Why Gen Y is losing the debt battle

Huge student loans, more education to fund, and easy digitized purchasing are among the problems plaguing this generation.

By MSN Money Partner May 10, 2013 5:52PM

This post comes from Angela Colley at partner site MainStreet.

MainStreet on MSN MoneyGeneration Y — those born between 1981 and 1995 — carry less debt than the national average. But that isn’t necessarily a good thing.

Piggy bank (© Le Club Symphonie/Ian Nolan/Photodisc/Getty Images)Most of Gen Y’s members hold “bad debts” — like credit card debt and other loan products that don’t build assets. No one can conclusively answer why. Maybe it’s the job market. Maybe impulse buying and a digitalized consumer-driven society are to blame. Whatever it is, experts are wary those debt woes aren’t going to get better anytime soon.

While more than 60% of Gen X’s debt is good debt, such as student loans and mortgages, Gen Y is heading in a different path — 48.4% of Gen Y debt comes from non-asset building loans — bad debt — according to a recent study of over 20,000 users by the financial reward site, Saveup.com.

Results found Generation Y-ers had an average total debt load of $28,930, including $4,113 in credit cards, $7,358 in lines of credit and $12,410 in car loans on average.

Some experts blame Gen Y’s losing debt battle on a slow-to-recover job market. Paul Golden, CEO of the nonprofit organization the National Endowment for Financial Education, says, “More education typically translates to more pay. However, the job market has been hard on Gen Y and has forced some to delay repaying their student loans, take a lower paying job, or remain in school longer.”

A recent analysis of government and university data for the Associated Press backs up Golden’s concerns. In 2011, 53.6% of workers under the age of 25 who held bachelor’s degrees were jobless or unemployed.

Changing patterns in education could also be to blame.

“Generation Y has accumulated more bad debt than good debt, because they spend more time in the higher education system,” says Greg Brooks, founder of Textbook Assault, a textbook search engine. Brooks believes Gen Y’s tendency to pursue education beyond a bachelor’s degree delays the beginning of careers and “creates a severe imbalance, because the individual isn’t making money, but also spending a ton on education.” To finance their cost of living, “they rely on credit cards and loans as a way to pay the bills,” according to Brooks.

What’s just as alarming — possibly even more so — we can’t learn from our own mistakes.

“Studies are showing younger generations are more likely to continue to accumulate debt — even into their 70s — some could even die in debt,” says Roger Cowen, a financial planner and founder of Cowen Tax Advisory Group. It’s like some of Gen Y-ers are addicted to debt, like being in the red is some kind of high score in a debt video game. And maybe our almost cybernetic fusion with electronics is helping us pave the way to a debt-filled retirement.

“I think the digitalization of merchant services had a big impact on producing debt for the younger generations. The ability to pay for something with one or two simple clicks on a smart phone means people are now more likely making rash purchasing decisions,” says Soren T. Christensen, CFP and CEO of Advanced Wealth Advisors, LLC.

Christensen thinks Gen Y’s ability to buy instantly, any time, without having to shop in-store or purchase with cash encourages a kind of depersonalized reckless spending. “The more we distance ourselves from having to fork over actual money, and from the physical in-store purchasing process, the easier it is to accumulate bad debt such as credit card debt,” says Christensen.

But what about those Gen Y-ers with the so-called good debt? Jonathan Bunt, a 29-year-old insurance agent in New Milford, Conn., recently bought a home, putting him in the minority of Generation Y with good debt — but he doesn’t see it that way. To him, there is no such thing as “good debt” or “bad debt.” It’s a strain on his life and a cause for concern for his future whether it comes in the form of credit cards or a mortgage.

Bunt became discouraged after he had his home reappraised a year after moving in and found out it’s worth less than his total mortgage loan. His dream of home-ownership started to darken.

“The model doesn't work anymore, not when people don't have the money,” says Bunt.

So what’s a generation to do? Saveup.com CEO Priya Haji believes it breaks down to two important, basic fundamentals: saving more and spending less.

Haji recommends that everyone, not just Gen Y, try to “closely monitor the level of debt they are taking on, particularly consumption-related debt.” In other words, taking on debt should be a considered action — such as financing a return to school to finish a degree rather than a non asset-building purchase like a new car. Ideally, debt should be used “wisely for education, which can drive future earnings or for purchasing a long term asset like a home at a non-inflated price.”

Breaking online impulse-buying habits is also a good way to avoid unnecessary debt.

Haji says that “while consumption early in life is most tempting,” it could also breed bad habits that will hurt the long-game approach to being financially stable with long-term savings.

For those with debt already, Cowen believes Gen Y-ers need to take a more direct approach. “Focus on paying off those credit cards, one at a time, starting with the one with the highest interest rate. Invest in your future — participate in a 401(k) or Roth IRA.”

More from MainStreet:


May 13, 2013 8:09AM

Thought I'd toss this little turd out there:


In 1991, the Median Annual Income for a person with a BS degree was $40,906 and in 2010 it was $64,000.


