Why Young People Are in So Much Debt

Young people are facing a serious debt problem. Between 2022 and 2023, boomers saw a slight decrease in debt year over year, while Gen X saw a slight uptick. But millennials saw their average debt increase by 8 percent and Gen Z more than 15 percent. Many young adults are finding themselves sinking deeper into debt. This credit card concern seems to be particularly true for Gen Z. Young people today are being shut out of the American dream. So how much worse off are younger generations? And how did it get so bad? I am in debt for education. Oh my god, I didn't know there was a word for it, doom spending. I start getting overwhelmed about, okay, how am I going to pay this off? If you ask me how I would describe my generation financially, broke. Very broke. The minimum wage is so low and it's not livable. I don't feel like wages have kept up with inflation at all. Do I feel like my income has kept up with the rising cost of food and cost of living in general? Absolutely not. I now make probably just a little bit more than I did when I finished undergrad in 2017, meaning like my income has not gone up much at all and I have a whole master's degree now. Meet Shaheen, a licensed therapist living in Brooklyn. The difference between Gen Z, millennials and the Gen X and the boomers, they had a lot more opportunity because their wages kind of matched up with how much things cost. They're not wrong. Younger people today are making less than older people did at the same age. Adjusting for inflation, 22 to 24 year olds in 2013 were making almost $52,000 a year. That number today, down to $45,000. And that difference puts Gen Z in a tough spot. In 2013, the debt to income ratio for the same age group was 11.76%. Today, it's more than 16%. Technically, younger generations today are making more than any other generation did. But when you adjust for inflation, which is, you know, relative to the cost of everything else to maintain a lifestyle, it is less. And from 2021 to 2022, for those aged 35 to 44, median income fell 0.8% compared to a 0.6% drop for those aged 25 to 34. But for the 15 to 24 year olds, median income fell 5.8%. That means the youngest generation saw the most significant drop in median income when adjusted for inflation. Emotionally, about my wages and income, I cannot tell you how much anxiety I live through on a daily basis. I don't have a safety net. I don't have anybody financially backing me. I don't have a support system. I don't have anybody to go to if I don't hold it all together. And that is anxiety inducing. The gap between wages and cost of living has pushed many younger people to increasingly turn to credit cards to pay for goods and services. Last year, the average credit card balance for early 20-somethings was 26% higher than the balance millennials carried at the same age in 2013. Not only is Gen Z racking up credit card debt faster than any other generation, but one in seven Gen Z credit card users are reportedly maxed out. In this period of high inflation, people are just trying to keep maintaining the lifestyles that they've always had. And it just costs more. Increasingly, these low wages are also compounded with another big challenge for younger generations. Rising housing costs. What I'm more worried about after graduation is affording a house. The market right now is kind of scary. There's no way I could own a home. That's like a far-fetched dream. The cost of like homes has just changed dramatically. It's like really hard to even rent. The older generations just do not have a realistic view of exactly what we're dealing with. They grew up in a time period where you could go to work, you could like work a nine to five and only that nine to five, and over time you'll be able to save up enough to buy a home. That's not the standard anymore. The landscape for housing, both renting and buying, looks very different for young people today. Thanks to soaring prices and high interest rates, older generations, including baby boomers and Gen Xers, still make up the majority share of home buyers. The barrier to entry to buy a home is much higher. You have to have a bigger down payment because the median value of a home is over $400,000, right? At the same time, borrowing costs are higher. They're at 7%. And so taken all together, you just need to save a lot more and a lot longer to be able to buy, you know, a starter home. For renters, it's also troubling. Rents nationwide climbed 30% from 2019 to 2023, while wages across the country were only up 20%. You know, housing costs are just taking up that much more of their paycheck. The rent goes up every year. The wages do not. Depending on the month, it can be upwards of like 50% of my income. Between housing being so expensive and income not keeping up with inflation, the debt crisis for younger generations has only intensified. But for many, including Shaheem, there's another much larger obstacle looming over them. If I had to say which debt scares me the most, it is hands down my student loans. My tuition is around $90,000 a year, which is insane. You meet someone from another country and they're like, it's what? Like, that's