Hanlon's Razor

September 25, 2023

Here's an imaginary conversation:

Husband: “I have a confession.”

Wife: “What is it, honey?”

Husband: “I cheated yesterday.”


Husband: “What? No, on my approach shot on the 16th hole. My ball was buried in some thick grass, and I moved it a few inches to get a better lie.”

Context. The difference between the most impactful conversation of your life and one you lose interest in immediately. Context can make an innocuous statement seem paramount.

Anyway, here are a few headlines that made the rounds the other day:

These are the financial media’s equivalent of the husband’s confession above. Frightening headlines devoid of context (the entire articles are lacking as well). Whether withheld intentionally to drive clicks or inadvertently out of preternatural stupidity, we’re left to guess. Hanlon’s razor: never ascribe to malice that which can be explained by incompetence, I suppose.  

In a vacuum, the headline is accurate. US households’ collective credit card balances recently exceeded one trillion dollars for the first time. Note this chart goes back to the turn of the century as that’s as long as I have the data for:[i]

But debt is only one side of the balance sheet. What’s more important, a household’s total debt level or net worth? $100K debt isn’t great if your assets are $50K. A net worth of -$50,000. What if your assets are $1,000,000? A $900,000 net worth after subtracting $100K debt isn’t too shabby. Context. How does the net worth of American households look? (Data here going all the way back to the 1950s):[ii]

All time high of over $154 trillion… Maybe all-time high credit card balances of one trillion isn’t that bad?

But what about the ability of the American household to pay off those credit card balances? Net worth doesn’t take income into account, and Americans largely pay credit card balances off with income rather than liquidating assets (that is certainly the preferred method!). Here’s household debt service as a percentage of income going back to 1980:[iii]


So when we paint the all-time high credit card balances against the backdrop of record high net worth and near record low debt service as a percentage of income, what conclusions should we draw?

Probably not the ones those headlines infer.


Sean Cawley, CFP®


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[i] YCharts, Fundamental Chart, US Credit Card Debt, 09/22/2023.

[ii] YCharts, Fundamental Chart, US Total Net Worth – Balance Sheet of Households and Nonprofit Organizations, 09/22/2023.

[iii] YCharts, Fundamental Chart, US Household Debt Service as Percent of Disposable Income, 09/22/2023.