In 1991, the college I went to had in-state tuition and fees of $2,248 per semester. In 2010, the in-state tuition had risen to $7,418.

Another way of looking at this is $1 of education in 1991 earning $18.20 in income, but that $1 in education in 2010 gets you $8.60 in income. The results would be even more skewed if I took into account that without college education, one would still earn some income.


One can glibly talk about "responsibility" for the generations younger than us, but the fact remains that the deck is stacked against them before they even get out of the starting gate.

May 11, 2013 5:22PM
This constant barrage of articles about the horrors of student debt and how the poor things just won't be able to get out of school and buy a new house and car right away is astounding.  It is trying to get us used to the coming bailout (vote-buying) of this generation.  They are in debt because they don't understand it.  How can a kid go to high school, get high enough SATs to get into a good college, and not have had a prep class in college financing/debt management that walks them through this before it gets started?  There is also the entitlement idea they have in their heads.  My nephew just turned 22,  works at a retail store earning less than $12 an hour.  He has the latest I-phone, I-pad and just signed a lease, yes a lease on a 30K car and looks me right in the eye and tells me how good of a deal the lease is because that way he can drive a car he normally wouldn't be able to afford.  Oh, yeah, still lives at home too!  It's all about getting what I want now,  worry about how to pay for it later.  When you put it like that though, it seems they have learned this attitude from their elected officials. 

Where are the adults in all of this???
May 10, 2013 8:33PM
Why does "Generation Y" have debt problems?  Same reason anybody else has them...., STUPIDITY!  Everybody seems to think they have to have everything right now instead of saving up for it later.  So they fall for the "easy payment plan" scam and end up paying WAY more for everything they have---until it is repossessed.  As Ron White stated,  "You can't fix STUPID!"
May 11, 2013 9:09AM
I do not see how you can call student loan "good" debt. My step-daughter has over $340,000 in debt with, I believe, no hope of paying any of it off. She received a "Photo Journalists" bachelors degree from the Brooks Institute of Photography. Nice school, over-priced, over-sold, etc. Not worth the time and money. There is a long story to how she got into this position but it's over 10 years old and not worth the telling. Advanced education in the US is a rip-off.
May 10, 2013 10:30PM
Because they went to school to get an education.  Unfortunately they have learned that it has cost them dearly when the only job they can find is at McDonalds.  Wait until they find out they they are responsible for the national debt too. 
May 13, 2013 8:54AM
Well, this is one Gen-Y'er that paid for undergrad by working throughout high school and college, took out a small amount of loans to pay for 2 out of his 3 semesters of graduate school, has most of them paid off in 5 years, and closed on a house after only 9 months of working after finishing college. 

Unlike my roommate in college, I did NOT take out loans for all my school while working and foolishly spending all my money on stupid stuff, put spring break trips to Mazatlan, South Padre Island, and Panama City Beach on my credit card, or get a degree in a totally worthless major.  I even got him a great job and he was making over $2000/week.  What did he do?  Pay off his debt before doing anything else?  Nope.  He went and bought a new Jeep Wrangler and a pair of jet skis. 

Some people just make stupid money choices.  It's their fault.  If you get a degree in photography, interior design, or a doctorate in playing the sitar while racking up $200K in loans, you are dumb.  If you let your kid do this, you are both dumb.  And in that case, thanks for passing on your "stupid gene". 

May 13, 2013 8:34AM
NO debt is good debt, pay it all off ASAP, and save for your future, you're going to need it!
May 12, 2013 10:35AM
Since when are student loans considered to be "good debt"??
May 11, 2013 3:40AM
Big Banks/Credit Card Companies don't want folks, young or old, to be smart about debt. That's why they have this bogus Credit Score System where just checking your credit, hurts your credit. The Global Feds are giving Big Banks/Credit Card Companies, free money that they turn around and lend back(our own money) at rates above 20 percent. They get it a Zero percent, You get it at 20 percent. That's the Consumer DEBT PROBLEM IN A NUTSHELL.

Now that I have addressed what I say is the biggest part of the Debt problem for folks, here the other part. Parents for the most part, don't do a good job of educating their Kids about how to handle Money, early in life. Far too many kids don't know anything about managing money until after the FACT, by then, it's usually too late.

Then there is the part about teaching life lessons by our so-called leaders. The Global Feds are teaching everyone that not being responsible is good. The Big Banks all failed yet were bailed OUT. Nobody went to Jail and they all kept their Jobs and Huge Salaries. They were rewarded for failure. However they expect you to NOT Notice. These are the types of lessons that Leaders in  America and the rest of the World are Teaching. So why would anyone expect folks to be responsible about DEBT when our leaders aren't responsible about DEBT!

May 10, 2013 7:57PM

I'm sorry but a house is not good debt no matter how you spin it, debt is debt, it's all bad, there is no such thing as good debt.  That is one of the many, many reasons we are in the mess we are in, we're told that house, cars and education are good debt.  And most are rewarded because of this debt through the tax code.  Shameful if you ask me, what do people who have no debt get, nothing but more taxes, even though we are trying to live right and responsible.  A house is not a need, as is a car, and there is no reason you can't pay as you go for school. 


