Is Your Kid More Financially Responsible Than You?

It seems you can’t turn on the news these days without seeing something about the student loan crisis. And it certainly is a crisis. Student loan delinquency rates have reached 13.4%, and at certain colleges they’re now up to 30%. Given this fact, it seems strange to think that people under the age of 35 are actually carrying less debt than their parents – but it’s true.

Student debt has indeed exploded in the past decade, shooting from $253 billion to an astounding $1 trillion, but overall, younger people are taking on less debt. For example, non-student loan debt – the kind incurred through mortgages, car loans and credit cards – has fallen significantly. According to a recent Pew Research Center study, the amount of debt carried by young people in 2013 is almost 30% less than it was before the recession.

Moreover, 22% of millennials are totally debt-free, the lowest number since the government began keeping tabs on this kind of data in 1983. How is this possible? Are their parents are helping them shoulder their debt? Has money started growing on trees, despite what their parents always told them? Were they so disturbed by the financial crisis that they decided to live off the grid like the families on “Alaska: The Last Frontier”?

Whatever the cause, less debt doesn’t necessarily mean young people are in better financial shape. If you look at income too, they’re carrying more debt, (relatively speaking) than older folks. They’re borrowing less than their parents now, but they’re earning less too. They also have fewer assets. Millennials aren’t buying as many houses and cars, and they’re putting off taking expensive life steps like getting married and having kids.

Could it be that the younger generation has learned from witnessing their parents’ hardships, especially during the recession? Maybe. Or it could also be that they simply aren’t able to borrow due to the tighter standards adopted by lenders during the recession. After all, nobody wants to give a loan to a person who’s saddled with tons of student debt.

But even young people without student debt are cutting back on borrowing. Between 2007 and 2012, people between the ages of 25 and 30 who didn’t owe money for school reduced their borrowing by an average of $10,000, according to the Pew study. They’re saving too – the monthly savings rate for young people jumped from negative 15% in 2006 to around 3% in 2012. Perhaps the millennial generation is getting smarter about spending after all.

Whether young peoples’ financial responsibility is a sort of “immune response” designed to protect them from the financial woes their parents suffered in the past or whether it’s simply that student debt prevents them from qualifying for loans, it’s certainly an interesting new trend. When the government first started collecting this data back in the 1980s, younger people were the ones taking on more debt. Now the roles have been reversed, and the trend may have larger effects.

A lag in spending could cause a lag in economic growth. After all, the economy is powered by spending. Less borrowing means less spending, and less spending means fewer jobs. On the other hand, some experts think this cautious behavior now could give the economy a nice little boost in the future, when millennials feel financially secure enough to spend all that money they’ve been saving.

What do you think about all this? Are young people choosing to be more financially cautious now, or is it just that their student loans are preventing them from taking on any more debt? Will this help or hurt our economy? Let us know your thoughts in the comments.