During the COVID-19 pandemic, household debt generally fell or remained flat after many employers were temporarily closed and government policies helped people delay their debt payments, allowing them to save more. But since then, household debt has risen sharply, especially with one demographic group: millennials, or people born between 1981 and 1996.
The largest part of that demographic group – people in their 30s – is struggling with the highest debt of more than $3.8 trillion by the end of 2022, up 27% from 2019, according to data from the Federal Reserve Bank of New York and reported by the The Wall Street Journal. This is the largest accumulation of debt by this age group in the three years since the financial crisis in 2008.
The rate of credit card delinquencies, or credit card payments that are more than 90 days past due, is also the highest it has been in three decades compared to another age group, the New York Fed and Liberty Street Economics found earlier this month. Among millennials, the average credit card balance was $6,750 in January, up about 26% from three years earlier, Journal write.
“Strong consumer spending, the hottest inflation reading in 40 years and higher credit card rates have combined to push credit card balances to new records,” said Ted Rossman, senior analyst at Bankrate. fortune this month.
As the pandemic complicates the financial situation for Americans, stimulus checks and debt service deferrals are meant to ease the financial pain. But by 2022, Morgan Stanley reports that consumers will have spent 30% to 50% of their $2.7 trillion surplus in savings.
High debt is bad news for everyone. For millennials, this could mean a wider wealth gap with older generations and fewer opportunities to save money and invest for the future. Many millennials started their careers during or around the Great Recession in late 2007, reducing their ability to earn from scratch. The economic and housing boom of the 1980s helped many baby boomers make good livings. But the same cannot be said of millennials.
Since the 1960s and 1970s, the wealth gap has doubled between those over 60 and under 40, a study found last year. Rapidly rising debt coupled with a generational wealth gap means millennials will have a harder time establishing themselves and making 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 debt forgiveness could reduce the financial position of those who bear the obligation to repay the debt, which has been on hiatus for about three years since the beginning of COVID-19. And millennials make up a significant portion of federal student loan holders.
But several other factors may have caused the current trend of debt and wealth to continue. For one, the Federal Reserve’s efforts to control inflation also affect interest rates on debt, from homes to cars to credit cards. Like everyone else, thirtysomethings who are shopping for a home have to deal with high real estate prices and higher borrowing costs.
The impact of debt has serious implications for the future, including for millennials. Debt levels can influence decisions such as having children, which have far-reaching economic consequences.
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