Stop preaching that any debt is good.  Yeah that house you paid 100k and 30 years later bad 200-350k sure is a great deal isn't it.

Gen Y didn't learn from the lessons we Gen Xers learned the hard way.
May 13, 2013 10:11AM

Monkey see, monkey do.  When parents can't control their own spending, or when they let their kids have everything they want, how do they expect their children to learn financial discipline?

May 13, 2013 9:44AM
If you ever watch "House Hunters" on HGTV, you'll see what this article is talking about.  Young couples are not opting for affordable homes, or starter homes, as they use to call them.  Couples have to have granite counter tops, stainless steel appliances, bedroom suites with huge closets....why? Because that's what they're seeing in Hollywood.  Gen Y is literally trying to keep up with the Kardashians.  I just saw an episode where a school teacher and her soon to be husband were looking at condo's in Chicago.  They supposedly had a $300,000 budget.  Why so much of a budget?  Who makes that much? I'm not sure what he did for a living, but if he makes six figures I'm sure he has the student loans to go with it.  How is it that banks are approving such high loans for such young individuals?  In the early 90's, we went through the ringer trying to get approved for a $50,000 mortgage.  We were both at our jobs longer than 2 years, but the bank had all kinds of reservations, even though we had good credit.  Anyway, it is definitely a "gimme" generation. 
May 10, 2013 10:21PM
The kids or should I say a large % of the working middle and upper middle class Kids (not to be confused with the lower government sponsored  nonworking class]   grow up with every thing handed to them. They might know what it costs but it doesn't cost them anything cause the parents give it to them,They want their kids to have a better life than they did  Which is cool everybody wants that for their kids. Unfortunly the kids grow up to their adult life where they are now responsible for their own life and they don't know what a dollar is worth or what it takes to earn one. then they are now targets of easy credit. everyone wants to bang the virgin and if its too stiff - lets get mom and dad to cosign for the house the kids can't afford unless they eat beans 3 times a day but they aren't used to that. What's a budget? and then BANG 6 or 7 credit cards maxed, a house under water. Two new cars can't make the payments can't make the mortgage can't make the credit card payments Mom and dad tapped out thinking of a third to bail the kids Every one sinking
May 13, 2013 9:31AM

If Gen-Y are a bunch of idiots, I guess we need to ask who raised them.


Although in fairness, we may be seeing the results of the modern liberal (Clinton-era) "it takes a village to raise a child" philosophy and 2-income households & (poor) single parent households.


It takes a village to raise a village idiot.

May 11, 2013 1:10AM

Old people started a war that has cost billions.


Old people require funding called Social Security that costs billions.


Old people sent our jobs oversees or are otherwise hiring foreign labor and paying them less than American Gen Yers.


Old people raised the cost of education - hugely disproportionate against the naturally gradual rise in cost of living - until it's untenable for the majority of today's youth (without high interest rate student loans).


Old people chose to bail out Wall Street and accept widespread and hugely expensive banking fraud.


Yes - those damn Gen Yers are so irresponsible. Wonder where they learned that from!

May 11, 2013 12:35AM
poor gen y kids their mommy and daddy probable didn't show them how to stay out of debt or if they did the poor gen y children thought their parents were old fashioned and didn't know as much as the poor debt ridden kids. I have seen them around vancouver and they don't even know what to do.  I was sitting at a bus stop listening to two of them talking about getting a house and they are newly married.  i was listening them talk how both worked and made good money so they could afford to get a better house  then most.  I just looked at them and pointed out something asked if your wife gets pregnant and cant work will you be able to pay the mortgage guy said no then i told him u cant afford a house then lol.  they couldn't even understand what i just told them fools reap fools benefits lol.
May 13, 2013 7:31AM

Oddly enough, the individual solution for Generation-Y'ers of saving more and spending less will reduce economic activity as a whole.


And now we get back to the basic question of financial austerity vs stimulating by spending.


The truth is that it is a matter of balance between the two and the pendulum swung too far for too long in the direction of spending and now everyone has to pay the price. The only solution for the down economy is time.


Individual and government debt is saturated, which is why the usual fiscal stimulus of spending more is not pushing the economy as it would have in different circumstances.

May 13, 2013 9:10AM

It doesn't help that with the Obama economy we're seeing too few jobs and pay increases while the cost of living is raising faster than anyone can keep up with.  40 years ago a man could provide for his stay at home wife, two kids, a dog and a cat, maintain one car, pay their mortgage, and keep their property nice and maintained all on one salary...today two people struggle to afford to live without children in that same house...


Here's your hope and change...

May 13, 2013 8:54AM
Educational debt will contonue to escalate until someone finally gets wise to the professor pay scam in colleges/univeristies.  Professors take a year sabbatical to be a "union negotiator," They "negotitate" the next several years salary increases and then return to their classroom.  College administrators have NO incentive to control the twice-the-rate-of-infation-plus salary increases because they get the same percentage increase for which they have "negotiated."  The whole charade is passed on each year in the form of tuition. 
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