Join institutional investors, analysts and strategists from the world's largest banks: Subscribe today
Already have an account? log in
Delinquencies And Financial Death Sentences
The latest installment of the NY Fed's monthly consumer poll was released on Tuesday. Who's excited?!
Not the Fed. As far as I've ever been aware, the survey isn't especially relevant for the FOMC. At the least, I can say it's nowhere near the top of the list when it comes to macro inputs the Committee considers when making bad policy. (See what I did there?)
So why mention it? I don't know, honestly. Because it's Tuesday. There was one actual takeaway, where "actual" means "notable," from the
Incidentally, car salesmen who facilitate the kinds of loans mentioned in this article should be arrested for fraud, in my opinion.
This is exactly why I am more favorable to Fed rate cuts and thought they should’ve started earlier.
I would hate so much for Karl Marx to be proved correct.
Auto loan delinquency rate exceed pre-pandemic levels in 2022 and has continued rising. The auto loans taken out in 2021-2023 when car prices were very high are probably almost all in a low-to-negative equity state. Regardless of car price; the more expensive the car, the steeper the depreciation. Add high insurance premiums to loan payments averaging $600/mo, and plenty of lower-income will be stressed, as well as mid-income who overextended themselves. I imagine tens of thousands of auto loans will be defaulted on in Florida and the SE.
https://www.federalreserve.gov/econres/notes/feds-notes/rising-auto-loan-delinquencies-and-high-monthly-payments-20240926.html
Could you consider that “negative equity” and the subsequent financing for a new car as Inflation caused by higher interest rates? Or is it just correlation?
Pandemic supply chain disruption. Remember the new car shortage? New car prices soared from $40K to $48K from early 2021 to mid 2022. People who just had to have a new car then were “buying at the top”. Levering up to buy tops usually doesn’t work well.
Rate increases has nothing much to do with it, that I can see. Just people’s bad decisions.
I needed a new car in 2021. Prices and selection were ridiculous. I looked at newer used cars.
Prices and selection were ridiculous. I bought an older used car.
I’m still trying to wrap my head around the fact someone can have $10k negative equity on a car. The truth is many people simply do not understand what “financing” an asset means in practice and how debt payments work. I recently met a friend from grad school I had not seen in a long time, we both took student loans to help pay for master degrees more than 20 years ago. His lawyer advised him this year to stop making payments on his student loan since he owes more than the original loan amount and would be better off taking the hit to his credit score for now while keeping the extra cash. I paid my loan years ago, when I asked my friend if he had always paid the minimum required each month his answer was “yes.” There you have it, we make it too easy for folks to enter debt without understanding the breakdown for each payment and how changes in interest rates affect the equation.
Hat off to H’s Truth Social.
When my nieces/nephews reach 25 I offer to fund them a ROTH for $5K and will match $1K a year. But, first they have to answer 5 questions correctly. Questions:
1. Buy a $100 shirt using credit card (17%), make minimum payment, how many payments will it take to pay it off and how much will the shirt actually cost?
2. Invest $5K at age 25, add $2K every year, assume 5% annual return – how much will you have at age 65? Same numbers but start at age 35, how much at age 65? What is the difference between starting at 25 vs 35?
3. And 3 more…
Interesting learning process for everyone, their parents like it the most – who listens to parents LOL
I’d be interested in seeing your other 3 questions as I’d like to give your test to my 20 year olds (before I too start helping them fund a ROTH) once they get their first jobs.
Bill_G, I have two nieces who are on board and a nephew has been stalling for almost a year. Both nieces manage their own ROTH investments – learning and having fun actually. Total of five but several years before others reach 25. Honestly, when I was young, my financial literacy was pathetic, I learned the hard way. Probably why I’m doing this. My two nieces were not much better but they both are now making better decisions.
The other 3 questions:
3. Two people age 25 have jobs paying $50K. One works for the same company/job until 55 getting, 3% increases every year. The other person changes companies every 3 years with 12% increases – ages 28, 31, 34 – then stays at last job until 55 getting 3 % raised each year. What is the salary of each at age 55?
This is a factoring type question. Say a person bounces a $100 check the 1st day of each month, then covered the check plus $35 fee 7 days later for 1 year (12 months), what is the banks percentage return on investment? I don’t tell them the bank uses the same $100 to fund the bad check every month. I also ask, does the bank like your business?
Last question is more social. I ask them to research the top reasons for divorce or breakups. Where does financial/money differences or orientation rank?
Good Luck….Rick