Personal Wealth Management / Expert Commentary

Fisher Investments Reviews How the Resumption of Student Loan Repayments May Impact Consumer Spending

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer, Ken Fisher, shares his view on the resumption of student loan repayments its potential impact on consumer spending and the economy. Ken believes fears over the resumption of repayments are overblown, particularly when you take into consideration several key factors.

According to Ken, student loans make up a very small portion of the total consumer debt, lacking the size to seriously derail consumer spending. He also notes how students had a lot of time to plan for repayments to begin and had already begun. Ken also debunks the myth that consumer spending drives the economy in any direction, and instead, explains how capital investment and spending play a bigger role in cyclicality.

Transcript

Ken Fisher:

So the media spends a lot of time talking about consumer spending. Loved to talk about things in politics also, for obvious reasons. And recently there has been a lot of talk about does the restart of student loan repayments after the holiday on that have the potential to disrupt things?

Now I'm just going to tell you first. Media spends a lot of time focusing on consumers because pretty much all readers and viewers of media are consumers. So they're making the audience feel good by talking to them, about them and people like that. Secondly, I know that most media folks don't act like this, but a lot of them actually went to school. Not very many of them learned much, but they went there, apparently. And they think student loans, which a lot of them, particularly nowadays when most of them are so young, they got, they think that's really important.

Statistically, this isn't going anywhere fast. Statistically, this is a false fear. Consumers have already started paying back their loans abundantly. They had a lot of time to prepare for this. It's a tiny percentage of total consumer debt. Students are not a big percentage of total consumer spending. Most importantly, I'm just going to tell you that the concept that consumer spending drives the economy— in terms of cyclicality—has always been wrong. That's just statistically easy to prove.

The fact is consumer spending as a percent of GDP, I don't care what you do, stays within a small single digit bandwidth. In the worst of times it does go down, but it doesn't lead to way down. It's reactive and it doesn't go down that much. It's the things that relate to capital investment and spending that swing the economy in times that become important. So this fear, which is an easy one for media to push, is and has always been a false fear. They will continue to push it because it plays to an audience that likes to hear about it in a way. It plays to the media themselves, having all been students. And it feels right, even though it isn't.

Now, let me just go off on a different tangent for a second. The word student derives from the Latin word Studeō Studere, which I don't think that many people study Latin anymore, but it is the basis for most of Western European and North American language. And the reality of that word, Studeō Studere, meant "to be eager." A student was supposed to be eager. If you think of eager, which some students are and some students aren't, obviously. Eagerness is actually a function which is positive, bullish, opportunistic, if you will. And students— mot always, but most of them—start off young. Eventually get old. Go through that process slowly over time and all of the processes that relate to normal life, they come to learn. Most of them being learned after they finished with school. And this is one of them— paying back your debts. They're doing it pretty well. They're doing it better than people said they would.

The process is working when the fear was already in the world, fanned by media. That is a form that you see over and over again, in topic, after topic, after topic. Something comes up. It feels like it might be scary. It's blared out to you in a big way. If you peel apart the numbers and look at them, this is another one that's just like this, is credit card debt. Credit card debt recently topped over $1 trillion. And people went Oh, $1 Trillion of credit card debt. That's got to be just terrible. Think of all the problems that can occur. That's the wrong way to think about that completely.

The issue is what's credit card debt as a percentage of GDP? What's credit card debt as a percent of personal spending? How big is it relative to what people would do otherwise in the macro economy? And the answer is that today it's up a little bit over what it was a few months ago, but it's actually lower than it was ten years ago, 20 years ago and 30 years ago. And markedly so and people don't know that. People don't understand that. So I encourage you to! In fact, I think next week maybe I'll put out a tweet that shows credit card debt as a percent of personal spending in America over the last few decades, and you'll see that this is making a negative mountain out of something that's actually been an improving circumstance for decades. So I want you to just think about it, because the student loan issue is the same thing.

Thank you for listening to me. I hope you found this explanation useful. Hi, this is Ken Fisher. Subscribe to the Fisher Investments YouTube channel if you like what you've seen. Click the bell to be notified as soon as we publish new videos.

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