Millennials Are Paying Off Debt — but That’s Not Necessarily Good News

A new study suggests that millennials are getting serious about paring down their debt. But a closer look at the numbers shows some troubling signs

  • Share
  • Read Later
Joseph Puhy / Gallery Stock

A new study suggests that millennials are getting serious about paring down their debt. But a closer look at the numbers shows some troubling signs.

Last week, Pew Research released a new study showing adults younger than 35 reducing their debt levels faster than older generations. Millennials cut their overall levels of debt by 29% from 2007 to 2010 (from $21,912 to $15,473) while Americans 35 and older only cut theirs by 8% ($32,543 to $30,070). In fact, according to Pew, the share of younger households with debt of any kind fell to 78%, the lowest level since the federal government started collecting that data in 1983.

(MORE: Will High Marijuana Taxes Encourage Black Markets?)

All that sounds great — until you realize that the biggest contributor to this dynamic is that millennials aren’t taking out mortgages, which generally make up the biggest piece of household debt. From 2007 to 2011, the percentage of young households who own their own homes fell from 40% to 34%. “Young adults don’t have the mortgage, but they also don’t have the house,” says Pew senior research associate Richard Fry, who authored the report. “Young adults probably have less debt, but they also have less assets. This is troubling.”

A number of factors seem to be driving lower levels of home ownership. One is that millennials’ incomes are down and they can’t afford to take on a mortgage. Another may be that they want to buy a home but banks have tightened lending standards and made it difficult for them to do so. Student-loan burdens also appear to be playing a crowding-out role: In 2007, 34% of young households had outstanding student debt in 2007; by 2010, the rate had risen to 40%. (Note that those numbers are the exact inverse of the mortgage figures.)

Another reason debt levels have fallen for millennials is a decrease in car ownership. It’s unclear if this is more of a cultural or economic shift, but millennials appear less inclined than previous generations to own a car, drive or even get a driver’s license, opting at times to take public transportation or intercity buses. So it’s not surprising that vehicle debt has fallen. Only about a third of those under 35 owed money on a car, compared with 44% in 2007.

In the end, it’s difficult to distinguish the causes and effects of these changes, but they do seem to be tied to a gradual delay of adulthood: more than any previous generation, millennials go to school longer, get a job later in life and delay “adult” milestones like marriage, starting a family and buying a home.

(MORE: Bitter Pill: Why Medical Bills Are Killing Us)

The one piece of unambiguously good news in the report is that credit-card debt among millennials has fallen considerably. According to Pew, 39% of households under 35 carried a balance compared with 48% in 2007 and 50% in 2001. That not only shows a downward trend since the Great Recession but also a longer-term move to pay down credit cards that stretches back more than a decade. Fry says millennials are less inclined to carry a balance each month, and when they do, those balances are much smaller than in previous years.

20 comments
jamesdagreatest
jamesdagreatest

2 vehicles completely paid off

age range of me and my spouse 27-30

we own our own home we have 23 years and 3 months left on our mortgage

credit cards debt paid off each month

student loan paid off last year.

Income poverty level, it's called budgeting

we also have 3 kids

Good luck to all of you that require a $3 coffee in the morning, a manicure, pedicure, spa days, and brand new expensive clothing. Value the dollar waste your life. Value your family a life well spent

lemieuxm
lemieuxm

Seems to me that many baby boomers have been delaying adulthood for their entire lives.  Hopefully my generation does better.

ShannonThomsen
ShannonThomsen

In this economy buying a house is the last thing you want to do. Especially if you have student loan debt. Owning a car is also not so smart and a car loan can be even more difficult to get than a mortgage. My husband and I are 35 and just on the edge of this age group but we're trying not to carry a credit card balance, we don't own a vehicle, and we only eat meat twice a week...I want the debt we do have gone because otherwise we'll never be able to retire and our kids will have to repeat the student loan fiasco we were forced to go through.

bk78
bk78

borrowing money you can't afford to pay back a house you don't need?  that sure does sound like the adulthood that tanked the economy!  shame on us millennials!

TiaraCourtney
TiaraCourtney

Maybe I'm not "old" enough to comprehend (Me being 26 and all); but, when did making strategic economical/environmental/social decisions equate to a "gradual delay in adulthood"?  I'm extremely offended.  I am working my butt off to finish a MS program, working full time as a restaurant manager, attempting to get out of student loan and credit card debt, while helping my mother pick up the financial/emotional pieces my father left when he walked out of her life 3 years ago; yet I'm delaying "adulthood" because I haven't gotten married, bought house  and had kids I couldn't afford with the first joe shmoe that showed a slight interest in me?   So he can leave me 25 years from now with a refinanced house, 3 kids in college, and 2 brand new car payments?   

Out-dated idealistic journalism like this is the reason why "Millennials"are rejecting newspapers and magazines, in turn opting for subscribing to blogs. More and more of us have grown tired of ingesting media that encourages this endless need of "stuff" and finding new values for fulfilling oneself.

robwilsontv
robwilsontv

This article doesn't make any sense.  Do you want young people to get locked into buying a home and then not be able to move easily to a new city/state should the job market dictate such a move.

This article has no basis in financial reality.  Owning a home is great, but it is no longer the American dream, especially for young people.

antonmarq
antonmarq

Define assets? House, owned by the bank. Car, owned by the bank. TV set, a piece of junk. Savings account, 2% interest made by saver, near 100% made by bank. Stocks, manipulated investments. 401k, can't used until near death or willing to give it to the bank. Etc. etc. etc. The people never had, will ever have, and probably will never have any assets unless they wake up and STOP buying the junk corporations are selling them.

financeboomer
financeboomer

I think it's great that young adults are reducing debt.  This will put them in a stronger position in the future.

