Pew Finds Complex Relationship Between Debt and Financial Security and Mobility

WASHINGTON—A report released today by The Pew Charitable Trusts finds that Americans’ debt has increased over the past three decades, due particularly to home mortgages and student loans, with important implications for long-term economic mobility. A full 80 percent of Americans hold at least some form of debt, and nearly 7 in 10 say debt is a necessity in their lives, even though they would prefer not to have it.

The report, “The Complex Story of American Debt,” shows that debt is a routine but also complicated aspect of U.S. households’ overall financial health. At high levels, debt can hinder financial security, but sustainable debt, which allows families to invest in their futures without putting undue pressure on their budgets, can also help them take advantage of long-term opportunities, such as those that come from buying a home, getting a college degree, or starting a business.

The report provides a comprehensive look at how families of different generations, races, and ethnicities hold debt; their attitudes toward it; and how it relates to their overall financial health. It also explores the positive and negative impacts of debt on U.S. households, and finds that the effect of debt on the health of family balance sheets, as well as the perceptions of debt, vary dramatically among age and racial groups.

“The typical American family’s debt levels are high, and that can cause financial problems—but that is not the full story,” said Diana Elliott, research manager for Pew’s financial security and mobility project. “Our findings show that debt can also be an important component of overall financial health, provided it is sustainable and is used to support investments in families’ futures.”

The report explored how four generations of Americans have taken on, and been affected by, debt: the silent generation (born between 1928 and 1945); baby boomers (born between 1946 and 1964); Generation X (born between 1965 and 1980); and millennials 18 years or older at the time the research was conducted (born between 1981 and 1997). Mortgages are the most common liability for American families. Pew found that members of Generation X have higher mortgage debt than previous generations did at similar ages. However, Gen Xers and millennials with higher income and net worth than their peers also tend to have more debt that can boost economic mobility—such as student loans and mortgages—signaling potential financial opportunity. For older Americans, in contrast, greater levels of debt can have an adverse effect.

Among the report’s key findings:

• 8 in 10 Americans have debt, with mortgages the most common liability. Although younger generations of Americans are the most likely to have debt (89 percent of Gen Xers and 86 percent of millennials do), older generations are increasingly carrying debt into retirement. Eighty percent of baby boomers and more than half (56 percent) of retired members of the silent generation hold some form of debt.
• Gen Xers have higher mortgage debt than other generations at similar ages in part because of when they purchased their homes. During the runup in housing prices before the Great Recession, Gen Xers were in their prime homebuying years. The typical Gen Xer in his or her mid-30s had more than twice the mortgage debt that boomers had at the same age.
• Americans feel conflicted about debt: Nearly 7 in 10 (69 percent) said debt is a necessity in their lives, even though they prefer not to have it. A similar percentage (68 percent) also believes that loans and credit cards have expanded their opportunities. However, a generational divide in attitudes toward debt is emerging, with younger Americans being more debt-averse. 
• Debt can be good and bad for Americans’ financial health and sense of security, depending on age. For older Americans, lower levels of debt indicate greater financial security, especially because they are most likely to be living on a fixed income. But among those of working age, the story is more complex: Compared with their peers with less income and wealth, Americans with higher incomes and net worth have more debt but also healthier balance sheets overall. This is probably because affluence facilitates greater access to sustainable forms of credit, such as “prime” home mortgage loans, that can help a household build wealth.

To conduct this study, Pew commissioned a survey of 7,845 Americans and utilized data from the Survey of Consumer Finances, issued by the Federal Reserve Board.

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