Millennials in their 30s have accumulated a historic $3.8 trillion in debt
During the COVID-19 pandemic, household debt largely fell or remained flat after many employers temporarily closed and government policies helped people delay paying off debt so they could save more money. But since then, household debt has skyrocketed, particularly among one demographic group: millennials, or people born between 1981 and 1996.
Most of this demographic — people in their 30s — was struggling with record-high debt of over $3.8 trillion at the end of 2022, a 27% increase from 2019, according to data from the Federal Reserve Bank of New York emerges and was reported by The Wall Street Journal. That was the largest debt accumulation for this age group in all three years since the financial crisis of 2008.
Default rates on credit cards, or credit card payments that are more than 90 days past due, are also now the highest among those in their 30s compared to any other age group, the New York Fed and Liberty Street Economics found earlier this month. Among Millennials, credit card balances averaged $6,750 in January, up about 26% from three years earlier diary wrote.
“Robust consumer spending, the hottest inflation in 40 years and significantly higher credit card rates have pushed credit card balances to a new all-time high,” said Ted Rossman, senior analyst at Bankrate wealth this month.
As the pandemic complicated Americans’ financial situation, stimulus checks and the suspension of loan repayments should ease some of the financial pain. But by 2022, Morgan Stanley reported that consumers would have spent 30% to 50% of their excess $2.7 trillion in savings.
Growing debt is bad news for everyone. For millennials, this could mean a widening wealth gap compared to older generations and fewer opportunities to save and invest in the future. Many millennials started their careers during or around the Great Recession of late 2007, which hampered their ability to make money from the start. The economic and real estate boom since the 1980s has helped many baby boomers to make a decent living. But the same cannot be said of millennials.
The wealth gap between the over-60s and under-40s has doubled since the 1960s and 1970s, a study last year found. Soaring debt coupled with the generational wealth gap means millennials will likely have a harder time establishing themselves and investing like older generations.
The federal government is trying to help the situation through President Joe Biden’s student loan forgiveness program, which is the subject of a Supreme Court case this week. If allowed, loan forgiveness could significantly ease the financial burden of those burdened by debt repayment obligations that have been suspended for about three years since the onset of COVID-19. And Millennials make up a significant portion of those holding government student debt.
But several other factors may cause current debt and wealth trends to continue. For one thing, the Federal Reserve’s efforts to control inflation have also pushed up interest rates on debt, from real estate to cars to credit cards. Like everyone else, the 30-something homeshopper has to deal with sky-high real estate prices and higher borrowing costs.
The effects of debt also have serious future implications for millennials. The level of debt can affect decisions such as whether to have children, which can have far-reaching economic implications.
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