How Much Debt Do Americans Have? (By Age AND By Type!)

0:00Brian Preston:So good, so good, so good. New markdowns up to 70 % off are at Nordstrom Rack stores now. Stock up and stay big on shoes, tops, dresses, accessories, and more must-haves for summer. Join the Nordiclub to unlock exclusive discounts, shop new arrivals first, and more. Plus, buy online and pick up at your favorite rack store for free. Great brands, great prices. That's why you rack. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks.

0:43Brian Preston:Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+. debt america's favorite four-letter word are you doing better than the average american brian i am so excited to talk about this because we know that debt on one hand can be an amazing tool but it can also be so so dangerous so we're going to walk you through how much debt each generation has break it down by type and give you some lessons to take away from each so with that let's jump right in

1:23Brian Preston:yeah brian debt is one of the biggest problems that's facing many americans we know that right now according to experian the average american owes 23 000 in non-mortgage debt so the average balance across all of the americans that live in this country 23 000 here here's to give you context on this. If you take into account how many people have more emergency savings than debt, it's just only 53 % have that. So it's almost like a coin flip where people have more debt than they even have emergency reserves. And then what about this? 54 % of U.S. adults would not be able to cover three months of expenses if an emergency happens.

2:06Brian Preston:So the average American has$23 ,000 of non-mortgage debt. And one out of two Americans could not cover an expense without going into debt. That is problematic. That's not the way that we want you living because we truly believe that there is indeed a better way to do money. If you've not figured out how debt actually works, you're likely not doing money the right way. So here's what we want to do. We want to go into each generation and try to figure out how do you avoid this? We'll give you the stats and figures, but then also give you a way out of this trap. So let's start at the very beginning, Brian.

2:41Brian Preston:Let's talk about Gen Zers. These are folks right now that are like age 18 to 28. And we know this because me and you talk about it all the time. The 20s is probably the most powerful decade there is for compounding interest to work for you. But also, if you do it wrong, it can be one of the most devastating decades for compound interest to begin working against you. Yeah, this is the decade, guys. I I tell you all the time, if you just go look at our wealth multiplier, if you go look at our content at moneyguy.com slash resources, you have the world by its tail. You literally, if you just do anything for the positive with saving and investing, you're going to be rewarded many times over.

3:24Unfortunately, this is when consumption and all the influences of everybody who's out there marketing and advertising to you also falls into prey that you think, well, debt is the bridge that will get me out of my problem is I'm short on money. So I'll just use debt as that bridge that will get me through this period until I get all the pay raises to get me up. All of this works against you. You lose out on the time and you fall into this debt trap. And that's what we need to kind of give you some context. what does Gen Z look like when you talk about specifically debt?

3:55Brian Preston:Yeah, let's look at it categorically. So let's start with student loan debt. Again, these are folks that are 18 to 28 years old. If you look at all of the Gen Zers that have student loan debt, the average student loan debt for those that carry it is$19 ,000. If we think about auto loans, automobile debt, the average car loan for a Gen Zer that carries a car loan,$21 ,000. And those car payments for the monthly payments for Gen Z, right under$600 with actually$577 a month. You know, it's the most heartbreaking thing about that, Brian, that these Gen Zers have a car payment of$577. Do you realize that is almost the exact amount it would take to max out a Roth IRA if you just did that on a monthly basis?

4:38Brian Preston:And yet, it's going to automobiles, it's going to debt. Yeah, think about it. Think about it. When you get older, nobody thinks about in their 20s, though, what it's going to be like to be in your 50s and 60s and beyond. And that's the thing that breaks my heart is because you're going to look back on that car that costs you$577 a month, and it will not be the same source of comfort that that Roth IRA would be. So then we go on to mortgage debt. Again, this is Gen Zs that have mortgages. The average mortgage debt is about$248 ,000. And then this one is the most devastating. If you look at Gen Zers that carry credit card debt, the average credit card balance that carry it month to month from credit card users that carry a balance,$3 ,700.

5:19Brian Preston:So if you take all of these folks that have debt and you combine it with all the Gen Zers that don't have debt, and you just look at the total population of Gen Z adults, the total average debt for folks who fall into this age category,$23 ,300. Okay, so we got to help people figure out how do you avoid falling into these pitfalls. So I don't want you to be average. I want you to be a financial mutant. So we got to talk about this. First thing, student loans. Look, we know education, making yourself better, increasing your ability to have a bigger shovel of your income is a positive thing. But somehow we've turned this positive event into a negative.

