time our debt service was at this level was the end of 1998.
Still, this doesn’t mean we’re all prudent borrowers.
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There are people out there with huge student loans, multiple auto loans, and sizable mortgage payments. Just as you can drown in a Texas creek with an average depth of a few inches if you step in a rare deep spot, some households will always be pushing the limits for debt.
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But we shouldn’t forget about all the households (about 40%) with little or no mortgage debt. And those (around 52%) with no credit card debt. While some households need credit cards to pay regular bills, a larger group uses credit cards for transactions, and pays off their balances monthly.
Comparing Consumers to Congress
Now let’s check how our elected friends and helpers are doing in Washington. According to a regular report by the Peter G. Peterson Foundation, federal interest payments will be 18.4% of federal revenues by the end of 2025. They will reach 22.2% by 2035.
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Here’s how net interest costs rank against other major spending:
Another Peterson Foundation paper examines how four major institutions score the “Big Beautiful Bill Act.” All four concluded it would increase federal debt to over $50 trillion within 10 years. This will further increase interest expenses as a percent of federal revenues.
Treasury Secretary Scott Bessent has said that we’ll grow our way out of the current deficit. Everything will be hunky dory. Growth cures all.
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That, strangely, is exactly what then-Congressman (now Senator) Edward Markey told economist Laurence J. Kotlikoff back in 1999. The two found themselves sitting next to each other on a flight to Washington.
“You ivory tower guys worry too much,” the Massachusetts Democrat told Kotlikoff.
“The economy is growing like crazy. Technological progress has never been this rapid. Do you have any idea what’s going on in high tech? We’re going to outgrow these financial problems. It’s time to get real.”
But it didn’t turn out that way, did it?
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You may recall, even if the 535 who purport to represent us don’t.
A few years later, the entire dot.com boom was a bust. Billions in investment went down the tubes. The expected huge growth never appeared.
The reality here is that we American consumers are more financially responsible than the people we elect, regardless of party.
Spending gives them power. Always has, always will. And they will borrow whatever they need to keep that power.
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We need to learn that lesson.
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