Young adults are cutting debt faster than older people and are less in hock to creditors than a decade ago–despite the ballooning of student loans, a new study shows.
Between 2001 and 2010, young households—defined as those headed by someone younger than 35—have generally reduced their indebtedness while older households have increased it, according to a report by the Pew Research Center released Thursday. Some 56% of young households saw either a decline or stabilization in their overall debt load in the period, with only one type of debt—student loans—rising as a share of total debt. By contrast, older households tended to have more non-property-related debt than before, not less.
The findings reflect in part the fact that young people are delaying marriage and striking out on their own later—or living with housemates—which reduces home-buying and mortgage debt, by far the biggest source of consumer debt. The share of young households owning their main residence fell to 34% in 2011 from 40% in 2007.
However, the lower debt loads among young adults aren’t just about slowing household formation: Young people have also become less willing to take on auto- and credit-card debt. Only 39% of young households had any credit-card debt in 2010, compared with 50% in 2001. Only 66% of young households had a vehicle in 2011, while 73% did in 2007.
“Younger households have shed debt over the decade and older households have become more indebted, and it goes beyond simply what has occurred in the housing market,” writes Richard Fry, the economist who authored the report, which analyzes government data.
Indeed, a growing number of young households don’t have any debt at all. The share of young households without debt hit 22% in 2010, the highest level since the government began tracking such data in 1983. Between 2007 and 2010—meaning, the recession and its aftermath—the median debt of young households dropped nearly 30% compared with just 8% for older households. The typical young-adult household owed around $15,000 in 2010, half the $30,000 owed by older households. That’s a striking reversal from 1983, when young households owed more than older counterparts.
Falling debt doesn’t mean young adults aren’t financially stretched. The debt-to-income ratio for young households—a measure of their financial strength—more than doubled from 1983 to 2007 to 1.63, before falling back in recent years to 1.46. Older households have continued to push this ratio higher, but their ratio remains below that for younger people.
Not all young households are the same. Better-educated young-adult households are more likely to hold debt, not simply because of student loans, but also due to a higher likelihood of buying property. While some young households have no debt, a few have massive amounts. A quarter of young-adult households owed at least $106,000 in 2010, while the most indebted 10% owed over $200,000.
All told, roughly a quarter of young-adult households held nearly 80% of the entire group’s debt in 2010.