5:59So at least you have to kind of figure out what student loans, if we know education is good and improving yourself is good, where are the boundaries so we don't get too much of a good thing and actually suffocate ourselves with student loan debt? And we always say, begin with the end in mind. What do we mean by that, Bo?

6:14Brian Preston:Yeah, I think you ought to be thinking about when I'm racking up the student loan debt, what is the outcome that I want? Far too often, I think just because people could get student loan debt, just because it was easy, loose money, they did it. Rather, we want you thinking about what is my degree actually going to provide me? And if you can think about it inside of this mathematical construct that I don't want my total amount of student loan debt to be greater than what I anticipate my first year salary being. We call this the first year financing rule. If you can abide by this rule, there's a really good chance that yes, you are going to have to graduate student loan debt.

6:49Brian Preston:You're going to take it into the first few years of your career, but that's it. It's going to be there for the first few years, not for the first few decades. So you want to make sure that you do not accumulate more debt in student loans than you anticipate making in your first year. All right, so that's student loans. Now let's talk about the next trap that I feel like a lot of people in this generation fall into, and this is the auto loans. Now look, a lot of other content creators in the financial space will tell you just avoid auto debt. All together. And we even say, if you think about your auto debt, it really is financial napalm.

7:23This will blow up your finances because I feel like the typical American screws this up so bad. But we are unique in the fact that we actually say, look, I get it, and we have a no hypocrite policy. I actually had to get my first job. I needed reliable transportation. So it's unfair to tell somebody who's broke as a joke, I've been there. When I was in my 20s, I had absolutely nothing to my name. I needed a good, reliable car so I could start this journey because I was trading my time for money. And that money I was turning into investments and resources on the back end. But without the car, this engine falls apart.

7:58So we needed some boundaries so people could do this well. And that's where we came up with what's called 23.8. And here's what's going to keep you safe. It allows you to get good transportation that's reliable, but doesn't let your ego, doesn't let you worry about what other people think, how cool or not cool you are. And that's why we wanted this. So put down 20 % down. This is going to help you on the front end so you don't get beaten up by depreciation immediately. You want to pay it off within three years. This is going to blow a hole in what the whole auto industry is trying to do with you.

8:31Because right now what they do is they say, what do you want your monthly car payment to be? And their game is they'll say, okay, we'll take you to a four-year, five-year, six-year, seven-year loan, and you can afford anything at$200 a month when you go out so far, but you never actually own the car. We don't play those reindeer games. We cut you down at three years, so that way it keeps your car payment in check. And then we don't want those payments exceeding 8 % of your gross income. And then we have two little caveats. This doesn't work for luxury cars. You have to pay same as cash on luxury cars, and we also don't want your car payment exceeding what your investments are so that we don't fall in that trap that we were talking about earlier with Gen Z is we don't want your car payment exceeding what's going into the Roth IRA.

9:15This is going to keep you safe.

9:16Brian Preston:You know, this is a hot take. I don't even think the caveat should apply to Gen Zers because I think that where you start with your car matters. And if you're starting in luxury brands, you're likely getting it out of whack. Early on in your career, you should be focusing on what is reliable, what gets to meet my job. And I don't even think, again, hot take here, I don't even think luxury brands should be on the table for folks that are just starting out in their creator. Even if they could pay cash for it, there's a really good chance that that cash, those hard-earned dollars, could work a lot harder for you doing something else instead of buying a luxury automobile.

9:50Save that disappointment for yourself later when you realize driving a luxury car actually has more headaches than you want. Believe me, I've been there, done that. Do the used, reliable car in this stage of life.

10:01Brian Preston:And the third thing, the third area category that we think you should avoid is around credit cards. If you are someone, maybe you came through college, maybe you're early on in your career, and you have credit card debt, and it's showing up on your balance sheet, make sure you pay it off right now before it becomes a bigger problem. Because it's one of those holes that the longer you let it sit there, the deeper it gets, and the deeper it gets, and the deeper it gets, and the deeper it gets. So if you have credit card debt, make sure you're paying them off every single month. Don't allow compound interest to work against you.

10:34Here's a positive stat that I think is not, It's not something we can say it's because of how awesome this generation is. I think it's more of a component of they just didn't have enough time to screw it up yet. Gen Z actually has the lowest average credit card debt out of any other generation. But I just gave you the answer. I think it's because they're the youngest. That's right. So they just haven't had the ability, youngest adults, I should say. So they haven't had the ability to go run up the money with the banks. And that's what leads us to the key point that Bo was just talking about. and we even have a slide for this, is that we say using a credit card, credit card use is A-OK.

