The economy has been hot on the heels of Americans, but no one is taking the blow harder than young, low-income Americans. As a way to weather the global economic storm, many have taken out loans, leading to the highest debt exposure to the youngest group in 5 years. The Federal Reserve Bureau reported this 22% increase in debt for people aged 19-29 years to amount to a whopping 1 trillion with the largest part owed to personal loans, mortgages, student loans, and car payments.
As a way to cope with the rising cost of living, many young adults, even those with low income, have turned to high risks debts with higher interest rates. This has only worsened their financial situation prompting some of them to move back in with their parents to save for long-term financial goals. According to the University of Michigan Survey, those left behind have very little money left thus steering away from capital investments like buying homes, and choosing to pay rent.
Why So Much Debt?
We can only blame the tanking economy so much as there are more underlying reasons why young adults in America are sinking further into the debt hole. Less than 25% of young Americans demonstrate basic financial literacy, making it harder to learn money management. Without the skills to properly handle their finances, debt taken out will continue piling up.
Another reason for debt in young adults are the weak job prospects available. Without better jobs and income, most young Americans are forced to live paycheck to paycheck. With little flexibility to cut the extra expenses, many are turning to debt to compensate for the increased cost of living.
Top Debts Weighing Down Young Low-Income Americans
1. Student Debt
In 2020, it was reported that millennials owed a total of $1.46 million in student debt, making it the highest debt level the US economy had experienced. With a 102% increase since 2019, student debt takes up a third of young adults’ total debt.
2. Mortgage Debts
Mortgage takes second place in young adults, as the number falls lower in comparison to the 2000s. With only a 3.2% increase since 2009 this contributed to the low spending of young Americans today who unlike their predecessors, are choosing to wait longer to take on housing loans.
3. Auto Loans
Car payments and auto loans fall third in the debt category. Because 2020 and a better part of 2021 was spent in lockdown, many young adults saw no need to take out car loans. Those who already had pending debts had a hard time keeping up with repayments, only increasing the debt.
4. Credit Card Debt
Following the 2020 global pandemic, banks eased up on credit card requirements giving the green light to more people to take credit card debt. This debt mostly caters to emergencies and household purchases like groceries, utilities, and childcare which has due to inflation.
Final Take
In the hopes of improving the country’s economy, the Federal Government and programs like IDR are focused on helping young adults out of the hole of debt. The Federal Government strives to provide relief to student loan borrowers through various student loan forgiveness programs. On the other hand, 4% of companies in the US are helping employees repay their student loans, and more are expected to follow.