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Business Journal
The Consequences of Debt in America (Part Two)
Business Journal

The Consequences of Debt in America (Part Two)

by John H. Fleming
The Consequences of Debt in America (Part Two)

Story Highlights

  • There are significant generational differences in feelings about debt
  • Four out of 10 Americans carry no debt -- not including mortgages
  • Debt alone doesn't have a big impact on Americans' financial worries

What happens to Americans when they go into debt -- both psychologically and in terms of their behavior?

The first article in this two-part series looked at Americans' financial worries as they relate to debt. It also examined the actions indebted Americans take to cut costs and generate income. This article explores generational differences in attitudes toward debt and the overall implications of debt in America.

Generational Differences in Financial Worries

Gen Xers are significantly more worried than members of the other generations about not being able to pay medical costs in the event of a serious illness or accident and not having enough for retirement. None of the generations differ in how worried they are about their other financial commitments.

% Very Worried, by Generation
Millen-nials% Gen Xers% Baby boomers% Tradition-alists% Overall%
Not being able to pay medical costs in the
event of a serious illness or accident
26 31 22 14 24
Not having enough for retirement 20 32 23 15 23
Not having enough money to pay for
their children's college
25 21 11 5 17
Not being able to pay medical costs for
normal healthcare
18 18 14 12 16
Not having enough money to pay off
their debt
21 16 11 10 15
Not being able to maintain the standard
of living they enjoy
15 16 14 10 14
Not having enough money to pay
their normal monthly bills
13 12 11 11 12
Not being able to pay their rent,
mortgage or other housing costs
14 11 10 6 11
Not being able to make the minimum
payments on their credit cards
6 7 6 3 6
Gallup

Significantly higher percentages of younger Americans (millennials and Gen Xers) have engaged in cost-cutting or income-generating actions than older Americans (baby boomers and traditionalists). Millennials are significantly more likely than any of the other generations to put off marriage (18%), put off having kids (24%), put off furthering their education (34%) and to have moved in with parents or relatives (which one in five has done).

% Answering "Yes, I Have Done This" When Asked Whether They Have Engaged in 10 Debt-Related Behaviors, by Generation
Millen-nials% Gen Xers% Baby boomers% Tradition-alists% Overall%
Put off some other major purchase,
such as a vacation, home improvement
project or major appliances
48 51 36 23 42
Put off buying a car 39 35 21 14 28
Put off furthering their education 34 19 11 6 19
Sold some of their possessions to
make ends meet
20 23 15 10 18
Took a job they would not have
taken otherwise
22 18 10 3 15
Not bought a house or apartment 23 18 9 4 14
Put off having children 24 7 6 3 11
Moved in with their parents or
other relatives
20 8 4 3 10
Put off getting married 18 6 5 2 9
Did not take a job they would have
taken otherwise
12 11 6 3 9
Gallup

Saving Money Versus Spending Money -- and Debt

Four out of 10 Americans (39%) carry no debt (not including mortgages), and they have plenty of options and choices for how to spend their hard-earned wages. But the spending choices of those with debt are limited by the debts they incur. In many cases, those limitations stay with the consumer long after the thrill of the purchase has gone.

Surprisingly, Americans who enjoy spending money more than saving it -- and who have more debt -- are no more worried about their ability to cover their financial commitments than those who enjoy saving money more. Perhaps this is because the income of Americans who enjoy spending money more are higher on average than the income of those who enjoy saving money more. At the top of both groups' worry lists are "not having enough for retirement" and "not being able to pay medical costs in the event of a serious illness or accident." Both groups are least worried about "being able to make the minimum payments on their credit cards."

% Very Worried, by Enjoyment of Saving and Spending Money
Overall% Enjoys spending more% Enjoys saving more% Difference (spending - saving)(pct. pts.)
Not having enough for retirement 23 25 22 3
Not being able to pay medical costs in the
event of a serious illness or accident
24 22 25 -3
Not having enough money to pay for
their children's college
17 18 16 2
Not being able to pay medical costs for
normal healthcare
16 16 16 ND
Not having enough money to pay off
their debt
15 15 14 1
Not being able to maintain the standard
of living they enjoy
14 14 14 ND
Not having enough money to pay
their normal monthly bills
12 12 12 ND
Not being able to pay their rent,
mortgage or other housing costs
11 10 11 -1
Not being able to make the minimum
payments on their credit cards
6 5 7 -2
Note: Sorted by % very worried overall. ND = no difference
Gallup

Almost four in 10 Americans who enjoy spending money more than saving it (37%) have not engaged in any of the 10 cost-cutting or income-generating actions mentioned previously, such as putting off a major purchase, putting off buying a car or selling some of their possessions. Among those who enjoy saving money more than spending it, 46% have not engaged in any of these activities.