11:10You get a checkmark on that, but credit card debt, no way. If you're having to carry any balance, don't even get into the whole balance transfer game for 0%. All those things are traps. Just avoid credit card debt altogether. If you're not paying it off every month, you're really not a credit card person.

11:29Brian Preston:I love it. All right, Brian, let's shift gears now. We talked about Gen Z. let's move on to the next generation. Let's talk about millennials. These are folks that are age 29 to 44. And what often happens in this passage of time is a lot of people enter into what we like to call the messy middle. It's this stage in this season where all of a sudden the commitments that we have and the things that we need to be doing and the things that we need to be spending money on begin pulling us in a thousand different directions. At the same time, we're getting pulled in all those different directions, our disposable income is also increasing.

12:02Brian Preston:We're likely buying houses, getting married, starting families, advancing in our career. All of these things are beginning to pull against us. And I think far too often folks in this messy middle, they just begin reaching for the easy button. I just need to figure out how do I bridge the gap in this difficult time. This is like a country song lyric in the fact that this really is the decade or the period of time where you're short on time, you're short on money. So many things are going on in life that it's easy just to put financial decisions up on the shelf for a future time. And I'm here to tell you that is a mistake.

12:40Yes, the days are long, but I promise you those years are short. There's that country lyric that I'm telling you, prioritize your financial decision-making, even if you do feel like there's just not a lot of money out there because this is why it's important. You want to be the lead hero in your story of life. You don't want to be just a supporting actor that just goes along to get along, because if you don't take an active role in your financial life, you will get left behind. And that's probably a great way to set up. Let's talk about what is actually going on for the typical millennial when it comes to debt.

13:15Brian Preston:Yeah, again, let's look at it in categories. If we think about student loans, for all the millennials that carry a student loan balance, the average student loan balance is$33 ,500. Now, as we were looking through this, Brian, there was a stat that was, I don't know if alarming is the right word. It's ugly and yucky. I don't know if saddening is the right word. Yucky is the word that came to my mind. Maybe yucky. Yucky is the word. Because this is the messy middle. They got kids, they got spit up on them. They know what yucky looks like. Do you recognize that 63 % of student loans right now outstaying that have a balance are either the same or higher than when the student loan was first issued.

13:52Brian Preston:I'm going to say that again. Six out of 10 student loans that currently exist are larger now than when the money was actually borrowed. That means that what's happening with student loans is they're moving in the wrong direction. They are negatively amortizing. They are getting bigger, not getting smaller. I think a lot of folks in the millennial generation are seeing that be a reality. So that's student loans. Let's talk about auto loans, Brian. If you look at all the millennials that have an auto loan, average auto loan balance is higher than it was for Gen Zers, just under$26 ,000. And that equates to a monthly payment of a little over$700,$735 a month.

14:30Bo, you made the point earlier on the previous generation, this is actually now bigger than what it takes to max out your Roth IRA.

14:37Brian Preston:This is really close to almost$10 ,000 a year. That's not going to their armor dollar bills. Rather, it's going to pay for a car. If you look at mortgage debt across millennials, the average mortgage debt for millennials that carry a mortgage,$306 ,000. And the average credit card balance for millennials that are carrying a balance,$7 ,600. This is double what it was for their Gen Z counterpart. So it makes me nervous that millennials are not recognizing how devastating credit cards can be. Well, I think a lot of people will see that stat and be like, okay,$7 ,500, that doesn't sound so horrible.

15:14It's less than$10 ,000. But when you start thinking about a lot of these credit card companies are charging you between 20 % to 30 % interest rates, on this you quickly realize, man, this is thousands of dollars a year of lost money. If you go look at our wealth multiplier and look at it through those lenses of, man, what could this money be? What's the opportunity cost? You'll quickly start realizing your consumption is destroying your future financial self.

15:40Brian Preston:So if we add all of these up, we think about what's the average debt balance for a millennial. This is across both millennials that carry debt and those that don't carry debt. The average debt balance is almost$63 ,000. Again, this is a stage of people that are mid-career that should have their debt decreasing, not increasing, and yet the numbers, the averages, tell us something very different. Well, this leads to it because we've got to get you out of this. So here's how to avoid some of these pitfalls. The first thing, this is going to seem a little contrarian, but we did this on purpose. As we've told you, in your 30s, you really are in this messy middle where you've got a lot of things pulling at you, and you're going to have student loan debt.

