Debt load crosses generations
Most of us think it’s irresponsible to carry heavy loads of debt. But new research commissioned by St. Paul, Minn.-based Securian Financial Services found that no matter which generation you belong to, chances are you are in debt.
Four out of five Americans have nonmortgage debt on their personal balance sheets. “We’ve met the enemy and it’s us,” quipped Kerry Geurkink, the Securian marketing director who came up with the idea of a debt study after wondering why financial education initiatives failed to prompt widespread change in how people handle their money.
The study, released last week and conducted by financial research veteran Mathew Greenwald, asked an equal number of Generation Y, Generation X, baby boomers and members of the Silent Generation (age 62 to 73) about their personal debt and debt attitudes in America.
These are not poor folks, either. Respondents in the four generations all were screened for minimum income levels.
The most common debt types are car payments, credit card balances, home equity loans and lines of credit, and student loans.
For purposes of this study, first mortgages were not considered debt because for many it is the only way to buy a house, Greenwald said.
Generation X and Y responders reported nearly nine in 10 with debt. The Silent Generation reported having the fewest members in debt. But still, seven in 10 reported nonmortgage debt. Baby boomers fell in between. Sadly, 23 percent of retirees surveyed had at least as much debt when they retired as they did savings.
Many Americans are suffering from debt denial. For example, some participants, albeit the minority, did not consider home equity lines of credit, money borrowed from family members, credit card balances, or late bills as debt.
Since when?
Most participants acknowledged that much of their debt was within their control. And two out of three responders pinpointed financial irresponsibility as a primary cause of debt. But societal changes have increased our reliance on debt as well. The cost of higher education, medical care and, until recently, housing has far outpaced inflation.
Not only that, but retirement now lasts for decades and individuals are expected to foot more of the bill. As Geurkink pointed out, the idea of living that long without a paycheck or a credit card is uncharted territory. Yet the more debt a person carries, the harder it is to save for retirement.
Securian, or anyone else for that matter, doesn’t have a magic pill to reduce our debt. Like dieting, it’s a pound or a dollar at a time. But here are three ideas:
U Stop thinking in monthly payments. Walk into a car dealership and you may encounter a salesperson who asks you about how much of a monthly payment you can afford each month, not how much do you want to spend on a vehicle. But wait: Don’t you need to know the total cost to make an educated decision about whether something is worth the price? Don’t let lenders tell you how much you can afford. Take their maximum loan amount and “knock that [loan amount] back a great deal,” Geurkink said.
UTackle debt and savings simultaneously. Geurkink urges people to save and pay off debt at the same time, if only to get in the habit of putting money away. Put a little money away for retirement and emergencies, regardless of today’s stock market news. Also, think of debt payoff as an investment, too. When you retire that card charging 22 percent interest, you just saved yourself from future finance charges.
URethink wants and needs. We live in bigger houses and consider items such as air conditioning, Internet and cable TV as necessities. Securian found that two in five people would use a credit card to pay for Internet access or a cell phone bill. “It’s an attitude of entitlement that so many people have of every generation,” said Geurkink. “People seem to be unsatisfied ... although people have more.”
XKara McGuire writes about personal finance. Write to her at kara@startribune.com or at the Star Tribune, 425 Portland Ave., Minneapolis, MN 55488.