Many Young People Will Die in Debt, but Hopefully Not From Debt

I had a weird night’s sleep and then openned up my e-mail to find this headline from credit and collection news “Does The Consumer Bureau Harm Those It Claims to Protect? & Study Predicts Millions Will Die In Credit Card Red.” The immediate implication in my drowsy state was that the CFPB was somehow killing people. Wow. As it turns out, these were two headlines from two different stories, first one about how the CFPB was hurting Americans and the overall economy by constricting credit, according to a  Heritage Foundation paper by Diane Katz, available here. 

The second story was by Laura Rolland of the Huffington Post, and contained some grim news from a recent Ohio State Study published in the January issue of the Journal of Economic Recovery. It claims, consistent with informal data from my financial literacy class, that young people are up to their eyeballs in debt. According to Rowley, Millions of young Americans will die in debt to credit card companies. The study data show that people in their late 20s and early 30s (born 1980 to 1984) carry significantly higher credit card debt than older generations and pay it off more slowly, have about $5,700 more than people born 1950 to 1954, and $8,200 more than those born 1920 to 1924. The study even predicts that these young people will continue to charge well into their 70s.

The study examined Capitol One credit card data for more than 32,000 people from 1997 to 2009, including borrowers age 18 to 85, and examined both how people borrow and how they pay off their cards, allowing researchers to forecast payoff times. The paper posits that people born in the early 1980s have been guinea pigs in a massive social experiment, as the physics of spending have been radically changed by the internet, which requires nary a physical movement from the couch, and  exposure to and access to luxury goods has skyrocketed. Stagnant wages help complete the picture.

Does this matter? Rowley thinks so, and reports upon the health risks of debt, including ulcers, migraines, back pain, anxiety, depression and even heart attack. Perhaps my drowsy rendition of today’s news was not so far off? Life-long debt equals stress equals shortly and less enjoyable lives.

Comments

[ThomasW]

I'm not surprised that credit card debt is a growing problem given the easy availability of credit. I more or less predicted the financial crisis, but I thought it would be credit card debt -- when it's trivial to accumulate a credit limit of 2-3 times one's annual income, not to mention my mother in law ($375/month social security income) getting offers for gold cards, it's clear anybody who breaths (with this requirement optional) could get a "premium" credit card. We're moving back in that direction if the increased volume of offers I get in the mail are any indication.

As to the generational part, it may have more to do with banks (which used to have higher standards for credit) than more responsible borrowers. I had a long discussion with my father (born mid 1920s) who said he didn't run up huge credit card debts when he was young. I pointed out that a major reason was the credit cards weren't available and bank standards were higher. He finally admitted that if today's easy credit were available he might have ended up abusing it.

This was in the context of responsibility when people get too far into debt -- is it the consumer's fault for borrowing too much or the bank's fault for making it too easy to borrow?

[Marty]

"Life-long debt equals stress equals shortly and less enjoyable lives." I totally agree with this! Most especially if you are being harassed by debt collectors. It was a stressful experience for our family to pay off debts and unfortunately it led to the untimely demise of my dad due to heart attack.

[Raymond]

We seem to always return and place the cause of debt on credit card issuers 100%. Am wondering if some attention and certainly a concern should be directed to how student loans are granted and ignoring a standard that dates back well before credit card lending took off: ability to repay. Educational institutions, especially for profits, have no oversight and continue to sell students on borrowing without any consideration on the consequences if the loan is not repaid. While government backed security for student loans remains why isn't a criteria that an educational institution be restricted on loan amounts depending upon default rates. Maybe the cost of education should start with where is the money for student loans going and who really is profiting.Lastly to credit cards and to students: you do not have to respond to any solitation to sign up for a card. Say no. Just ask your parents or guardians who should have and continue to have teaching financial education and its potential dangers.

[Simon Campbell]

I do not think that the younger generation fully understands how debt affects their ability to plan for the future. Too much credit card debt, which is usually spent of short term items,can diminish the chance of qualifying for a long-term mortgage. Property ownership debt can be used to build wealth - but the younger generation doesn't seem to have the ability or even the desire to wait.

The good side is that in this real estate market, home prices are low allowing many first home buyers to enter the market. A recent study of the Dallas market is showing home prices in the center to be averaging $81,400 and 40% of mortgages payments are only absorbing 15% of income.

Reference: Dallas Infographic: http://www.bankforeclosuressale.com/wp/article-01074151.html

[LetsLearnFinance]

In my view the youngsters taking credit card without proper income are at fault rather than companies issuing these cards and after spending without thinking they will have to pay the price for it. Traditional method where you save first and then spend is forgotten and that is the reason why many people find themselves in deep debt.