The Debt Load for Young Adults

The youth of today, or rather the Millennial generation, are sitting on a massive mountain of debt. Not surprisingly, the financial world has taken notice. Here is a group of consumers and workers who are the future of our society, but more pointedly, the future of our economy.

The New York Federal Reserve undertook a study recently which reveals that these astoundingly high debt numbers come from multiple factors. Not only that, but it also reveals that those born between 1981 and 1996 have relatively conservative financial habits compared with their older counterparts.

Millennials’ debt totals about $1 trillion, an increase of 22% from five years ago. But before your jaw hits the ground, think about this: The Federal Reserve’s study shows that Millennials, on the whole, are quite more conservative when it comes to money than the debt numbers indicate, even more so than older generations. Now consider their investment strategies, and the financial situation of millennials is not so much a doomsday prophecy as it is a silver lining.

Here is some data to back that up. Outstanding student loan debt stood at $1.46 trillion in the fourth quarter, up to5 billion, and 11.4% of aggregate student debt was 90+ days delinquent or in default in the last quarter of 2018, an improvement from the jump seen in the third quarter of 2018. And here’s the really interesting news: The number of credit inquiries within the past six months – an indicator of consumer credit demand – declined to the lowest level seen in the history of the data, and account closings were at their highest level since 2010.

Which makes you wonder, if credit cards are not the major source of debt, then where do those number come from?

When looking over the numbers and particularly how they compare with other generations, there are some key points to note. Millennial mortgage debt is 15% lower than Gen Xers, whereas credit card debt is only two-thirds that of Gen Xers. And here’s the golden nugget – Millennials are saving more. On average retirement savings for Millennials are $15,500 compared to Gen Xers average of $13,600.

Part of the overall landscape is the homeownership issue. Where you see a lower mortgage debt, you can assume that there is less homeownership. You might be correct in that assumption. According to Freddie Mac Chief Economist Sam Khater, “Historically low mortgage rates and increasingly favorable employment conditions should have generated a far greater number of home purchases by young adults, especially in the last five years. Unfortunately, home price and rent growth above incomes have been too high a hurdle for many would-be buyers to clear.”

This suggests that high housing costs are the major cause of lower homeownership rates among young adults. This lower rate of homeownership among young adults (25-34) is an established phenomenon – anyone associated with the housing industry has observed as much.

 

 

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