During the COVID-19 pandemic, household debt largely fell o remained flat after many employers were temporarily closed and government policies helped people to delay debt payments, allowing them to save more money. But since then, home severe increase in debt, especially among one demographic group: millennials, or people born between 1981 and 1996.
The largest segment of the demographic group — people under the age of 30 — is struggling with a record high debt of more than $ 3.8 trillion by the end of 2022, 27% from 2019, according to data from the Federal Reserve Bank of New York and reported by THE Wall Street Journal. That is the largest accumulation of debt by that age group in any three years since the financial crisis of 2008.
Credit card delinquency rates, or credit card payments that are more than 90 days past due, are also currently the highest among 30-somethings compared to any other age group, the New York Fed and Liberty Street Economics found earlier this month. Among millennials, credit card balances averaged $6,750 in January, up about 26% from three years ago, the Journal wrote.
“Strong consumer spending, the hottest inflation reading in 40 years and extremely high credit card rates have combined to push credit card balances to a new record high, ” Ted Rossman, a senior analyst at Bankrate, SPOKE luck this month.
If the pandemic complicates the financial situation for Americans, the stimulus checks and suspension of debt payments are intended to alleviate some of the financial pain. But in 2022, Morgan Stanley reported that consumers spent 30% to 50% of their $2.7 trillion savings surplus.
Growing debt is not good news for everyone. For millennials, this may mean expansion wealth gap with the older generation and less opportunity to save money and invest for the future. Many millennials started their careers during or around the Great Recession in late 2007, which weakened their ability to earn early on. Economic and housing growth since the 1980s has helped many baby boomers earn a good living. But neither can millennials.
Since the 1960s and 1970s, the wealth gap has doubled between those over 60 and under 40, a study found last year. Rapid increase in debt coupled with generational wealth The gap means that millennials tend to struggle to establish themselves and make investments like older generations.
The federal government is trying to help the situation through President Joe Biden’s student loan forgiveness program, the subject of a Supreme Court case this week. If allowed, the loan forgiveness could ease the financial position for those burdened with debt repayment obligations, which have been suspended for about three years since the onset of COVID-19. And the millennials make a significant share to federal student loan holders.
But many other factors can account for the current trends in debt and wealth continue. For one, the Federal Reserve’s efforts to control inflation have also pushed up interest rates on debt, from housing to autos to credit cards. Like everyone else, thirty-something home buyers have to deal with high real estate prices and higher borrowing costs.
The impact of debt has serious implications for the future, as well as, for millennials. The level of debt can affect decisions such as whether they have children, resulting in a wide range economic consequences.
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