When the world’s wealthiest individual, Elon Musk, expresses concern about the credit card debt situation in the U.S., you can bet it’s time to sit up and take notice. Musk recently voiced his worries about the burden of credit card debt on the average American amid the persistently turbulent economic conditions.
In a recent Tesla Q2 2023 financial earnings call, Musk referred to the escalating levels of credit card debt as “looking scary.” These remarks came in response to a question about Tesla potentially reducing its car prices to be more affordable for consumers. “For a lot of people, they’re just really breaking even every month,” Musk stated, drawing attention to the alarming rise in credit card debt as evidence of financial distress.
And Musk isn’t crying wolf. As we continue to grapple with the aftermath of the pandemic, the U.S. economy’s recovery is marked by a precarious boom-bust cycle. Increasingly, Americans are spending beyond their means, pushing the country’s credit card debt to record highs.
According to the Federal Reserve, credit card debt hit an all-time high in July. This recent surge marks a concerning shift from the decline observed during the early days of the pandemic. As Americans grapple with depleted savings and dwindling pandemic-era financial safety nets, this debt trend is unlikely to reverse soon.
The rise in credit card debt isn’t uniformly distributed across the population. Data from Credit Karma reveals that Gen Z and millennial populations have seen significant upticks in their credit card debt in Q2 2023. Gen Z’s average credit card debt has jumped by 4.2% to over $3,300, while millennials have seen their debt rise by 2.5% to nearly $7,000.
The JP Morgan Chase Institute underscores the gravity of the situation. Their data indicates that the cash balances in checking and savings accounts for around 9 million Chase customers have plummeted to their lowest levels since April 2020. As student loan payments resume, we could witness a further deterioration of these financial balances.
Musk’s recent remarks aren’t his first about the rising debt. Last December, he urged his Twitter followers to “beware of debt in turbulent macroeconomic conditions.”
And Musk is no stranger to handling debt himself. His company X Corp, formed to privatize Twitter after Musk’s acquisition of the social media giant, shouldered $12.5 billion in debt to finalize the deal. Like any high-interest credit card debt, the interest payments on X Corp’s $12.5 billion debt aren’t negligible. Bloomberg reports that X Corp has already made two interest payments, each totaling around $300 million, since the beginning of the year.
The key takeaway from Musk’s comments and the current financial climate is a simple one – credit card debt is a mounting problem that deserves attention. As we navigate these turbulent times, both entrepreneurs and investors need to keep a vigilant eye on debt levels, personal or otherwise. Awareness and prudence may be the best defense in a financially uncertain world.