Shooting Par Financially, Part 2

So you read that the average American family has about $9,000 in credit-card debt.

You only have $5,500. That means you're doing better than most, right?

Not so fast.

That figure is based on an arithmetic average. I'm not a statistician, but I know that debt isn't equally distributed -- some people carry a lot, lot more.

That drives the average figure upward. You might be surprised at how you really stack up against most of the U.S. population.

Back in February, I made the case for knowing where you stand financially among the pack.

As I said then, knowing where you are and where you're going makes it more likely that you'll get there, to The Millionaire Zone.

Like driving a car with a speedometer, you'll make better decisions on the road.

Or, continuing the golf analogy, par is a goal, and knowing par tells you how to play the hole.

Now I carry the quest for financial par to the debt side of the ledger.

As I'll show below, your par debt level is likely to be a lot lower than $9,000.

I return to the Federal Reserve Survey of Consumer Finances. Published every three years by the Federal Reserve, this complex and rich study details wealth, asset ownership and debt by several demographic factors.

The most recent edition was published for the year 2004, but I believe the figures still tell the story.

Here they are:

• Credit-card debt. Contrary to what popularly quoted figures show, the facts suggest a more moderate credit-card debt picture.

  First, you might be surprised that only 46.2% of all families run credit-card balances to begin with.

  Second, if you look at median debt levels (half the debtors higher, half lower), the median household debt level is only $2,200. And it doesn't vary much by age or income.

  Age
  Less than 35 years old	$1,500
  35-44	$2,500
  45-54	$2,900
  55-64	$2,200
  65-74	$2,200
  75+	$1,000

  Income Level, Percentile
  Lowest 20%	$1,000
  Next 20%	$1,900
  Next 20%	$2,200
  Next 20%	$3,300
  Next 10%	$2,700
  Top 10%	$4,000

  So do you still think your $5,500 balance suggests good financial behavior?

• Mortgage debt. Now let's look at the mortgage side of the house. A lot of people aim to pay off their mortgages as they head into retirement. Now we can see from the statistics that most, in fact, do. By age, here's the percentage of households carrying a mortgage on a primary residence:

  Percent Carrying Mortgage
  Less than 35 years	37.7%
  35-44	62.8%
  45-54	64.6%
  55-64	51.0%
  65-74	32.1%
  75+	18.7%

  And look at these median mortgage balances. Especially if you're living in more-expensive city or coastal areas, you might find these par statistics sobering:

  Median Mortgage Balances
  Less than 35 years	$107,000
  35-44	$110,000
  45-54	$97,000
  55-64	$83,000
  65-74	$51,000
  75+	$31,000

  So if you're 56 with a $350,000 mortgage balance, I'd be getting out a long iron about now.

• Other installment debt. In case you're curious, installment debt (that is, fixed-value loans for a specific purpose, like buying a car) is about as widespread as credit-card debt: 46% of households have installment-loan balances. Balances vary some, but not a whole lot, by age, with a median of $11,500.

So as far as debt goes, are you shooting par? Or are you now surprised to find out that bogey is your score?

Work on your swing, tee it up again, and I'll be back with more.

Click here for the video version of this story from Jennifer Openshaw.