The True Picture of American Debt in 2020: Debunking Myths and Unveiling Realities

Debt has often been a subject of heated debate in American households. Understanding the nuances of the various types of debt—national, taxpayer, and consumer debt—is crucial. In this article, we will explore the true picture of debt in America, addressing common misconceptions and highlighting the complexities of the situation.

Debunking the Myth: Average vs. Median Debt

It's important to distinguish between median and average debt figures, as they paint a different picture of the American financial landscape. According to recent research, the median debt per American family is approximately $2700, while the average debt stands at $6270. This difference is significant, as the average debt figure is often higher due to a few individuals with extremely high debts. For context, credit card debt alone averages around $5315 per consumer, although some of this debt is shared on joint accounts and thus double-counted.

Understanding National and Taxpayer Debt

National debt refers to the total amount of money the government owes to creditors, while taxpayer debt is the direct amount each individual owes, divided by the population. As of 2020, the national debt was approximately $91,000 per man, woman, and child. Additionally, the taxpayer debt averaged around $242,000 per person. These figures highlight the substantial financial burden the American government and its citizens face.

The Role of Consumer Debt

Consumer debt, which includes items like credit card debt, mortgage loans, and personal loans, is another crucial aspect to consider. Americans collectively owe about $807 billion across nearly 506 million credit card accounts. Despite these high figures, the proliferation of accessible and affordable credit has allowed many Americans to manage and even profit from their debt.

Real Estate's Dominant Role in American Debt

The backbone of American debt is real estate. Properties, rather than consumer goods, represent the largest single debt for most Americans. For instance, a mortgage on a $300,000 property entails a significant upfront debt. However, the ownership of such a property, often with rising market value, negates the debt. Not everyone aims to own a house until retirement; some may keep buying and selling, reaping the benefits of increased equity.

Personal Choice in Debt Management

Debt management is a personal choice influenced by individual circumstances. For example, the author mentioned a situation where they bought a car on loan, even though they had cash. The decision was shaped by the interest rate offered by the bank, which surpassed their stock dividends. This scenario illustrates how some individuals prefer to manage debt strategically, making informed choices based on their financial goals.

The Real Measure: Net Worth

While debt is a prevalent topic, net worth—the value of assets minus liabilities—is a more accurate indicator of financial health. Here's a breakdown of median and average net worth by age in America:

Under 35: Median net worth: $11,100; average net worth: $76,200 35-44: Median net worth: $59,800; average net worth: $288,700 45-54: Median net worth: $124,200; average net worth: $727,500 55-64: Median net worth: $187,300; average net worth: $1,167,400 65-74: Median net worth: $224,100; average net worth: $1,066,000 75 : Median net worth: $264,800; average net worth: $1,067,000

These statistics suggest that as people age, their net worth typically increases, reflecting the accumulation of assets and the payoff of debt.

Conclusion

In conclusion, while the average debt figure may seem alarming, the complexities and strategic management of debt in America are equally significant. Understanding the true impact of debt requires considering both the type of debt and the net worth accumulation. By taking a holistic view, individuals and policymakers can make more informed decisions about the financial landscape.

What is your net worth, and where do you stand in relation to these averages? Take a moment to assess your financial situation and consider how you can improve it.