Millennial De-leveraging

[etotheix]

I found this article very interesting. Essentially, borrowers 25-45 have about the same or less debt than borrowers of the same age in 2003 -- but it includes a lot more student loans, and a lot less house.  Meanwhile, older folks have acquired a lot more debt.  I wonder how much is due to changing behavior, and how much is due to more stringent lending requirements?

[RobFIRE]

Interesting. Article covered ageing population, stricter lending requirements. A later graph showed the general correlation between age and credit rating, which broadly make sense as older people have had more working years to build up wealth, more years to prove a credit history, and probably in general are a bit more financially conservative/sensible than younger people (I mean personal finance approach not political philosophy). Ageing is quantified, as shown in the graph you've uploaded here, though authors don't try to quantify effect of increased credit ratings.

I would also have thought broader changes such as Obamacare being introduced could well reduce debt in older people (if more people have more medical coverage would they not end up needing debt for medical care less often, or does it mean actually that they have more medical care available with moderate debt so total debt increases?).

It would be nice to think that the trend shows younger people being more aware of the disadvantages of consumer debt (i.e. improved (in my opinion) consumer behaviour) though I suspect most of the effect will be lender requirements.

[EnjoyIt]

Those that have lived through the great depression understood debt.  They hated it, and avoided it like the plague.  That generation understood how to live below your means and to save for the unexpected.

Although not as severe, our recent financial crisis did something similar. Many people learned about having too much debt and its consequence.  Those people have been working hard on deleveraging.  Add to the affect of recent laws and stricter loan regulations, the country as a whole is in the process of deleveraging. 

Too bad our government is going in the opposite direction.

[dude]

Those that have lived through the great depression understood debt.  They hated it, and avoided it like the plague.  That generation understood how to live below your means and to save for the unexpected.

Although not as severe, our recent financial crisis did something similar. Many people learned about having too much debt and its consequence.  Those people have been working hard on deleveraging.  Add to the affect of recent laws and stricter loan regulations, the country as a whole is in the process of deleveraging. 

Too bad our government is going in the opposite direction.

Agreed; indeed, many millennials probably saw their parents' houses foreclosed upon, which might have soured them on the idea of home "ownership" (i.e., being indebted to big banks for 30 years with the threat of losing your shit if misfortune strikes).

[tooqk4u22]

Those that have lived through the great depression understood debt.  They hated it, and avoided it like the plague.  That generation understood how to live below your means and to save for the unexpected.

Although not as severe, our recent financial crisis did something similar. Many people learned about having too much debt and its consequence.  Those people have been working hard on deleveraging.  Add to the affect of recent laws and stricter loan regulations, the country as a whole is in the process of deleveraging. 

Too bad our government is going in the opposite direction.

Agreed; indeed, many millennials probably saw their parents' houses foreclosed upon, which might have soured them on the idea of home "ownership" (i.e., being indebted to big banks for 30 years with the threat of losing your shit if misfortune strikes).

Generalization alert - this would be the reason for the Millennials - homeownership has not been in their wheelhouse due to lack of desire to own (flexibility, rentals are higher quality/better located than what they can get with buying) and tight mortgage rules including coming up with a down payment. Although the both of these are changing as they age and couple up.

But Millenials are not against debt, aside from student loans they wield credit cards and auto loans like no one else.  The reality is that if you rent you may not show as much debt but there is still an implied debt obligation because you need to live somewhere - you could argue it might be higher than a mortgage because of the down payment/equity that come (but might disappear) with home ownership.

[Guses]

The reality is that if you rent you may not show as much debt but there is still an implied debt obligation because you need to live somewhere

I don't agree with this at all for the same reason that you don't include implied debt obligation for people that take the bus versus having their own car.

[tooqk4u22]

The reality is that if you rent you may not show as much debt but there is still an implied debt obligation because you need to live somewhere

I don't agree with this at all for the same reason that you don't include implied debt obligation for people that take the bus versus having their own car.

Couple of differences in your view though:
-housing whether rented or owned tends to be largest monthly obligation that people/households have.
-when buying a house most (not all) are deciding that based on some payment that they are either comfortable with or approved for, not much different than renting.
-taking the bus is shared transportation service normally subsidized by the government, so if you are saying that the choice is between (a) buying a small fraction of a car with a loan or (b) taking the bus then I would agree. 

My point was that regardless whether you rent or buy there is usually a monthly payment....rent you have payment with no debt obligation.....buy you have a payment with a debt obligation that is backed by an asset.....the inverse of the implied debt is to ignore the mortgage debt to the extent the value of the house (adjusted for transaction costs) exceeds the debt.

All that aside, the point is that people live somewhere and there is a cost, the fact that millenials  are forming households and buying houses at a lower rate or at ages older than prior generations (whether by choice or inability) means that they will inherently have less debt because mortgages are typically the largest debt that people incur.

Edit to add: The trend of millenials not buying houses or cars is starting to shift as rents continue to rise, employment options increases along with the economy, and they begin to cohabitate and have children.  If this continues then I would expect the millennial debt loads to increase.  Compared to the prior generation millenials are about 5 years on average behind in this sense but it seems to be getting there.