At this time of the year, it's natural for thoughts to turn to options for college savings, loans, and the many other things that go into this process of paying for one’s higher education. One aspect to consider is that college loans often place a burden of debt on the graduate, which will be carried long into the future.
According to the Federal Reserve Bank of New York, student loan debt has increased. In 2003, the average was $20,000, and in the Class of 2018, 69% of college students took out student loans, and they graduated with an average debt of $29,800, including both private and federal debt. [1.2] Over the same period of time, however, young adults have decreased their holding of debt in almost every other category — credit cards, car loans, mortgage, and home equity loans.
While it could be argued that the decrease in car loans may be attributed to a sharing economy (Uber), and decrease in home loans may be attributed to the fact that Millennials are generally waiting longer before purchasing a home, lower credit card debt is a good thing no matter how you look at it.
The same study by the Fed also indicates that older Americans (over the age of 45) hold significantly more debt per capita than their younger counterparts, spanning every category except credit cards.
This trend is being referred to as "the graying of American debt" due to an aging population. Some might speculate that this is partly because of the 2008 Recession and that younger borrowers weren’t able to get access to the same debt that older people were already saddled with, having had a longer credit history.
But Millennials have been forced into adjusting with the economic climate and how they deal with their money. Think about how different many economic staples are today as opposed to even a decade ago. In years gone by, it was just an “everybody knows” thing that you had to own a car. Not so in today’s world — you can ride in an Uber or even more recently you can just cruise around on an electric scooter that you find on a nearby street corner. Mobility is no longer tied to the need to own a vehicle. And that’s just one example in an ever-changing market.
In 2013, the market research firm Phoenix Marketing released results from a study showing strong year-over-year growth of prepaid credit cards among young adults. This shows that the traditional view of borrowing money from a bank is changing with the generations.
It is not beyond the imagination to predict that the financial choices of today’s young adults will persist over time. As they become a higher percentage of the U.S. consumer base, Millennials will influence how financial service providers and traditional debt service providers will adjust their products and services to meet the needs of this market.
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