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Total Debt by Age Group Suggests Millennials and Boomers May Be Overloaded

February 9, 2022

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2:30 pm

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46 comments

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Economics

*Debt balance by age data from Federal Reserve Bank of New York (FRBNY), chart by Mish.*

Age is defined as the current year minus the birthyear of the borrower. Age groups are redefined each year.

Those who are millennials now were not millennials in 1999.

*Debt balance by age chart from FRBNY with data from Equifax*

The FRBNY Household Debt Report shows new record debt levels in the fourth-quarter of 2021.

I discussed the overall data in Household Debt Soars to Record $15.58 Trillion in the Fourth Quarter

The FRBNY chart provides a better handle on the total amount of debt, but the age breakdown is more important.

Age Group Debt Synopsis

18-29: $1.19 Trillion
30-39: $3.46 Trillion
40-49: 3.90 Trillion
50-59: $3.47 Trillion
60-69: $2.28 Trillion
70+: 1.27 Trillion

Debt in age groups 60-69 and 70+ have linear or near-linear trends. Those levels are also much lower than all but age group 18-29.

Those currently age 18-29 have not put on a lot of debt. Most cannot afford to buy a house.

Millennials, currently age 26-41, and Gen-X, currently aged 42-57 are adding debt at a stunning pace.

I can’t help wondering how many of them stretched to buy a house that they can barely afford, if afford at all.

Low interest rates, fear of missing out (FOMO), and the Fed goosing stock markets no doubt set this debt boom in motion.

Debt Deflation Setup

Admittedly there are inherent assumptions in my analysis, mainly that debt is a problem.

Yet, we can easily infer problems by noting what happened when the housing bubble burst. Debt declined. You can see it by the drawdowns in the top chart.

People did not pay down that debt. Rather, bankruptcy wiped it out as people walked away from homes. Others, fearful of debt did not leverage up for many years.

Another strong recession is likely to produce similar results.

Meanwhile, boomers are retiring en masse. Many of them think retirement is safe because of stock market wealth.

A stock market crash is yet another deflationary force I expect will hit with a vengeance.

Supply chains and demand imbalances are inflationary forces now, but deflation will soon be in the batter’s box, about to hit one out of the park.

Despite Rising Bond Yields the Yield Curve is Still Flattening

In case you missed it, please see Despite Rising Bond Yields the Yield Curve is Still Flattening

The flattening of the yield curve suggests trouble is ahead for the Fed before the Fed even begins hiking.

There’s trouble coming and the bond market has picked it up.

This post originated at MishTalk.Com.

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46 Comments

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vanderlyn

4 years ago

great analysis, mish. thanks.

1-shot

4 years ago

“… but what happens if the stock market declines?”

Didnt you know, the stock market NEVER declines!!!!

amalagoli

4 years ago

Lots of millennials now rushing to buy into an inflated real estate market … what can possibly be bad?

Tedwardspharmd

4 years ago

Haven’t we been talking about a stock market correction for quite some time…..like 10 years now? When the Fed is controlling the zero’s, why wouldn’t it continue to go up?

Jackula

4 years ago

With inflation running at 10% and interest close to a 1/3 of that everybody that can will be borrowing and buying “hopefully appreciating” hard assets.

JeffD

4 years ago

Population by cohort: 30-39 = 44.67M, 40-49 = 40.28M, 50-59 = 42M, 60-69 = 38.67M So the 40-49 cohort is in the worst shape per capita, by far.

Carl_R

4 years ago

Reply to JeffD

They have the highest debt per capita, but that is not the same thing as “being in the worst shape”. They are in their peak earnings years, and they have just finished buying the biggest house they will every buy. They most likely have a family, and enforced spending for food, medical, clothing, and college. All that is normal. What we need to see, though, is a chart of what their debt has looked like over the last 40 years, so that we can compare 40 year olds of today with 40 year olds of 10 or 20 years ago.

JeffD

4 years ago

Reply to Carl_R

And when a real recession comes? One without forbearance?

MPO45

4 years ago

Reply to JeffD

glad you did the math. now think 10+ years ahead….

Today cohort: 30-39 = 44.67M, 40-49 = 40.28M, 50-59 = 42M, 60-69 = 38.67M

Around 2030 ish: 40-49 = 44.67M, 50-59 = 40.28M, 60-69 = 42M, 70-79 = 38.67M

Or to put it more bluntly, 60+ population 42M+38.67M = 78.67 million people on social security and medicare. Who’s gonna do the work?

Be afraid, very afraid. Oh and if you think young people will fill in there are less than 1 million graduating high school now so that’s dog won’t hunt either. If you are 60+ now it won’t matter for you since you’ll likely be dead by 2030 but the rest of us will need to carry on.

