Young people are racking up far more credit card debt than their parents ever did, a new study shows, and economic experts are worrying that Generation Y — people born in the early 1980s — will end up dying without ever paying off their credit card bills.
"Credit is more readily available now, and there have been changes in interest rates and less stigma attached to having credit-card debt, which may all make younger people today more willing to go into debt," Ohio State University economics professor Lucia Dunn, a co-author of the study, told Business News Daily.
The research, which Dunn co-authored with Capital One Financial credit manager Sarah Jiang, was published in the January issue of the journal Economic Inquiry. It suggests that, not only are Millennials using more credit than previous generations, they're paying it off far more slowly as well.
Keep reading to find out if we will ever be debt-free.
According to the data, which was drawn from 32,542 consumers who participated in the Ohio Economic Survey and the Consumer Finance Monthly survey, people born between 1980 and 1984 are likely to have much more credit card debt than the previous two generations of consumers. Members of Generation Y carried an average of $5,689 more debt than people who born between 1950 and 1954 (aka their parents) did at the same age, and $8,156 more debt than people born between 1920 and 1924 (their grandparents' generation).
What's worse: They're paying down that debt about 24 percentage points more slowly than their parents paid off theirs, and a whopping 77 percentage points more slowly than their grandparents did. Translated into plain English for us non-finance folks, it means that if their grandparents paid off 100 percent of their credit card debt each year, a 20something today is paying off less than a quarter of hers each year.
Take the higher level of debt, add in the lower rate of pay off — not to mention the fact that young people have much, much higher levels of student loan debt than past generations — and what you have is a recipe for future financial disaster.
"If our findings persist, we may be faced with a financial crisis among elderly people who can't pay off their credit cards," Dunn warned. "Our projections are that the typical credit-card holder among younger Americans who keeps a balance will die still in debt to credit-card companies."
It may be akin to applying a bandaid to a gushing wound, but just raising the mandatory amount people have to pay back each month can make a significant difference in their overall debt.
"They may see the increase in their minimum payment and start feeling uncertain about their future ability to pay off their debt," Dunn explained. "That may encourage them to pay off even more than they have to, in order to bring their debt level down."
How much debt do you carry on your credit cards? Is an extra pair of awesome shoes worth it, or are you worried about whether you'll be able to pay it off?
— Lylah M. Alphonse
Copyright © 2012 Yahoo Inc.
Elsewhere on Shine: