The financial crisis of 2008 that roiled global financial markets and triggered the largest recession in modern American history had a number of causes. Experts put most of the blame on the housing bubble that caused an overvaluation of homes and featured banks that loosened lending policies to capitalize on the flood of potential homebuyers. Although there have been regulatory steps taken to stabilize the affected markets since then, there’s a worrying sign that points to a potential repeat in the offing.
In the run-up to the collapse in 2008, U.S. household debt had reached a total of $12.68 trillion. The damage to the credit of the average American family that resulted from the crisis caused that number to drop sharply in the following years. The troubling news is that the debt level has rebounded and has surpassed pre-crisis levels, rising to $12.73 trillion in the first quarter of 2017. The news calls to mind the old axiom that “Those who do not remember the past are condemned to repeat it.” The question is, have we learned anything since then, and are we in trouble?
One measure of overall financial literacy in the U.S. is found in the public school system. The statistics are not encouraging. In 2016, only 17 states had mandatory personal finance courses in their public high schools. The lack of standardized education guarantees that the next generation of consumers will be woefully underprepared to manage their own finances and credit. It may lead to further increases in household debt, which may eventually imperil the economy again.
The economic environment won’t be doing anyone any favors either. Economic data indicates that the median household income still hasn’t recovered to the levels reached at the time of the financial collapse. This would seem to indicate that the increase in debt can be attributed to need rather than largesse. It’s a continuation of the exact pattern that led to the previous collapse, but with a deceptive twist.
During the recovery, the stock market has soared and new wealth has been created. The trouble is that it’s been concentrated in the top 10% of earners. Everyone else has seen flat wages and a rise in low-paying jobs. It’s an environment that doesn’t bode well for the economic health of most Americans.
To survive in this economy, those in the middle and lower classes will have to manage their finances well and employ solid strategies to stay afloat. Since there’s a dearth of compulsory education on the subject, Americans must take it upon themselves to learn how to handle their money. There are plenty of resources available to help them do so. A great place to start is to do some research at the website of the U.S. Consumer Financial Protection Bureau.
There’s also a wealth of helpful information and educational material available at the Better Credit Blog. It’s a great place to learn tips and tricks from professional financial managers who are on top of the latest economic trends. For those that prefer a more academic approach, there are even free courses available online that cover everything the average person needs to know to manage their money.