This pattern is reversed among those who have engaged in one or two of the actions to cut costs or generate income: 34% of those who enjoy spending money more have engaged in these behaviors, compared with 26% of those who enjoy saving money more. There are no differences among those who engaged in three or more debt-related actions for these groups.

With a few exceptions, Americans who say they enjoy spending money more than saving it engaged in 1.8 of the 10 cost-cutting or income-generating actions, compared with 1.7 actions for those who enjoy saving money more. At the top of the list for both groups are putting off a major purchase and putting off buying a car. Least common actions are putting off marriage, moving in with family members and forgoing a job they would otherwise have accepted.

Total Number of 10 Debt-Related Activities, by Available Resources and Enjoyment of Spending/Saving
Enjoys spending more Enjoys saving more Have enough money to live comfortably Do not have enough money to live comfortably Overall
None 37% 46% 54% 23% 43%
One or two 34% 26% 28% 30% 29%
Three to five 21% 20% 15% 32% 21%
Six or more 8% 8% 4% 15% 8%
Average number of activities 1.8 1.7 1.2 2.8 1.7
Gallup

The only meaningful differences between spenders and savers are for putting off a major purchase (a difference of nine percentage points) and putting off furthering their education (a five-point difference), where spenders say they have engaged in those actions significantly more often than those who enjoy saving more.

Mortgaging the Future

Six in 10 Americans (61%) carry at least some amount of debt while roughly one-third say they do not have enough money to live comfortably (35%). These data suggest that carrying debt does not, by itself, have much of an impact on Americans' financial worries other than giving them concern over retirement savings and their ability to cover injuries from an accident.

It is interesting to speculate that Americans have become inured to consumer debt and accepted it as an essential component of modern life. A previous article suggested that Americans who say they don't have enough money to live comfortably appear to be using their credit cards to supplement their available resources with high-interest credit. They carry 36% higher credit card balances than those who say they do have enough money to live comfortably.

Those who don't feel they have enough money to live comfortably may perceive consumer credit -- especially credit cards -- as a reasonable supplement to their means. Increased credit card use and other forms of borrowing could be a response to a consumerist society that believes "we deserve" these things, or it could stem from some other cause.

Whatever the reason, carrying debt is mortgaging the future -- if not practically then certainly psychologically. Not having enough money for retirement and not being able to pay the medical costs of a serious illness or accident are key sources of worry for all Americans, regardless of generation -- and regardless of whether they are spenders or savers, they do or don't carry debt, or do or don't have enough money to live comfortably. Putting off a major purchase or buying a car are the main actions people in all groups have taken to try to make ends meet.

Many Americans in these groups have had to make some hard choices to try to cut back. Putting off major purchases, putting off buying a car and selling some of their possessions to make ends meet can rapidly reduce a person's quality of life. Moreover, not buying things is bad for the economy.

Because millennials are young and at the beginning of their careers and earning power, they are mortgaging more than the future by carrying debt: They are also mortgaging the present. Millennials are putting off getting married, having children, furthering their education and establishing their independence (by moving in with relatives) more than any other generation. This problem compounds if they have the added burden of student loan debt. Millennials' total consumer debt load is $29,000 -- but if that balance includes student loans, the total rises to over $40,000.

Consumer debt is a double-edged sword. On the one hand, it fuels the economy by giving consumers added purchasing power. On the other, it is a burden that limits individuals' choices in the future, such as buying a home or a car. And for those with student loans, it can become a crushing burden.

Survey Methods

Results of this Gallup Panel survey are based on telephone interviews conducted Aug. 6-Sept. 10, 2015, with a random sample of 3,010 adults, aged 18 and older, living in all 50 U.S. states and the District of Columbia.

For results based on the total sample of national adults, the margin of sampling error is ±4 percentage points at the 95% confidence level.

Interviews are conducted with respondents on landline and cellular phones. All interviews were conducted in English. Each sample of national adults includes a minimum quota of 50% cellphone respondents and 50% landline respondents, with additional minimum quotas by time zone within region. Landline and cellular telephone numbers are selected using random-digit-dial methods. Landline respondents are chosen at random within each household on the basis of which member had the most recent birthday.

Samples are weighted to correct for unequal selection probability, nonresponse and double coverage of landline and cellphone users in the two sampling frames. They are also weighted to match the national demographics of gender, age, race, Hispanic ethnicity, education, region, population density and phone status (cellphone only/landline only/both and cellphone mostly). Demographic weighting targets are based on the most recent Current Population Survey figures for the aged 18 and older U.S. population. Phone status targets are based on the most recent National Health Interview Survey. Population density targets are based on the most recent U.S. census. All reported margins of sampling error include the computed design effects for weighting.

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

John H. Fleming, Ph.D., is Chief Scientist -- Marketplace Consulting and HumanSigma at Gallup. He is coauthor of Human Sigma: Managing the Employee-Customer Encounter.
Gallup

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