Monday, October 12, 2015

Young Adult Americans, aka Millennials, and Excessive Individual Debt Levels ... Some Disturbing Facts

{NOTE: We've been focusing recently on the debilitating debt levels which younger adult Americans have assumed without them understanding how the rest of their lives will be much more difficult financially that it otherwise could have been. We'll continue that discussion herein by looking today at the impact of excessive debt on Millennials, that group of Americans between their mid 20s and mid 30s.}

What gets us into the most trouble isn't what we know that we don't know. Instead it's that which we don't know and don't know that we don't know. Ignorance is bad, but confidence without a good reason therefor is what's really dangerous.

That pretty much sums up the state of ignorance about student loans specifically, financial literacy generally, and the dangers of taking on excessive personal debt obligations early in adulthood.

So let's do our best to shed some sunshine on this quite troublesome but definitely soluble problem of limited personal financial knowledge. Specifically, adequate familiarity with (1) student loans, (2) home mortgages, (3) car loans and (4) credit card borrowings is lacking in most young American adults.

The Alarming Facts About Millennials and Debt contains some disturbing details about the impact of excessive debt on today's young Americans:

"Much has been written about millennials . . . but one thing is clear: Millennials and debt go hand-in-hand.

Our research . . . shows that two-thirds of millennials (those aged 23-35 in 2012) have at least one source of long-term debt outstanding—whether student loans, home mortgages or car payments—and 30% have more than one. Among the college-educated, a staggering 81% have at least one source of long-term debt.

Not only do millennials carry debt, but they struggle with it. A majority report having too much debt, difficulty in making payments, and worries about it. Specifically, the ability to pay off student loans troubles more than half of millennials who have such loans. Low-income respondents tend to be more concerned than higher-income earners, but even 34% of millennials with annual household income above $75,000 doubt they will be able to repay their student loans. Moreover, even several years after college, the percentage of those worried about repaying student loans remains high. Fifty-four percent of millennials who are over age 30 and have student loans are worried about repaying them.

Along with long-term debt, millennials also carry short-term debt, most often from credit cards. This debt can be costly. More than half of millennials’ credit-card users say they carried over a balance—for which they were charged interest—in the last 12 months. A sizable share has been hit with late fees (22%), over-the-limit fees (13%), and fees for cash advances (14%)....

Twenty-nine percent with bank accounts report occasionally overdrawing them, and 22 percent of retirement-account owners took loans or hardship withdrawals in the 12 months prior to the survey. . . .

This next generation is not prepared for the financial engagement it faces. . . .

They owe a lot. They know too little. Millennials’ struggle with debt may eventually become our problem, too."

Summing Up

The problems with debt are widespread and will negatively impact American prosperity for a very long time.

Young Americans know too little about the perils associated with taking on excessive debt at an early age and the huge negative consequences it will have for the remainder of their lives.

Yet too many young Americans decide to ignore the very real need to save and invest for the long haul, and instead elect to borrow and then spend those borrowed monies today.

That's a losing formula.

And that's my take.

Thanks. Bob.

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