Posted By RichC on August 11, 2019
As the cost of education, health care, cars, etc. goes up, it should be no surprise our financing habits change in order to pay for priorities like higher education … or luxuries like newer and more reliable cars. Paying for semi-essentials is significantly more expensive than in the past and we now extend paying for them far longer than before.
Taking on a mortgage to buy a house that could appreciate, or borrowing for a college degree that should boost earning power, can be wise decisions. Borrowing for everyday consumption or for assets such as cars that lose value makes it harder to save and invest in stocks and real estate that tend to create wealth. So the rise in consumer borrowing exacerbates the wealth gap.
This is a huge concerned for those directly impacted by debt and by those currently digging their holes. Sociologist and economist are concerned as well as the changing future of family formation and homeownership is at risk (and without a next generation, it will be impossible to keep Medicare and Social Security solvent).
The American dream of owning a home for my generation traditionally followed a bit of debt for school and car, which as those costs ballooned, now puts the tradition mortgage for a first home out of reach for many. As rents rise, paying off existing debt and saving for a home becomes even that much more difficult. Add to that the high cost of health care (quote at bottom) … and the propensity to purchase with a credit card, desire to travel and eat out, one wonders if renting forever is the new normal for the American middle class family?
Unadjusted for inflation, home prices rose 188% from 1987 to 2017, average tuition at public four-year colleges rose 549% and health-care expenditures rose 276% from 1990 to 2017.
Meanwhile, household income from 1987 to 2017, not adjusted for inflation, rose 135%. (Aug. 2, 2019)