The Dynamics of Debt in Young Adulthood
In any newspaper or blog these days, you’re bound to find human interest stories of fresh-faced young adults, newly independent from their parents, and saddled by a mountain of debt they can’t even dream of repaying. The media narrative–think the white college student plagued by $120,000 of student loan and credit card debt—often borders on hyperbole. It skews the reality of how much debt the typical young adult owes.
And while youth indebtedness has received rampant media coverage, there’s been very little solid research tackling this emerging social problem. Evidence from a small group of researchers examining how youth debt has changed over time, how youth indebtedness is linked to social stratification and inequality, and the consequences of debt for young people as they advance through their adult lives can give us a glimpse. The research in this area is nascent, and some of it is contradictory, in large part because access to credit and debt carries an array of costs and benefits, and is influenced by social and structural factors, such as race, class, and education. Debt can surely open doors and create access, but it can also close doors by imposing a long-term burden for debtors and their families.
Three Genderations of Debt
Over the past fifty years, the period known as the “transition to adulthood” has changed dramatically. In the 1960s and ‘70s, young people left the parental home, completed education, got married, and had children, in a relatively quick and orderly fashion. Today’s transition to adulthood is much more complex. Young people are extending their education, delaying marriage and childbearing, and some return to live with relatives. They enter and exit college, cohabitate rather than marry, and take longer periods for “self-discovery” if they are able. While youth must now navigate this increasingly complex transition, they also take on unprecedented financial risk. Whether in the pursuit of a college degree, getting married, buying a home, or simply paying bills and making ends meet, young adults often assume great deal of debt as they leave the nest and set out on their own.
The rise of debt in young adulthood has been driven by a potent mix of policy changes, rising costs, and stagnating incomes. On the supply side, young adults have come of age in an era of easy access to credit. Financial deregulation in the 1970s and ‘80s increased the supply of credit and made debt an extremely profitable business for banks. It was aggressively marketed toward consumers—particularly young adults—which led to a massive increase in household debt and problems with repayment. On the demand side, rising costs—such as the skyrocketing price of college—make credit an appealing option. Since their parents already have debt, young people must take on debt of their own.
In a recent study for Social Problems, I used data from the National Longitudinal Surveys to show how debt has changed across three generations (what we demographers refer to as “cohorts”) of young adults. I focused on people in their mid-twenties—The Early Baby Boomers, who were young adults in the late 1970s; The Late Baby Boomers, who were young adults in the late 1980s; and Generation Y, who are currently in their twenties.
The [graphs] confirm what most laypersons and media reports have suggested—debt has risen. I show mean and median total debt across three cohorts of young adults, adjusted for inflation and basic sociodemographic factors such as socioeconomic status, race, and age. Total debt is the sum of everything from home mortgages, credit cards, and student loans to automobiles and personal loans. Comparing mean and median debt across cohorts, we notice the mean has increased much faster than the median. While the median gives us a good sense of debt in the middle of the distribution, the mean is far more sensitive to extremely high and extremely low debt loads. What this reveals is that much of the growth in debt across cohorts is being driven by an increase in the number of severely indebted young adults. In some ways, it seems the media imagery of the young person beleaguered by extremely high levels of debt is more commonplace today than it was thirty years ago.