JeffD

4 years ago

Reply to MPO45

A lot of those 60-80 year olds you have penciled in for 2030 will be dead. Millions likely due just to Covid, side effects of Covid, and side effects of Covid vaccines. Never mind the ten million+ typical deaths.

MPO45

4 years ago

Reply to JeffD

Question remains, who will do the work?

Eddie_T

4 years ago

Retirement.

What? Me? Worry?

Why do you think I still get up at 5:45 every morning at age 66 and drag my butt to the office? I’d just as soon not, but it’s a decent inflation hedge, working is.

Debt? Sure. But gimme MOAR 30 year money at negative real rates. I can handle it. I’ll buy another house to rent to the declining middle class.

Carl_R

4 years ago

This data would be a bit easier to make sense of if you separated demographic effects, since the number of people in each age group is different. Do you have a graph that shows debt per capita by age group?

Doug78

4 years ago

Free markets in action.

https://gcaptain.com/glut-of-u-s-lng-cargoes-headed-to-europe-sends-freight-rates-below-zero/

Tony Bennett

4 years ago

Wholesale inventories (Dec) out today.

Expected … +2.0%

Actual … +2.2%

Prior revised +1.4% –> +1.7%

Christoball

4 years ago

Reply to Tony Bennett

I wonder if demand will drop because people will not want cheaply made imported stuff. I am sure manufacturers and vendors have been on quite the austerity bandwagon during Covid Consciousness. .

dbannist

4 years ago

It’s nice to know how much each age group owes, but without a corresponding number of people in each category it’s worthless information.

I’m much more interested in debt per capita rather than debt per person. If there is twice as much debt in an age group but 3x as many people in that age group then debt is actually lower per capita than it is in other age groups.

I’m not saying that that is the case, only that we need more data to fully understand the total debt per age group.

Carl_R

4 years ago

Reply to dbannist

Sorry, I didn’t see that you had already commented on this when I posted my comment.

dbannist

4 years ago

Reply to Carl_R

Not a prob.

It’s nice to know I am not the only person who noticed that data flaw.

Christoball

4 years ago

Recessions are the modern form of Jubilee. Debts get removed from people lives through bankruptcy and there is no debtors prison. Because people do it in mass it is more socially acceptable.

Doug78

4 years ago

Reply to Christoball

Inflation is the same way. You replay with money that is worth less and less.

Christoball

4 years ago

Reply to Doug78

On an individual level inflation can act as a Jubilee by paying back old dollars with more available lower valued new dollars. The problem is that, inflation makes the other areas of ones personal economy more expensive.

On a societal level inflationary times actually increases debt. The inflation is leverage induced, and leverage is inflation induced. This all works until the needle is lifted on the phonograph and everyone is scrambling for chairs. The tables are turned and “Let them eat cake” can have a whole new meaning.

Doug78

4 years ago

Reply to Christoball

That’s true on the individual level and since the debt taken on to buy a house is generally the highest cost in a household’s budget they still come out ahead. In inflationary times rents move up but house payments do not if you went for a fixed rate.

On a governmental side inflation coupled with responsible budget management can reduce the debt load remarkably fast.

Christoball

4 years ago

Reply to Doug78

I think we payed for the Viet Nam war during the late 70’s inflation. “It was the worst of times , it was the terriblest of times”

Doug78

4 years ago

Reply to Christoball

Inflation also helped pay for the WW II debt. Russia’s inflation in the 1990’s wiped out their government debt and prudent management afterwards kept it down to under 20%.

Tony Bennett

4 years ago

Reply to Christoball

“Recessions are the modern form of Jubilee.”

…

Yes. And why they should not be feared as economy rebalances.

Unfortunately, the past 2 years has seen unprecedented (and temporary) fiscal stimulus (turbo charged by moratorium / forbearance / supply train issues) which has upset the apple cart re: business planning. A LOT more Peletons out there.

Tony Bennett

4 years ago

“I can’t help wondering how many of them stretched to buy a house that they can barely afford, if afford at all.”

…

I remember my HVAC guy back in 2006 or 2007 on service calls to a big new development near me ~

‘Strange walking into 3K to 4K square foot homes … with no furniture.’

History rhymes.

Tony Bennett

4 years ago

“Supply chains and demand imbalances are inflationary forces now, but deflation will soon be in the batter’s box, about to hit one out of the park.”

…

Yes.

I’m on my way to the parking lot … with my mitt.

Christoball

4 years ago

Reply to Tony Bennett

Things will become more affordable. Many demographics will enjoy the better prices if they have a few coins in their pocket, and do not have too many legacy costs such as high debt. Boom times and corresponding inflation can be being viewed as society living within their leverage capacity. Those without leverage capacity will enjoy a more level playing field created by deflation. . Recessions are nothing more than society living within their means.

