Who Manages Money Better – You or Your Government?

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Often times, when I talk to individuals about the personal debt they carry (especially in the form of consumer debt), I get the feeling that they feel alone and/or isolated because of the money they owe. Because of this, they feel very unwilling to share the details of their debt or reach out to others to help them.

However, the truth of the matter is that there is no reason to feel isolated or alone because you carry debt. In fact, many individual people AS WELL AS entire governments of countries are facing problems with debt in today’s society. In this way, debt has truly become a problem/issue on the global scale.

The purpose of this post will be to take a look at the current levels of debt that individuals are currently carrying and then compare this level to the amount of debt that governments hold in an effort to see who in today’s society is doing a better job managing their finances – people or the government.

Current State of Individual Debt

Thanks to Creditcards.com and independent.co.uk, I was able to dig up the following statistics about personal debt in the world today:

United States

  • The average college graduate in the US has approximately $20,000 in debt.
  • The average credit card debt per household with credit card debt = $15,799. The overall average unpaid balance (includes people that pay off their entire balance each month) is $3,389.
    • Personally, my takeaway from this pair of statistics is that once people decide to go down the path of having credit card debt, the magnitude of the debt becomes very serious/huge!
  • The average household total debt – including credit cards, mortgage, home equity, student loans, etc – for all U.S. households is $54,000.

  • The average household total consumer debt (excludes mortgages) in Europe is $2,068 USD. The average for the UK is about twice this value.
  • I had trouble finding reliable statistics about the average total debt in Europe. However, there was one report from TheDailyBeast.com that mentioned that the average household debt in the UK was 183% of the average annual disposable income, and that this figure was very high for a European country. 
    • According to BBC News, the average disposable income in 2008 in the UK was about $23,000 USD. 
    • So, a rough estimate of the total household debt in the UK would be 1.83 x $23,000 USD =  $42,090.
    • We’ll consider this a high figure for Europe. And, as a conservative estimate for the average European household debt, we’ll use half the UK value, equaling $21,045 USD.

Current State of Government Debt

So, above, we obtained an approximate picture of the current state of personal debts both in the US and Europe. Now, let’s take a look at how the money owed by the governments of these nations stacks up against the personal figures to see who is actually doing a better job managing their finances – people or governments.

According to a recent report, the following statistics give an overview of the current levels of debt carried by the governments of Europe and the US:

  • By the end of 2011, the US government is projected to be carrying a per-capita debt of $32,000 USD
    • In the year 2000, the per-capita debt carried by the US government was almost 3X lower at $12,000 USD. Wild stuff! It’s been a costly 11 years!
  • By the end of 2011, the European governments, on average, are projected to be carrying a per-capita debt of $29,000 USD.
    • In the year 2000, this average per-capita debt carried by European governments was almost 2X lower at $17,500 USD

Conclusions – Do You or Your Government Manage Money Better?

While I admit that there are many facets to analyze in determine the quality of “managing money,” examining the statistics listed above can give us a good indication of whether governments or individuals are performing better at staying out of (or at least minimizing) debt.

In the US, the average personal debt is almost 68% higher than the per-capita debt carried by the government. This data indicates that the US government, for all of the mistakes that it most likely has made, is doing a better job than its citizens at reducing debt.

In Europe, the opposite seems to be true in that the government seems to be worse-off at getting in to debt than the individual citizens. Using our rough average obtained for personal debt throughout all of Europe of $21,045 USD, we ascertain that this is almost 33% less than the per-capita debt carried by the government.

Thinking about these conclusions, they tend to make a lot of sense (at least to me personally).

First, I know for a fact that obtaining credit is MUCH easier in the US compared to pretty much anywhere in the world. For example, one of my Peruvian blogging friends was telling me that it is a HUGE process simply to get a small balance on a credit card in his country. I’ve heard similar stories from my Chinese graduate school friends, and I have experienced this tight-credit phenomena when I was living in Spain. Because of this, it makes sense that relative personal debt levels would be higher in the US than other locations.

Additionally, I know that the governments in Europe are “bigger” than in the US in that they offer more public programs. A good example of this is public health care. Thus, it at least partially makes sense that the government debt figures are relatively higher than personal debt in order to keep these government programs going.

An Outstanding Set of Questions To Ponder….

As is generally the case with global economic issues such as this, an investigation often generates an entirely new set of questions. Thus, an interesting set of outstanding questions to all of this is the following…..

It’s no doubt that individuals in the US are in large amounts of debt.

  • However, are individuals in the US actually worse about getting in to debt and not paying it off because of a lifestyle/culture issue? 
  • Or, do people in the US simply have greater access to credit and therefore, are more likely to get in to trouble with debt than people in other countries? 
  • If people in other countries had the same access as Americans did, would they fall in to the same problems?
  • And, if the amount of debt people are in boils down to an credit access issue, how do governments know if or where to draw the line between a good amount of credit for a healthy economy vs. extending too much debt? Or, should this be something that is set by free market forces?

Clearly, I don’t have the answer to all of this, but it’s something interesting to think about!

How about you all? What’s your take on the questions posed above? 

Share your experiences by commenting below!

    ***Photo courtesy of http://farm1.static.flickr.com/44/142421323_28d03a8c5a.jpg


    1. Hey Jacob

      Good question…one that makes me think for sure. I would say, hands down, that Americans can manage their debt better than the government. But we still have a mentality that encourages too much spending and not enough saving. Unfortunately, that's why we have such high debt numbers.
      My recent post IRA vs. 401K What’s The Difference and Which is Better?

    2. To get a better grasp on what these numbers might mean, relative incomes should be taken into account. If Americans have higher incomes than Europeans (and, on average, I suspect they do), then having higher levels of debt is expected and not necessarily unsustainable. Also, if property values are much higher in the US (again, I don't know, but they may well be), mortgage debt will be higher.

    3. A key difference between individuals and the government is that the government gets to create more money, and set interest rates at which it will pay back its own debt.

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