Today’s personal debt hinders personal aspiration in a big way

by Ryan Streeter on May 16, 2012. Follow Ryan on Twitter.

It’s worth stopping to reflect on last week’s University of Michigan¬†report on household debt, which is based on the data from the university’s Panel Study of Income Dynamics (the PDF of the actual report is here).

The most troubling finding in the report is that, despite an increase in household savings during the recession (which is what you expect in hard times), non-mortgage household debt has remained unmoved at high levels.

The report shows that:

  • One in five families owes more in non-mortgage household debt than they have in savings.
  • More than 4 million families are still behind on their mortgage payments.
  • The percentage of families with no savings or other liquid assets actually rose from 18.5% in 2009 to 23.4% in 2011.

The debt drag on families is an important part of the “crisis of aspiration” I have written about a number of times. Just consider:

  • People in their 20s can’t find jobs to pay off their student loans.
  • Their parents too frequently have their own consumer debt loads that make helping their children more challenging than they’d like.
  • Since the vast majority of entrepreneurial activity in the country begins with personal savings and investment, the gravitational pull of families’ debt-and-savings troubles means less entrepreneurial activity over the long run.
  • And on top of all of this, we know that when you experience stagnation for too long as a young worker, it’s hard to experience the earnings boost in your 30s when the economy improves that’s equivalent to what you would have enjoyed if good times had been consistent. That simply means that today’s 25 year olds will be experiencing less opportunity on the whole when they’re 35. And since most entrepreneurship happens when people are over 30, that picture just isn’t pretty.