Helen

Boomers, Markets & Money

JamesWhite
JamesWhite

I am 28, single, have no debt whatsoever, rent an apartment in Chicago, don't own a car, and here are my thoughts on this article:

1. If you don't own it, then it is not an asset. People discovered that during the mortgage crisis a few years ago.

2. America is urbanizing and many more young adults live in cities; hence, buying a car is not only unneeded but can be a burden (parking tickets anyone?)

3. Just because you don't get a bank owned home and car and are not married does not mean you are "delaying" adulthood. This is probably the dumbest point in this article. Instead, my generation is redefining adulthood in America during a time when job prospects are ever changing and the return on investment of a college degree is declining it is simply not smart to overextend yourself financially. This is not the "good old days" when you went to college, got a stable job for 30 years, and then retired with a fat pension. On top of that, with divorce rates at 50 percent (and a lot of people in my generation went through agonizing divorces of their parents) it is wise to delay marriage until you are ready which means waiting until your late 20s and 30s. 

4. A lot of young people, such as myself, are entrepreneurs and would rather live lean and invest any extra resources into their venture with the goal of building wealth and then acquiring true assets (i.e. debt free) when you can economically support it. Furthermore, many young adults feel as though we have to take our own economic security into our own hands since companies are no longer loyal to their employees and retirement (whether it is a 401k or an ever more insolvent social security) is no guarantee unless you manage it yourself.

5. Finally, to understand any generation, you have to look at that generation through the lens of their collective experience. My generation has seen a lot of change in a very short period of time. We've been through economic crisis (the aforementioned mortgage crisis), national security crisis (9/11 and the age of terrorism), environmental crisis (climate change and increasingly more violent weather such as Katrina and Sandy), and a whirlwind of social and technological changes (yes, I do still remember paper card catalogues and type writers at the library). Basically, we learned that less can be more and unless we give of ourselves to a larger cause that helps everyone then anyone could be hurt. I wish this article would have dug deeper in analyzing our generation instead of being so quick to slap some terms like "delaying adulthood" as if we are less mature and implying not having a mortgage/car is bad news. 

fox.artemis
fox.artemis

How is this bad news? To me this means my generation is fiscally responsible and not taking in debt when they are obviously not ready. Also, we care about our environment hence the no cars. 

dgdoesstuff
dgdoesstuff

My monthly bills. Total = $320 a month. 20 of that is food, 100 of that is phone, 200 of that is rent, and I'd gladly give up the gawdawful apartment over giving up the phone. Yes, I finagle a few things from people that I "should" pay for myself. (like food and transportation), but so what? 

I don't have a drivers' license. I never did. I don't own a car. I don't even owe anything on college. Most everything I use is either body-based (human beings need to eat and snow is cold, therefore I have an apartment) or free-through-internet. "Buy a house"?  Ick. 

hollymaria82
hollymaria82

@jamesdagreatest Let me guess.  You had next to zero student loan debt because you either went to a low-grade community school or had parents/relatives pay most of your tuition.  And... you live in an extremely low cost of living and/or rural area.  Most of us who live in city or suburban areas would LOVE to live in such places, but can't because there are basically NO JOBS for newcomers in such areas.  So in closing, get off your high-horse.  Try living in a city or suburban area and actually going to a normal school with a normal debt load and then get back to me.  Dumbass.  Doing what you just described is IMPOSSIBLE on a "poverty level" income unless you live somewhere very backwoods with extremely low property values and low tuition at some community school.

OhPancakes
OhPancakes

@JamesWhite Very well stated, I think you summed up my thoughts. Our generation is very misunderstood in that we are not lazy, we are not without passion. Our generation has rather been dealt some challenges that, individually, we are working out. However, collectively we are very good at adapting. 

Wonderkittykat
Wonderkittykat

Perfectly said. Just because we aren't doing the same old tired, ineffective things older generations did does not mean we are delaying adulthood. Apparently the author believes that placing yourself into crippling debt that you die with, having little to retire on and being slaves to the bank equals adulthood. Well if that is the case then no thanks. We inherited a terrible economy and we are doing what we need to survive. The very fact that Social Security will be unavailable to us is enough to make us be more cautious. This article is biased and ignorant and very much geared towards the powers that be. @JamesWhite

mrbomb13
mrbomb13

@JamesWhite 

I'm 25, and I agree 99% with the sentiment of your comment.  The only part I don't remember is typewriters in the library (although I do remember card catalogues from elementary school).

tom.litton
tom.litton

@fox.artemis The problem with fiscal responsibility is that if everyone does it, then the economy tanks, which is what is happening.

It's amazing how many things are great for the individual if few people do it, and terrible for everyone if everyone does it.

jtejkowski
jtejkowski

What do you eat for $20/month? What do you live in for $200/month? Are you posting this from 1950?

dgdoesstuff
dgdoesstuff

@jtejkowski

Short version: I know what I'm doing? :) 

Long version:  I've been figuring out ways to get food for free since 2005.  I have always lived in the same college town (lots of different houses), and it occurred to me one day that there was plenty of options for free food all over the place--I just had to keep track of them.  Since then, I've gotten really good at knowing exactly what to buy when and where to be and what to eat for really, really cheap. 

As for housing, it's college apartment/dorms and they're really cheap if you know when to start renting around here. (Unfortunately, it also drives the price of non-dorm apartments through the roof around here.  I would *not* want to be a parent with a spouse and a kid trying to get a home around here. Ouch.)