A growing body of evidence suggests that today’s young adults are drowning in credit-card debt — and that many of them will take this debt to their graves.
More than three-quarters of renters between the ages of 18 and 24 spend more than they earn every month, according to a survey of 1,000 renters (of all ages) by Rent.com. This is the case even though 17 percent of respondents in that age bracket say they’re willing to live with roommates to save money.
More than 20 percent overspent their income by more than $100. That’s every single month. And since they haven’t built up their credit histories yet, it’s a safe bet that these young adults are paying relatively high interest rates on the resulting credit card debt.
Although more young people than older adults blame “socializing” as a barrier to saving money, most young people aren’t knocking back $20 drinks in trendy lounges. They’re struggling with much more prosaic financial demands. For 42 percent, rent is their top expense, while 18 percent say transportation costs eat up the biggest chunk of their earnings and 22 percent say paying for food eats up the greatest share of their monthly budget.
To a disturbingly large extent, the young and the broke are relying on credit cards to make it until their next payday.
A new study out of Ohio State University found that young adults are racking up credit card debt at a more rapid rate than other age groups, and that they’re slower at paying it off. ”If what we found continues to hold true, we may have more elderly people with substantial financial problems in the future,” warns Lucia Dunn, co-author and professor of economics at Ohio State University. “If our findings persist, we may be faced with a financial crisis among elderly people who can’t pay off their credit cards.
People born between 1980 and 1984, for instance, already have an average of $5,689 more in credit card debt than their parents did at that age.
Along with more debt, this age cohort is paying off those debts at a sharply lower rate than their parents. Dunn says a lot of these young people are never going to get out from under their credit card debt. “Many people are borrowing on credit cards so heavily that payoff rates at these levels are not sufficient to recover their credit card debt by the end of their life," she writes in the study. "We can expect more people to carry credit card debt at death, which could have loss implications for the credit card issuing banks.”
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