Younger Americans going deeper into debt
Gen Xers yearn to carve a new direction for society.
Unfortunately, the direction appears to be straight into debt. Americans
between the ages of 25 and 34 now boast the second-highest rate
of bankruptcy, just behind the 35-44 group. The average credit card
debt for this group increased by 55 percent between 1992 and 2001,
with the average young adult household now spending approximately
24 percent of its income on debt payments.
Really want to worry? Take a peek at these findings
from the "Generation
Broke" report put out by social activist group Demos, using
the Federal Reserve Board's survey of consumer finances:
- Adults between the ages of 18 and 24 saw an even
sharper rise in credit card debt from 1992 to 2001 -- 104 percent
to be precise.
- Among the youngest adult households with incomes
below $50,000 (that's two-thirds of this demographic), nearly
one in seven with credit card debt is in debt hardship.
- This youngest segment spends close to 30
percent of its income on debt payments, double the percentage
spent on average in 1992.
Tamara Draut, director of Demos' economic opportunity
program and the lead author of Generation Broke, says the finding
that surprised and concerned her was the fact that most 25- to 34-year-olds
spend roughly a quarter of every dollar paying down debt.
"Most importantly, about half of this group still
isn't in a homeownership situation," she says. In fact, the
way the stats were calculated, it doesn't include rent, either.
"That's a pretty shocking amount."
It's hard to shock Judge John C. Ninfo II, chief
judge of the U.S. Bankruptcy Court for the Western District of New
York. He hears the stories behind the numbers: college students
who run up the credit card bills each semester, then take out extra
on their student loans to pay them off. They graduate with as much
as $8,000 in debt from this shell game alone -- plus the last semester's
financial flings. "Nobody warned me," is an everyday wail
in his world.
Fed up with seeing the parade of youngsters filing
in his jurisdiction, he launched an outreach program, Credit Abuse
Resistance Education, in 2002 to connect judges, attorneys and trustees
with high school and college students. CARE resembles the Scared
Straight programs designed in the '70s to frighten would-be punks
into keeping on the straight and narrow. So far, he's made inroads
at 26 high schools and three colleges in the state, with more expressing
an interest in signing up for the presentation.
Scare tactics don't impress experts such as Draut.
Student loan debts have doubled to almost $20,000, she says. "When
the car breaks down, there's no savings, so it goes on the credit
card. Holiday trips home go on the credit card. All sorts of things
end up there because young people have already committed more of
their money than we did a generation ago," she points out.
As for those still on campus, many from lower-income
families don't want to burden Mom and Dad, who have already mortgaged
the house for tuition and housing, for daily living items. Charging
a bagel with cream cheese is their misguided way of helping out,
she says. Draut believes the solution begins with prioritizing the
country's financial aid policy and expanding grant-based systems.
She's also in favor of state legislation, like New York's, that
regulates credit card marketing on state university campuses.
Similar proposals in Washington, D.C., during
the past few years have failed.