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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.
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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.

-- Posted: Jan. 17, 2005




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