A Generation Indebted: Young Adult Debt across Three Cohorts

In this study, I examine how young adult indebtedness has changed across three cohorts of young adults in the 1970s, 1980s, and 2000s. I pool data from four National Longitudinal Surveys of Youth cohorts—the NLS-M 1966, NLS-W 1968, NLSY 1979, and NLSY 1997. I have three key findings. First, debt burdens (debt relative to economic resources) have increased substantially across the three cohorts of study. Despite the fact that the most recent cohort of young adults are earlier along in their debt accrual career and have yet to hit many of the major adult milestones that often lead to debt, they are burdened with more debt than previous cohorts of young adults who achieved these milestones earlier. Second, young adult debt portfolios have shifted towards noncollateralized (unsecured) and student loan debt over time, the latter replacing home mortgage debt as the primary form of wealth-building debt among young adults. Third, cohort changes in debt have occurred unequally across social class lines. Young adults from lower social class backgrounds have disproportionately taken on more unsecured debt over time, relative to their more advantaged counterparts. The growth in debt burden across cohorts, however, has been most pronounced among college-educated young adults. Keywords: debt; social class; cohorts; transition to adulthood; life-course perspective. The economic crisis of 2008 called attention to the risks associated with rising household and consumer debt. Over the last 40 years, inflation adjusted household debt has increased dramatically, and debt has become more difficult to repay for American families (Campbell and Hercowitz 2009, 2010; Maki 2002). More recently, rising debt has stoked popular and scholarly concern that young adults are increasingly at risk for starting their adult careers buried under a mountain of debt with no hope of repayment (Draut 2005; Draut and Silva 2004; Kamenetz 2006). Little is known, however, about how young adult indebtedness has changed over time. In this article I examine how credit use and debt burdens have shifted across three cohorts of young adults. For many, young adulthood is the beginning of the debt accrual career. It is a stage of life when individuals and households have relatively low incomes and few assets (Haveman and Wolff 2005; Wolff 2001). Yet it is also a time when young people make significant decisions and investments in their future—such as completing their education, purchasing a home, and getting married—most of which lead them to acquire debt. On the one hand, access to credit and taking on debt provides young adults with the financial resources necessary to achieve many of these milestones. On the other hand, recent literature on debt in the transition to adulthood suggests that becoming overburdened with debt at this critical life stage is likely to diminish young adults’ ability to attain economic independence, increase their risk of bankruptcy, and have consequences for their economic and psychological well-being (Atkinson 2010; Drentea 2000; Dwyer, McCloud, and Hodson 2011, 2012). But despite a growing focus on the consequences of youth indebtedness, surprisingly little research has investigated cohort differences in credit use and debt burdens in the early young adult years. Nearly all debt research focuses on historical trends in debt across the entire population