The 2008 financial crisis and deep recession taught consumers that having a lot of credit card debt was not a smart thing to do. Credit card debt outstanding now is about the same as it was 12 years ago, despite the fact that personal incomes have increased over 60% since 2003. As a percent of personal income, credit card debt was 7.4% in 2003, and it fell continuously to a low of 4.5% today.
By eschewing credit card debt, consumers have become much less likely to be delinquent on their credit card debt payments. Delinquency rates are as low as they have ever been since data was first collected in 1991.
With lower delinquency rates, it is not surprising that credit card companies wrote off only 3% of their outstanding loan balances in the first quarter of this year. That was the lowest chargeoff rate since 1985.
Today's consumer is a lot smarter, and a lot more careful with taking on debt. This reinforces the theme that I've been emphasizing for years: the Great Recession was so traumatic that its memory still lingers, making this the most risk-averse recovery in modern history. Risk aversion has been one of the hallmarks of this recovery, and that is one of the reasons why the recovery has been so tepid. It is also a good reason not to fear another recession: optimism is in short supply. The time to be worried is when everyone is optimistic and taking on lots of risk.
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