Dr_Novaxx

4 years ago

What will happen when the market tanks? The same thing that always happens: Bulls & Bears make money and the pigs get slaughtered feeding at the trough of the “everything bubble” (without proper risk management) resulting from the Modern Monetary Theory of ultra-loose monetary policy.

LawrenceBird

4 years ago

Mish the charts are pretty useless to be honest as what is more important is average and median debt per person within the various age groups. It would also be somewhat helpful to know what kind of debt they are in – housing? auto? education? medical?

Tony Bennett

4 years ago

Reply to LawrenceBird

The report has many charts. Some of your questions answered.

LawrenceBird

4 years ago

Reply to Tony Bennett

Many charts but no questions answered. It does me no good to know totals by age group in 2021 compared to 2001 if I don’t know how many are in the group. And of course, none of it is ever adjusted for inflation (whatever the measure chosen).

Johnson1

4 years ago

Reply to LawrenceBird

Yes. I agree. Dough Short usually has real vs nominal (inflation adjusted) graphs that give the big picture.

KidHorn

4 years ago

If interest rates go up a few pct, as some are predicting, this could end in disaster. Monthly payments going up while the underlying asset depreciates is not good for a strong economy. Seems a lot like 2006 right now.

Doug78

4 years ago

Reply to KidHorn

If someone chooses a variable rate when interest rates are historically low then they are just plain dumb.

KidHorn

4 years ago

Reply to Doug78

Many times they can only qualify for an ARM.

Doug78

4 years ago

Reply to KidHorn

That doesn’t absolve them of doing a dumb thing. If you can’t afford it don’t buy it.

Dr_Novaxx

4 years ago

Ya think? I consider Consumer Debt as secondary indicator of “real-world inflation.” Oil & Education – massive underpinnings of our economy, are skyrocketing due to various foolish choices (multi-causal). I’ve warned all my friends about the inflation genie that has been let out of the bottle. The Fed’s paltry rate hikes won’t stop it.

mivy.aspyr

4 years ago

We can see that there were problems when the housing bubble burst because debt went down. People did not pay down their debt, but instead filed for bankruptcy or walked away from their homes. Another recession is likely to have similar results. Meanwhile, boomers are retiring in large numbers and many of them think retirement is safe because of their stock market wealth. However, I expect a stock market crash (though I really hope not) to hit soon which will cause more deflation. With the housing market possibly crashing I hope that my business https://www.garoofingpros.com/ does not suffer so much. This is a trying time.

Christoball

4 years ago

“Millennials, currently age 26-41, and Gen-X, currently aged 42-57 are adding debt at a stunning pace.”

These are probably the age groups prone to think that…. “It is different this time”

The Great Recession 14 years in the past seems a long time ago for them.

Zardoz

4 years ago

Reply to Christoball

7% inflation makes 3% debt pretty enticing. Question is, will the inflation continue.

TexasTim65

4 years ago

Reply to Christoball

As Gen-X person, I don’t think ‘it’s different this time’ and neither do most of my Gen-X friends as we’ve lived long enough to experience quite a few boom/bust cycles.

I think Mish has it right on his guess that people in these age groups are taking on lots of debt because they are in prime family years. They are buying homes, putting kids through college / private schools, maybe helping their kids buy a car/insure it or even paying for a wedding for their kids etc. Some are also probably having to take care of elderly parents (nursing homes, assisted living etc) if their parents didn’t make/save enough. The most expensive years of your life are ages 25-55 (family raising years).

silvermitt

4 years ago

Reply to TexasTim65

Doing all of that has always had pricetags, but the costs of it all has soared in the last two years. Is it really a surprise we’re jacked with debt?

lamlawindy

4 years ago

Reply to TexasTim65

I’m a Gen-Xer too, and let’s be honest: We Xers have known since the late 80s that we are a screwed generation & that we’d have to fund our own retirements, kids’ educations, etc. That Gen-X was screwed from the start was known since the phrase “latchkey kid” was thrown into the mix. None of this is a surprise.

What actually is a surprise to me, though, is the debt that Gen-X appears to be amassing: I thought that the early 90s plus late 00s crises had made us debt-averse. Clearly, the lessons learned by some Xers didn’t get transmitted to more of my generation.

Tony Bennett

4 years ago

Reply to Christoball

These are probably the age groups prone to think that…. “It is different this time”

…

One thing I’ve learned in my years. Give a certain segment of the population $$. They’ll spend it. All of it. Give a certain segment of the population access to credit. They’ll use it. Till maxed out.

Why IF US to enter a recession, the tell tale will be in the credit market.

2022 with fiscal stimulus waning + moratorium / loan forbearance ending + financial conditions tightening??

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Total Debt by Age Group Suggests Millennials and Boomers May Be Overloaded

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