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Debt life stages
The debt treadmill can start during youth and keep going, sometimes straight into the not-so-golden years.
Out of the red and into the black

Life stages of debt

"The potential for a young worker without a college degree has plummeted within a generation," Draut says. "They make a lot less than they used to and all of the benefits that we used to think of coming with your first real job have disappeared."

Debt life-stages
Young singles
Young families
Mature families
Empty nesters

Young families
For young people already struggling with living expenses and stagnating wages, adding a baby can stretch finances to the breaking point.

According to Draut, couples with children are twice as likely to file for bankruptcy.

"This is a time when you've got loans that have to be repaid. You have earnings that are starting lower and growing slower, and then you add a new baby into the mix -- which has always been an added expense. It's nothing new for this generation," she says.

"What's new is that those student loans, those credit cards, don't go away overnight."

A starter home market has disappeared for a lot of high-cost areas.

This life stage also ushers in new housing needs. Whereas a studio or one bedroom apartment may have been sufficient a couple of years earlier, with the addition of a spouse and a child, space becomes an issue -- as does the school district in which the housing is located.

"You get married in the late 20s now in the states and you have a kid and then you want, of course, to live in a nice house in a neighborhood with a good school. The American way of life virtually compels most people to take on a lot of consumer debt and it doesn't really give you an opportunity to get rid of it," says Mandell.

Home values in good neighborhoods force many young families to confront difficult choices. The best jobs are located in metropolitan areas, but those areas don't come cheap, says Draut.

"A starter home market has disappeared for a lot of high-cost areas," she says.

Mature families
Typically, older families have reached a certain level of security. But Manning found that families currently in this age group spend more and save less than did previous generations.

"One of the most striking findings of my study was the elasticity of demand for people who have children -- there's never a good reason to not indulge our children these days," says Manning. "Instead of saving money for their children to go to college, parents are spending that money while the kids are in high school."

Indulging the short-term whims of teenagers can further perpetuate the debt cycle, obligating children to take on loans for college as well as diverting money from retirement savings.

Debt in this stage can be particularly precarious, especially if savings are spare.

-- Posted: Feb. 25, 2008
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