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Less Debt Among Young Adults is Bad?

by Ryan Guina

A recent article on Fortune stated that less debt among young adults under age 35 was bad. Citing a report from the Pew Research Center, the article went on to state that, “Across households headed by people under 35 years old, median debt fell by 29% to $15,473 in 2010, compared with $22,000 in 2007, according to the report. That compares with a much smaller 8% drop at households headed by those 35 and older during the same period.”

Where I come from, that is a positive sign, not a troubling sign.

debt among young adults

Decreasing debt – moving in the right direction

Average household debt and average credit card debt both need to decrease for people to achieve financial security and be able to save for retirement. When you look at the average retirement savings in the US, you can see that as a nation, we have a long way to go.

But the important thing to understand is this article isn’t written from a personal finance point of view, it’s written to reflect the overall economy. In some ways, debt can be a sign of economic health. Banks are willing to lend money, and people are willing to take on the risk of having debt.

I can understand how economists look at these indicators and make projections on the health of the economy, growth, and other factors. After all, if no one is spending money, then people won’t have jobs.

But fiscal responsibility is also essential for a healthy economy. Just look at what happened a few years ago with the housing bubble. It wasn’t just homes that people were buying. They were buying everything. Debt was cheap, and people took advantage. And many people overextended themselves and got burned. People pulled back from debt because they had no choice. They either couldn’t afford it, or couldn’t get approved for loans because banks weren’t lending.

Less Debt is NOT a Problem. It’s Healthy.

The article referenced above also states, “Adults under 35 have more student loan debt and less exposure to credit card, car, and home loans. That’s a troubling sign for the economy.”

I disagree. Everything is about perspective.

Taking out a loan isn’t necessarily a bad thing, especially if you are getting value for your money and can lock in a low interest rate. Student loan debt gets a bad rap at times, but it can be a worthwhile expense if you do the research and take out loans for a high demand degree program. Buying a house is another worthwhile expense, provided you have done the research, determined home-ownership is the best option for you, and you made a reasonable down payment to help reduce the mortgage payments. But neither of these are required to build wealth or be a productive member of society.

The bigger problem is consumer debt. High interest credit card debt, pay day loans, personal loans to pay off consumer goods, and even auto loans can fall into that category.

I don’t see a problem with younger people taking on less debt. I see this as a sign of economic health. A sign that people are learning from mistakes and making changes. We went from a culture of over-spending, to a culture that is still struggling to learn how to keep things within our means. If anything, this is a sign that people are moving in the right direction.


Published or updated February 27, 2013.
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{ 4 comments… read them below or add one }

1 Michelle

There is definitely NOTHING wrong with less debt! :)

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2 Ryan Guina

Agreed. I couldn’t believe the article title when I read it. “C’mon people – take out loans so the economy will improve. Do your part!”

Sarcasm, of course!

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3 Jake Erickson

Great point. The fact that there are people who believe the less debt is bad for the economy is part of the reason we got into the mess we’re in. I agree with you, it depends on the type of debt to really determine if it’s a good thing or not. Less consumer debt is absolutely a good thing.

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4 krantcents

The funny thing about statistics is how it can be interpreted. The statistics did not differentiate between consumer debt and other debt. The just lumped all of it together. Less debt to economists generally means less confidence in the economy. I tend to ignore many of those statistics because of the generalization.

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