16:20We just went over those numbers. But a lot of these student loan numbers, the interest rate is actually quite reasonable, especially if you're old enough that these are loans that came out and they're less than 5%. Don't get in a hurry paying all the student loan debt off and not funding Roth IRAs, not funding other things, because you've got to start building while you have a huge wealth multiplier where every dollar has a chance to grow in itself many times over. You've got to get to work while you're in this crucial stage of life. And sometimes people are just so excited to pay off all debt because they paid off the credit cards first that they pay off some of these low interest debts at the expense of their future self.

16:59Brian Preston:Yeah, not all debt is high interest debt. So one of the things that you have to be able to discern in your 30s is what qualifies as high interest and what qualifies as low interest. If it's low interest, perhaps it does not need my attention. If it's high interest, perhaps I should satisfy. So that's student loans. Let's talk about mortgages, Brian. One of the things I think that is so tempting, again, this is that stage of your career where you're beginning to get some traction, maybe you're beginning to have some success, and it becomes really, really enticing and really, really exciting to think about, oh, I'm going to upgrade.

17:29Brian Preston:I'm going to get into more house. I'm going to increase what my living situation looks like. But far too many millennials find themselves in the spot where now they are house rich but lifeful poor. All the wealth that they have, all the resources they have are now tied up in their primary residence. That's why, Beau, we came up with a rule, just like we have car buying rules. Why wouldn't we have a house buying rule too? So we have 3-5-25 rule. And what this does, we are one of the few content creators in the financial space that we recognize. Look, that first home purchase, just to get on the home ownership train, people aren't putting down 20%.

18:05We didn't have to change this post-inflation and all the other things that came out after the pandemic. We already had this rule because this is what we resembled. That's right. A lot of our financial advisors resemble this. A lot of our clients resemble this. You only have to put down 3 % to 5 % on the first home purchase. That's only on your first. When you upgrade to the second house, you are going to need to put down that traditional 20%. We need to make sure that you're in this home at least five years. There's too many friction and transaction costs to make this something that you're burning and churning through homes.

18:36It just doesn't work that well. And then we want to make sure that, once again, you are not house-rich, life-poor. That's why we try to keep your monthly cost below 25 % of your gross income so that you can actually have some money to live life, save for the future, and live your best financial life.

18:53Brian Preston:So obviously, houses are probably one of the most expensive things that you're going to buy, especially in this decade. But another thing you're likely going to do is buy a car. Now, we've talked about for Gen Zs, it's really about just having reliable transportation. I need something that can get me from point A to point B. But there is a chance in the messy middle, in this next season and stage, you need a car for a different reason. Maybe your family is growing. Maybe you have a longer commute. Maybe you fill in the blank on the reason that you need to change the vehicle that you're driving.

19:23If you're going to be in that situation, if you're going to make that decision, we want you to understand what can you actually afford.

19:30Brian Preston:Because it's very easy to justify, oh, I need the bigger car. I need the safer car. I need this. And all of a sudden, you begin making those small little decisions that make the car more and more and more and more expensive. So we want to make sure that when you do upgrade, you stay inside of your affordability. So we want you to go to moneyguy.com slash resource. We actually have a car buying calculator that tells you, hey, based on where I am, based on what I have going on, this is how much car I should consider buying. If you can use the tool and keep that reined in, you're going to prevent yourself from having all of your dollars going towards an automobile that's going to depreciate over this decade.

20:09I think you're being too nice. I'm going to give a little more tough love here. Look, I look over my life and I say, okay, when was a nice car like a social currency that I see people making huge mistakes? And I think about high school, when you saw the parents that gave their kids way too nice of a car for high school. And yes, in the moment, that gave some temporary social status to that high school kid. I liked when I got to college, it was okay that I had a beater or a character builder. And I realized that a lot of students really didn't care what car you drove in college. And I was like, good, we're finally out of that dysfunctional thing that happened in high school.

20:44And little did I know, when you get in your 30s and you start having a growing family, no, that social thing, and I don't know if it's the ad agencies and everybody telling you what you should and shouldn't do, and they're totally misleading you is, and I'll tell you what I know about this. When I was buying my wife's most recent European SUV, I saw multiple 30-something families there with these tricycle motors looking at these same luxury vehicles, and I'm like, what are you people doing? You don't need to be here. You need to be buying reliable transportation that fits in 23-8, assuming, because they're not paying cash.