Young Americans Taking On Less Debt After Recession: Study
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
Americans under the age of 35 are taking on less debt obligations than before the financial crisis, showed a study by the Pew Research Center on Friday, highlighting the efforts taken by young adults to curb spending amid one of the longest recessions in U.S. history.
Americans under the age of 35 are taking on less debt obligations than before the financial crisis, showed a study by the Pew Research Center on Friday, highlighting the efforts taken by young adults to curb spending amid one of the longest recessions in U.S. history.
The report found that the median debt of households headed by an adult younger than 35 fell by 29 percent between 2007 and 2010, as Americans owned fewer cars, delayed plans to buy homes and cut back on their credit card usage.
The percentage of younger households with debt of any kind also dipped to 78 percent, the lowest since the federal government began gathering the data in 1983, according to the study.
Comparatively, older households, above the age of 35, saw their median debt decline by just 8 percent during the same period. The bulk of that decline had come from a 14 percent drop in mortgage debt outstanding, much of which was wiped out in foreclosure.
Richard Fry, the lead author of the study, said that the delay in young households purchasing homes on their own was one the main factors behind the decline of overall debt among Americans under 35. The share of young households owning their main residence fell to 34 percent in 2011, compared to 40 percent in 2007.
Restraint on credit card spending was another important factor. Only 39 percent of millennials had credit-card debt in 2010, down from 48 percent in 2007.
However, one type of debt saw a significant increase during the period.
Many more younger households were carrying student loan debt after the recession than before: 40 percent had such debt in 2010, up from 34 percent in 2007 and 26 percent in 2001.
Related: When Will The $1 Trillion Student Debt Bubble Burst?
Related: The Student Loan Debt Time Bomb
Related: Infographic: How A Student’s Debt Affects the Family Unit
“One hypothesis is that the growing student loan burdens are squeezing out other purchases,” said Fry to Bloomberg. “But it’s also possible that young people are pursuing more education and postponing job entry, family formation and household purchases.”
[quote]“We know they’re going to school more, so that puts them into the job market later, and they’re postponing marriage and having kids later. So if you’re marrying and having kids later, the urgency to buy a home and get a mortgage is also delayed as well,” he added.[/quote]Either way however, the debt-to-income ratio for young household still managed to decline during the period. From 1983 to 2007, debt-to-income ratio climbed to 1.63, before falling to 1.46 after.
Related: Infographic: What Do Americans Spend Their Money On?
Related: Infographic: America’s Baby Boomers – A Generation of Consumers
Related: Infographic: Decline of the American Middle Class
The study also found significant differences between debt patterns of specific households. Better-educated young-adult households for instance were more likely to hold debt, due to a higher likelihood of buying property and student loans.
Additionally, while some young households had absolutely no debt, others held massive amounts. A quarter of young-adult households owed at least $106,000 in debt, while the most indebted 10 percent owed over $200,000.
Read The Full Report by Pew Research Center here.
