Household Debt Falls Among Younger Americans

Household Debt Falls Among Younger Americans

A new study out shows household debt falls among younger Americans. The evidence points to the recession as the culprit. It seems young Americans witnessed the credit crisis up close and personal and are now taking on less credit card debt.

Of course almost any reason seems to be good enough to see that household debt falls among younger Americans. Unfortunately it took a recession to wake up these young people. Nobody likes a recession but facts are facts.

The study included the years 2007 to 2010. During that period of time the median debt of U.S. households headed by people aged 35 and younger fell by 29 percent. That is a very large percentage so it easy to understand that household debt falls among younger Americans would be a natural outcome.

The actual numbers are$21,912 to $15,473. In comparison, the debt of older Americans fell by only 8 percent. The study was conducted by the Pew Research Center.

When you look at the overall American debt picture, you find residential property comprising a minimum of three-quarters of the total debt. The younger Americans bracket, those 35 and under, showed a drop in residential ownership. Pew says primary residence ownership dropped to only 34 percent.

Those over age 35 also saw a decrease according to Pew. Their percentage of ownership fell by 2 percentage points to 72 percent. This group still comprises a hefty part of the residential market place.

One could say that household debt falls among younger Americans because of the decrease in residential ownership as well as the decrease in credit card debt. Arguments can be made that the drop in ownership may also be contributing to a slow housing market.

However, Pew states younger people are investing in education and waiting longer to enter the workforce. Their mindset is also to delay starting families. A drop in families also adds to the household debt falls among younger Americans study.

The researchers learned young adults are purposely cutting back on credit card usage. In the time period studied, 2007 to 2010, credit card debt fell by 10 percentage points to 39 percent.

The auto manufacturers did not like the trend in car ownership these young people embarked upon. They simply quit buying cars and travel via public transportation, bicycles, walking or taxis. This backlash also affected lenders as the average car loan fell from $13,000 to $10,000. The less money lent the less interest and fees earned by the lenders.

The recession mentioned above also skewered the employment numbers for young people. More entered the unemployment side of the ledger than entered the employed side of the ledger.

And, for some on the employed side, they technically were underemployed. This means they are earning less than their full potential. Less money to spend means cut backs across the personal spending spectrum.

Nobody obviously knows what other cuts the young people will be making but one thing is for sure. They have made cuts and household debt falls among younger Americans is a reality. How long it will last is anyone’s guess but if the recession and unemployment and underemployment become de jour, the economy will probably be seeing more young Americans trimming even more debt.

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