Market Watch today has an interesting spin on the current Household Debt and Credit Report by the NY Fed, one of my favorite studies. The article sugests that Millennials may be better off than their GenX counterparts with more “good debt”, better retirement savings and less credit card debt..
- New findings from the New York Federal Reserve reveal that millennials have now racked up over $1 trillion of debt.
- This troubling amount of debt, an increase of over 22% in just five years, is more than any other generation in history. This situation may leave you wondering how millennials ended up in such a sorry state.
- Millennials are much more conservative than the debt balances may indicate. In fact, in comparison to previous generations this group is significantly more fiscally conservative.
Is it about net debt, or good debt/bad debt?
- While the debt levels accumulated by millennials eclipse those of the previous generation, Generation X, at a similar point in time, the complexion of the debt is very different.
- According to a 2018 report from the St. Louis Federal Reserve Bank, mortgage debt is about 15% lower for millennials and credit card debt among millennials was about two-thirds that of Gen X.
- However, student loan debt was over 300% greater. Student debt affects a much broader age segment than just millennials, at over 43 million borrowers, but the burden weighs most heavily on this generation.
In the Fed data, Millennials have almost equal amounts of student loans and Mortgages, at $379 billion and $363 billion respectively. Credit card debt is a mere $59 billion.
But, Millennials are more focused on retirement savings, likely due to easy matching and forced savings.
- Another marked behavioral difference between generations is the higher levels of retirement savings among millennials than any previous generation at the same age. While Gen Xers had acquired about $13,600 at around the same point in time, millennials have saved $15,500 in retirement accounts on average.
- Both increased retirement savings and additional education are behaviors that economists might consider conservative investment strategies, more so when paired with lower credit-card debt. But these changes in attitudes or perspectives can be difficult to measure.
- Student debt was cited by the Federal Reserve in its January 2019 Consumer and Community Context report as a factor in millennials delaying homeownership. However, given millennials’ propensity to contribute more to their retirement savings accounts, it’s not certain that student loan debt alone is what is keeping them out of the housing market.
But, then who is better off, the Millennial or their Gen X counterpart?
- The net result of these behavioral changes, paired with the economics of the environment, is that millennials’ average net worth is about $90,000, compared to Gen X of $130,000 at a similar age point.
- While long-term student debt has reduced millennials’ ability to gather assets at the same rate as previous generations, many of this generation seem to have adopted an alternative view on assets, preferring the acquisition of experiences and savings accounts over things. Studies show that experiences lead to longer-term happiness and may provide another perspective on which to gauge the fiscal state of millennials.
There is no easy answer, but there is indeed a shift. Hopefully, all those college loans will pay off before retirement sets in; it happens quicker than one might expect.
With longevity in mortality through medical advances, they are going to need it.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