a lot of money. I don't know the balance. Last time I checked, it was upwards of $150,000, $60,000. One of the biggest debt burdens that they'll take on, one of the first debts most Americans take on. More than ever before, the very thing young adults are told to do to secure their future is one of the biggest reasons that the future is increasingly in doubt. We're seeing college enrollment levels drop, or we're seeing that some students are trying to be smarter about, you know, how they're going to college. Some are living at home. Some are foregoing college altogether. Let's look at the average cost of public universities since 1970, when a year's tuition cost around $1,300. In 2020, public university tuition was over $21,000 yearly. Of course, that's 50 years worth of inflation. But when we adjust for said inflation, the cost to attend public university in 1970 was only around $10,000, less than half of today's cost. When we look at the cost of private universities adjusted for inflation, it's a huge jump too, to more than $52,000 compared to less than $21,000 in 1970. Those really high student debt level burdens are not common in other countries. We are seeing a mass kind of disillusionment with higher education. You know, I think getting a four-year college degree used to be so intertwined with the American dream, and some young people are rejecting that. In one poll, more than half of those who borrowed for education say that student loan debt has caused them to put off making important financial decisions. I grew up in abject poverty. I went to school. I graduated. I did all of the things that they said that I should do, and I am still stuck in the same spot. This massive burden, combined with others for their generation, paints a bleak picture for the debt crisis. But there's a fourth, lesser-known reason that feeds off of this bleak outlook. It's called doomspending. Doomspending. Doomspending to cope with the stress. Home ownership or starting a family is so out of reach. I think that people want to treat themselves to small luxury. That'll bring us a semblance of the kind of adulthood we were promised. Doomspending. I love it. It kind of makes us, you know, feel a little bit happier about the situation. So if it's going to be like this regardless, I might as well get something for myself that I like and enjoy. For me, it's like shopping. Clothing. Travel. It does alleviate some of the stress. Doomspending is like retail therapy with a fatalist twist. A lot of people feel hopeless or pessimistic about their financial futures, and that's manifesting in a lot of different ways. Some people turn to doomspending. And this consumer habit is backed by research. So in one of my research papers, I looked to ask the question, why do people not save enough for retirement ages? That's Steven Wu, an economics professor at Hamilton College. And there have been many explanations for why people do not save. Sometimes people lack the information about how to save. Some people might lack self-control to do so. They may know that they should save, but that they're unable to do so. And I introduce another phenomenon, this idea that perhaps people are fatalistic. They think that whatever they do doesn't necessarily affect their future outcomes. Professor Wu's study found that those who doomspend or have fatalistic tendencies believe they have little or no control over their future. So that may lead to individuals to just throw their hands up and say, well, why worry about saving now? Because even if I do save, I may still have financial difficulties in the future. Instead of saving, many are splurging on luxury goods to soothe their economic despair. And while 27 percent of Americans of all ages admit to doomspending, the rates are even higher among Gen Z and millennials, at 35 and 43 percent respectively. I believe that people do it because they need a dopamine hit. Younger generations are also growing up in an online environment of hyper-consumption. People want this kind of TikTok, Instagram-worthy lifestyle. Never before have young people been so exposed to this aspirational lifestyle, where people kind of have these expectations of success and what they want their lives to look like. And those things cost more. And the rise of buy-now-pay-later products has driven Gen Z into more debt. Today, younger people have Venmo, they have PayPal, they have buy-now-pay-later, they have earned wage access, they have cash advance apps on their phone. It's so easy to lose track of how much you're spending. So what does the future of this ballooning debt crisis hold for young adults? Many are looking to the government for help. But young people would need sweeping policy change to truly lessen the burden of debt. The emotional toll on younger people facing this debt crisis is immeasurable. There is a lot of uncertainty. And I think perhaps we may see people saving less. When those generations get older, they may be less prepared for retirement ages. Younger generations face some of the most difficult economic headwinds of their time that are forcing them to take on more debt to achieve the same lifestyle that generations before had.