Money Talks, So Should You

Lessons in being thrifty seem to be sinking in

Jeff Brown
by Jeff Brown, MainStreet contributor

NEW YORK (MainStreet) — Young adults appear to have got the message: Debt is best kept to a minimum.

Or have they?

It’s hard to know how people under 35 would behave if their economic condition were better. But there are some signs they’ve taken to heart the difference between good debt and bad debt.

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“After running up record debt-to-income ratios during the bubble economy of the 2000s, young adults shed substantially more debt than older adults did during the Great Recession and its immediate aftermath — mainly by virtue of owning fewer houses and cars,” says a study of government data by the Pew Research Center.

“From 2007 to 2010, the median debt of households headed by an adult younger than 35 fell by 29 percent, compared with a decline of just 8 percent among households headed by adults ages 35 and older. Also, the share of younger households holding debt of any kind fell to 78 percent, the lowest level since the government began collecting such data in 1983.”

People younger than 35 carried a median of $15,473 in debt in 2010, compared with $21,912 in 2007. For people 35 and older, the debt load fell less sharply during that period, to $30,070 from $32,543.

A cynic might say, well, that’s just because lenders have been tougher on people who don’t have strong credit histories, which take years to build. Also, the young have been particularly hard hit by unemployment and worries about job security, so they’re less likely than in previous years to be buying homes and cars. Both factors probably account for some of the debt decline.

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Also, even those who do want to buy homes and can qualify for a mortgage may have been scared off by the weak housing market. No one wants to buy a home that might be worth less a year later, so some young people are remaining renters longer. Among those under 35, the share that owned their primary residence fell from 40 percent in 2007 to 34 percent in 2011.

It’s not clear, then, that carrying less debt is a choice, or that this group will cling to the benefits of low debt if they come to feel more economically secure.

Pew, however, does note that a key factor is the “societal shift toward delayed marriage and household formation that has been under way for decades.” That would suggest the thriftier lifestyle might have some staying power.

Debt for cars has also fallen. For those under 25, the median was $13,000 in 2007 and $10,000 in 2010, and the share of under-25s who owned or leased at least one vehicle fell from 73 percent in 2007 to 66 percent in 2011.

In 2007, about 48 percent of young people carried credit card balances, in 2010 the figure was 39%. Median card debt fell from $2,500 in 2001 to $2,100 in 2007 and $1,700 in 2010.

At the same time, the portion of young people bearing student loan debt grew, from 34 percent in 2007 to 40 percent in 2010, though the amount of debt dropped slightly, from $14,102 in 2007 to $13,410 in 2010.

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Most experts would describe student debt as good debt — an investment that leads to better-paying jobs and lower unemployment. Mortgage debt can be good if the homeowner doesn’t go overboard and take on more than he or she can pay in rough times. Because homes are generally poorer investments than alternatives such as stocks, debt for a modest home is good while debt for a large home that makes other types of investment impossible is bad.

Similarly, debt for a modest car is good if you otherwise wouldn’t be able to get to work. Debt for a luxury car is bad unless you really do need a fine vehicle to impress customers or clients. Generally, paying cash for a good, inexpensive used car is preferable to carrying debt for a new car.

Credit card debt is generally bad unless the alternative is catastrophe — such as losing your job because your car is broken down. Generally, credit card use should be for convenience, with the balance paid in full each month to avoid interest charges and penalties.

Do more young people know these things than used to? Some of them certainly must. Conservative borrowing practices, even if forced by circumstances, can be habit-forming. As the economy continues to improve, we’ll see how well the lessons stick.


For the past 20 of his nearly 40 years in journalism, Jeff Brown has written about personal finance, economics and the financial markets. He has been a staff writer at The Philadelphia Inquirer and other papers, and in his six-year freelance career has been a columnist for and the Nightly Business Report on PBS and blogged for The New York Times, and other Internet sites.