Americans don’t have as much savings as the Fed thinks and why that could be a serious problem

• US household debt has reached a record $16.5 trillion

• It is the fastest increase in debt in the last 15 years

• Mortgages and credit cards are the biggest contributors to this burden

• The number of families who have depleted or depleted their savings is increasing

The “excess savings” that the Federal Reserve thought Americans had may have been fully depleted from July to September of this year, a period that saw credit card use and mortgage balances skyrocket.

Now there is talk of a rise in US household debt that has been the fastest in 15 years, and there are concerns that strong consumer demand that has come with pandemic – and strengthened in the last quarter – through 2023.

Federal Reserve data released on Tuesday showing that total US household debt reached a record $16.5 trillion, up 2.2% from the previous quarter and 8.3% from a year earlier.

Mortgage and credit card balances

Mortgage balances, which rose from $1 trillion a year ago to $11.7 trillion, and credit card debt, which rose to $930 billion, were the biggest contributors to this debt burden.

All indications are that consumers, now grappling with higher interest rates, have not been properly managing their household expenses: Group credit card balances increased by more than 15% over the same period in 2021, the highest annual increase in 20 years.

Credit card delinquency rates are on the rise, but they’re still historically low right now.

Meanwhile, mortgage debt, which has historically been the largest form of household debt, accounts for 71% of all outstanding household debt, up from 69% in the fourth quarter of 2019.

In October, Federal Reserve Agents in New York they said Who estimated excess savings at about $2.3 trillion in 2021.

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For the third quarter of 2021, we estimate that the excess savings stock was around $2.3 trillion, after which it began to decline as spending recovered and fiscal support eased. However, the stock of excess savings remained at about $1.7 trillion as of mid-2022.

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The Fed’s findings at the time indicated that households in the bottom half of the income distribution still had about $350 billion in excess savings, about $5,500 per household on average.

“Credit card, mortgage and auto loan balances continued to rise in the third quarter of 2022, reflecting a combination of strong consumer demand and rising prices,” said Dongyun Lee, the agency’s New York advisor.

The wrong predictions didn’t just come from the Fed, other experts predicted a better scenario. Mark Zandi, chief economist at Moody’s Analytics, the financial data provider, said in April CNN Excess savings were highest in North America and Europe, where government support was most important.

“The combination of a significant stimulus for pent-up demand and a runaway savings glut will lead to an increase in consumer spending around the world as countries approach herd immunity and open-up,” Zandi said.

Many go into their savings or get into debt

But the truth is that rising costs have eroded the standard of living for most Americans. Two-thirds of working adults in October considered their finances to be worse than a year ago, according to data from Payroll Finance.

Webb report cited CNBC Confirm that, to make ends meet, many are drawing down their cash reserves or getting into debt: 72% said they had less savings than a year ago, a jump from 55% who said the same in February. About 29% said they had completely wiped out their savings.

“Overall, American workers are struggling financially, regardless of their gender, race, ethnicity, sexual orientation, or income; in fact, half of American workers earning more than $100,000 are worse off this year,” said Asesh Sarkar, CEO of Payroll Finance. .

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