Young Adults Are Avoiding Credit Cards To Much Greater Degree Than Their Parents

'Kids today!' The phrase that used to sum up parental frustration with the inadequacies of the younger generation has now been turned on its head.

Younger adults and teens are first since the introduction of the affordable automobile over a century ago to reduce demand for drivers' licenses. The incidence of alchoholism and drug abuse has also tapered. And now, the significant trend from a financial standpoint is that younger people are rejecting credit card debt in unprecedented numbers.

The accumulation of consumer credit was so vast prior to the financial crisis that the impact of reducing it constituted a figurative second job for many families. Young adults, coming of age in a period of societal turmoil engendered by the crisis and recession have evidently taken the lesson to heart despite - and perhaps because of - the ballooning of student loans.

The weak economy has caused delayed household formation for this age group, which has also contributed to their lower debt levels. Mortgages, furniture, cars and other big ticket items that are typically purchased by installment have been pushed off.

While evidence of prudent behavior is a welcome sign in a society traditionally willing to mortgage the future with sometimes insupportable optimism. But the refusal to take on that debt may also be a sign that this generation is concerned about its prospects and understands that the future may hold surprises that require forbearance. JL

Leslie Mann reports in the Chicago Tribune:

After running up record debts during the economic heyday of the 2000s, young adults with their own households (not counting those living at home) shed debt during the Great Recession and its aftermath by 29 percent, compared with 8 percent by people ages 35 and older.

Shalom Klein and his wife, Elisheva, of Skokie, both 23, are avoiding debt by sharing a used car that they have paid for, renting until they can afford to buy a house and paying off their credit card balance every month. Their undergrad college bills are paid, and Shalom is up to date with expenses for the master's degree he is working toward.
"We were both raised this way, to budget and give ourselves allowances," said Shalom Klein, vice president of sales at an accounting and collections firm. His wife is a special education aide.
Their elders can criticize "the kids these days," but the Kleins are typical of today's under-35 crowd, according to a recent study by the Pew Research Center.

"Delaying purchases of cars and homes and smarter use of credit cards, especially, is where the younger people stayed out of debt," said Richard Fry, Pew senior economist. "They did a better job than the older people did handling debt, except for student debt. (Younger people's student debt) increased from 34 percent in 2007 to 40 percent in 2010."
Fry said the younger crowd takes a more pragmatic view of their major purchases.
"They don't fall in love with their cars the way previous generations did, and they're more often delaying getting their driver's licenses," Fry said. "In major metro areas they use public transportation or shared-car services."
Fewer young people had vehicle debt post-Great Recession, and those who had it had owed less.
In the Kleins' case, Shalom needs their car for work, so he drives his wife to her job.
"It sometimes means juggling schedules, but it saves the expense of another car and insurance and gives us more time together," Shalom Klein said.
More young people rent their homes because they cannot qualify for mortgages, Fry said, or because they are waiting until they have saved larger down payments. Their rate of homeownership dropped from 40 percent in 2007 to 34 percent in 2011. At the same time, their median mortgage amount fell too.
"They're marrying later and having kids later, so they don't necessarily need that single-family house with a yard yet," Fry said.
Compared with their parents, the younger group has done a better job shedding credit card debt too. In 2007, 48 percent of them carried balances, while only 39 percent did in 2010.
"The amount of their balances is down too," Fry added.
The Kleins not only pay their credit card balances monthly but also use one of them to earn points for travel.

"That paid for the hotel and shows in Las Vegas for our honeymoon and will pay for the hotel and airfare for our anniversary trip to New York this year," Shalom Klein said.

Meanwhile, back at mom and dad's, the mortgage-burning parties are delayed, Fry said.
"The 35-and-older group took money out of their home equities during their salad days before 2007, and then they couldn't pay it off when the recession hit," he said.
Not all debt is bad, said Fry.
"Fewer mortgages among the younger group is not necessarily a good thing," he said. "It shows they're having difficulty buying homes and they're delaying homeownership. Responsible debt, like getting a mortgage but paying it off, can be a way to build wealth."
Debt-ridden younger people are more likely to be college educated.
"This makes sense, because they have student debt and have taken that step to purchase their first homes," Fry said.
The younger and older groups both saw the value of their assets decline from 2007 to 2010. The older group saw a steeper decline, but they started with more assets.
"Live within your means" is Shalom Klein's advice to other young people. "Before you buy something, ask yourself if you really need it," he said. "Then set aside money for unexpected expenses like car repairs, because they will happen. Work hard while you're young and have lots of energy. You'll be glad you saved it, when you're older and you want to retire."