The actual reason debt will continue to rise and what you can do to change the trend

Sadly, the U.S National Debt crisis hasn’t banked alone. Prolonged economic downturn has been attended by surging cases of financial illiteracy. According to new research penned by Dr. Francesca Ortegren of the University of Southern Indiana, only four in 10 Millenials know what interest means and even fewer can define APR.

“Four trillion dollars. No, that’s not the national deficit; it’s the amount of personal debt Americans carried as of last month, and that’s not even including the $9.4 trillion in mortgage debt. Our debt has been on the rise since the end of World War II and doesn’t show any signs of stopping: In just the last 5 years, consumer debt has grown 25% and has doubled since the turn of the century,” Dr. Ortegren explained.

Few reasoned minds could argue against the self-afflicted nature of this catastrophe, even if the very same must concede that our nation was reared by creditors and unofficial negotiations. 

A roadmap to ruin

Among a wealth of talents that bustled inside the late scholar and statesman, Alexander Hamilton, resided prophetic economic wisdom.

In January of 1790, the US Treachery Secretary had the mind to index our fledgling country’s national debt up to that point. This First Report on Public Credit was submitted to Congress for review, before stirring the anxious attendees of a dinner party hosted by Hamilton’s famously busy rival, Thomas Jefferson, later that June. This correspondence was premised by a tactical deadlock that had been burdening Congress for far too long. Hamilton maintained that the Federal Government should be the final word on economic concerns, while Jefferson and James Madison (who was also in attendance) believed fiscal issues should be governed at the state level.

Thanks to certificates issued by a militia of varying authorities, Continental subsidence, a collection of gratitudes owed to Dutch Bankers and The French government in addition to all of the above being made the worse by a green nation that had yet to develop an effective taxing policy, America had already procured $75 million in debt just a few short miles from the sea of monarchism. A principled compromise conceived between Hamilton and Jefferson (mediated by Madison) managed to reduce US debt well below 10% only for the War of 1812 to ravage the GDP twenty short years later.

History elects conflict as a dependable seer as far as economical turmoil is concerned.  Although Andrew Jackson’s second term notably occurred during the only time in US history wherein America was completely debt-free, the country endured a record-high debt-to-GPD ratio of 33% after Word War I ($25 billion in debts which roughly translates to a public debt of $334 billion after necessary adjustments). This record was successfully surpassed after World War II, when it cleared  $241.86 billion (or $2.87 trillion in today’s currency) by the end of 1946. However, following a string of trying peaks and valleys, Tax Hikes instated in the early nineties turned the tide considerably…that is until the eight-month-long recession of 2001.

To this day our leaders are made and broken by their approach to the US national debt crisis. You might recall the Gang of Eight bill that energized the conversation a few years back with its intention to address the issue by focusing on immigration and the deficit specifically. While politicos and academicians wrangle over the merits of flash in the pan policy prescriptions, we have to be mindful of the role we have to play in mitigating the disaster.

Informed precision

Back in 1950, the average American household pulled in about $30,000 a year (adjusted for inflation). Additionally, debt only accounted for less than 2% of annual income. As the decade progressed, unemployment and inflation distorted this figure until it reached $4,000 or 7.3% of annual income as quickly as 1960. In 2019, the average American household retains $31,428 in debt or just about 40% of their annual income. 

There are relevant events that permitted American household debt to eclipse the debt achieved by the entire government of the UK, but data provided by The Federal Reserve and Dr. Ortegren’s years of research highlight other potential predictors. Namely, revolving debt — which is primarily composed of credit card debt — increasing 24,500% since 1970, Boomers scoring a solid “C” on the 2019 Clever Real Estate Financial Literacy Survey, Millennials outright failing this same exam and southern states holding more debt as a proportion of their income than other regions in the U.S.

Moreover, 70% of credit card users don’t pay their balances off every month, credit card interest and fees have risen by scores of billions of dollars since last year alone, and Millennials more than Gen X and Boomers, believe that just checking their credit score significantly lowers it.

“A larger middle class and increased wages were compounded by groundbreaking changes inaccessibility to credit and by 1958, revolving credit was born. Borrowers no longer had to settle their bills each month, but could carry their balance forward for a fee,” explained Dr. Ortegren. “By 2018, revolving credit exploded by 24,500%, leaving households with an average of $8,000 of (mostly) credit card debt.”

Remember, credit card companies express fidelity to profit and profit alone. In other words, they encourage users to spend beyond their means; a tactic made all the easier by a staggering decline in fiscal acumen.  Nearly 20% of Americans spent more than their income in 2018 and 36% just broke even. The 70% of borrowers who failed to pay the full balance on their accounts at the end of the month wound up paying $113 billion in credit card interest and fees last year, seeing the trend rise by nearly 50% since 2013 while overall revolving debt has gone up 20% during that same window.


To examine the mechanisms further, Dr. Ortegren and her team launched a 2019 Financial Literacy Survey of their own, composed of 1,000 US Adults. To put the results simply: if the survey was orchestrated like an exam, the median grade among the sample involved would be a D, with Boomers staffing the best scores and Millennials supplying the worst. Respondents answered 67% of the questions correctly, with the highest marks pertaining to questions about credit scores (74%), followed by credit cards (66%), and more general loans (61%). The Council for Economic Education recently determined that 75% of college students who had a credit card had no idea that fees were applied to late payments.

For most of us, finance is either introduced as a taboo, on par with religion and pillow talk, or as a clinical snooze fest best left to pencil necks. Because Americans are insecure about their financial literacy they avoid the topic completely with their child, which only furnishes the cycle. Financial Parenting expert, Jayne Pearl, makes a compelling case for putting our uneasiness aside for the greater good. As evidenced above by our abridged history of American debt, there are a lot of things to consider when applying money to the real world which is why employing a childlike simplicity can be beneficial to both the teacher and the pupil.

“It’s better that they should make $20 mistakes than $20,000 mistakes when they’re older,” Pearl explained. “They’re going to learn a lot of things that are not accurate or what you want them to learn so you need to check-in and make sure that (they) have your take on things.” On this, Dr. Ortegren seems to agree.

Debt is a national problem but not a national concern. The dichotomy is both curious and sinister. Many of the powers at play profit from our extended stumbling; a blindness that ensures our aimlessness while concurrently keeping the lights on at the circus every four years. Fortunately, a wheel can’t function without submissive, uniformed cogs.

“The upward slope in debt accumulation across the United States could be a sign of trouble to come when you consider the additional debt from home values. In short, Americans are taking on more and more debt and living well beyond their means. The easy access to credit cards and their potential to cause financial problems is exacerbated by our general misunderstanding of finances. Fewer than half of states require that public secondary education institutions even offer financial literacy courses, and less require the course for graduation. More education at a younger age might improve financial decisions later in life,” Dr. Ortegren concludes.