Colorado has one of the most physically fit populations of any state in the U.S., but the same can’t be said regarding fiscal fitness.
Colorado households are weighed down with the heaviest debt burdens of any state, even when looking at more expensive places to live like California and Hawaii, according to a study from Forbes Advisor.
Nowhere do consumers carry a higher share of debt relative to their incomes than in Colorado, which could prove problematic if years of heavy borrowing across every sector of the economy triggers the next big downturn as Fed watcher Jim Grant is predicting.
The Federal Reserve Bank of New York’s Household Debt and Credit Report measures mortgages, car loans, student loans, credit cards and other personal debts. It is essentially an exercise in stepping on the debt scale.
Forbes Advisor, a personal finance website, took the debt totals for each state for 2023 and divided those by population estimates from last year to come up with a per capita household debt number.
Colorado ranked first among states with household debt at $89,170. California households were next with debt of $84,730 and Hawaiian households ranked third at $82,650.
The average household debt across every state was $57,411, so Colorado households are carrying nearly $32,000 in additional leverage around their financial waistlines, which is, relatively speaking, not a good look.
A counter to that is that Coloradans earn higher wages on average than residents of most other states, so households can carry more debt. But even there, the statistics show a heavier burden is being carried in the state.
“Average wages are higher in Colorado. According to our recent study on the cost of living by state, Colorado has the eighth-highest salary by state,” said Michael Benninger, lead banking editor at Forbes Advisor, in an email.
Even after accounting for the extra money Colorado workers pull down, household debt as a share of household income is at 99.85%, the heaviest burden of any state. In California, the debt-to-income burden is 92.6% and in Nevada it is 91.3%.
The average household debt to income burden of all states is at 77%, so debt represents a heavier burden in Colorado than in other states. Given that some households are debt-free or close to it, those households carrying debt are leveraged at much higher levels than the 1-to-1 ratio that the study captured.
Benninger lists where Colorado residents are paying more out of pocket to explain why they might be having to take on more debt.
Colorado ranks ninth highest among states for the rent, transportation costs and average annual income taxes paid. It ranks seventh highest for median monthly housing costs, fifth highest for median home prices and mortgage payments and 13th highest for food expenses.
Granted, it would be helpful if the cost of living were lower, but Colorado isn’t the most expensive state in any of those categories. So why do households here still rank first for the amount of debt they carry?
A good place to start is with mortgages, which constitute the largest part of consumer debt. Colorado has the fourth-highest median home price in the U.S. at $612,000 after California, Hawaii, and the District of Columbia, according to national brokerage firm Redfin.
California’s median home price in September was $787,000 and Hawaii’s was $750,000, so shouldn’t residents of those states be more debt-burdened? Normally yes, but buying a home is so expensive in those states that a larger share of households rent and don’t hold a mortgage.
In Colorado, the homeownership rate is 67.4%, meaning more than two-thirds of households own the place where they live. In Hawaii, that ownership rate is 59.2% and in California, it is only 55.3%, according to counts from the U.S. Census Bureau.
Despite a surge in home prices during the pandemic, the rate of homeownership in the state kept rising, from 64.9% in 2020 to 67.4% this year.
One reason could be that Colorado has an above-average share of millennials in its population. The generation in their late 20s and 30s are increasingly moving into the prime homebuying years and taking on hefty mortgages to do so.
About four in 10 households that own the place where they live are free of a mortgage nationally, usually because they have paid off their loans over time. In Colorado, closer to three in 10 households are free of a mortgage, one of the lowest rates of any state.
So there is likely a higher share of households that have bought a home more recently, and they have had to buy at some of the highest prices in the country and take on bigger mortgages to do so. And a smaller share of households have managed to pay off their mortgages in Colorado than elsewhere.
Brian Lewandowski, executive director at the University of Colorado Boulder’s Leeds School of Business, suggests that student loans, now the second biggest debt category after mortgages, could also be at play in the state’s heavier debt burdens.
Colorado’s population skews younger and is the second most educated after Massachusetts with 52.7% of adults having an associate’s degree or higher, according to a ranking by U.S. News and World Report.
SoFi Learn, an educational arm of SoFi Bank, which makes student loans, estimates that Colorado residents are carrying $28.5 billion in student loan debt, which works out to an average burden of $36,822 per borrower.
“Colorado has a high educational attainment — could we also have a greater higher-ed debt burden?” Lewandowski asked.
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