Have Millennials and Generation X Been Handed a “Debt Sentence”?

It is common knowledge that Millennials and Generation X’ers are facing challenges that far surpass what we’ve seen in the United States since the 1930’s.  Between student loan debt, stagnating wages, ObamaCare,  and Social Security, young Americans as a whole are in a far more precarious financial position than at any time in recent history.  This week the Pew Research Center and US News shed some light on to exactly how awful the financial issues are for young Americans; US News reported that 20% of all Americans expect to die before they can work their way out of debt.  Let’s take a look at Eternal Debt: 1 in 5 Americans Expects to Die in the Red:

Although recent indicators suggest monthly job growth is solid, wages are on the rise and the overall trajectory of the U.S. economy is headed in the right direction, debt is still a primary source of anxiety for millions across the country.

In fact, more than 1 in 5 indebted Americans believes his or her debts are unpayable in the long run, according to a report published Wednesday by CreditCards.com.

That study, which surveyed more than 4,000 Americans to determine how they felt about their current levels of personal debt, found that 21 percent of respondents believed they would die before they could pay off their credit card bills, car payments, student loans, mortgages or other types of debt. That’s up from 18 percent last year and just 9 percent the year before.

This 21% reflects the answers of respondents no matter their age, however keep in mind that Americans 65 or older enjoy a far greater net worth than those under 35.  What is particularly alarming about these findings is the recent jump in the percentage of those who believe that they will not finish paying their debt during the course of their lifetime.  A jump from 9% in 2013 to 21% in 2015 represents a statistically significant increase.

If we take a look at the numbers from the Pew Research report, the picture becomes much clearer as we see just how Generation X and Millennials are affected by different types of debt:

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While the raw numbers look bleak, it gets worse as we dissect the different kinds of debt.  Mortgage debt is held by 33% of Millennials, with a median of $110,000, and 56% of Generation X’ers, with a median of $129,000.  When mortgage debt is paid off, that young American will retain ownership of an asset in their property.  For many Millennials, giving up space to save money is a sacrifice that they need to make. However, as we have seen in the 2006 Housing Bubble, the price of that asset can depreciate quickly, and if the owner faces additional financial difficulty, they may lose that home and any equity they may have accrued over time.    While I would not consider this debt to be disadvantageous, it can quickly become toxic as market conditions, and the owner’s financial situation change.

Credit card debt may not seem like an enormous problem for Millennials, with a median less than half of Generation X.  However the median for Millennial car loans is nearly 5x their credit card balance.  With the job market becoming continually murky for young adults, the high outstanding car loan balance will reduce their financial flexibility should the economy go sour.  Gen X’ers carry even more debt at $14,000.

Of course, I’ve written many times about the student loan time bomb here, and with 41% of Millennials holding $20,000 of debt, while facing the worst economic conditions since the Great Depression, these debts will take decades to pay in full.   Perhaps this is contributing to Millennial stress due to finances.  Generation X, many of whom chose to return to college during the Great Recession still hold a similar amount of debt.   Without the increases in wages and the job market that the Silent Generation and the Baby Boomers enjoyed, it will take many years for Generation X and Millennials to pay down the balances of their debts.  I suspect that “1 in 5” number is significantly higher for young Americans, many of whom indeed are serving a lifetime debt sentence.

-R.J. Renza, Jr.

 

While you’re here, take a moment and sign the National Petition to Opt-Out of Social Security. The more signatures we gather, the more pressure we place on Congress and our political leaders.

August marked the release of my first e-book “How Are You Not Angry Yet: How Social Security is Destroying the Futures, Finances and Hopes of Generations X,Y and Z and How We Can Put and End to it.”  “Angry Yet” breaks down the complex topic of Social Security into a way that most Americans can easily understand and find entertaining and is available on Amazon right here.

I have recently was interviewed on The New Class Rising podcast with Hector Avellaneda.

I also appeared on The Debt Dialogues, the weekly podcast of “RooseveltCare” author Don Watkins:

Check out my video of how I celebrated Social Security’s 80th Birthday and What Social Security Does To Kids.

-R.J. Renza, Jr.

 

 

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